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Simply no case for interference in hot housing markets - featured image
By Dr. Andrew Wilson

Simply no case for interference in hot housing markets

Capital city housing markets have continued to produce strong results over September with robust buyer demand fuelling significant prices growth, despite the severe constraints of covid restrictions.

Housing PricePrices growth has generally soared over the past year with annual increases at the highest levels in 33 years.

The recent strength of housing market activity and sharply rising prices have predictably resulted in the usual doomsayer predictions of likely calamity and significant buyer exclusion as a result of supposedly overheated housing markets.

The shrill calls from doomsayers for policy intervention to cool supposed runaway housing demand however don’t, as usual, reflect the reality of current underlying housing market conditions.

Although house prices in most capitals will soar well over 10% in 2021 - even with the constraints of lockdowns - prices growth has however averaged a modest 4% per annum since 2017 - despite near-record falls in mortgage rates over that period.

Strong prices growth has also recently started to decline as affordability barriers increase and act to side-line buyers.

The significant pent-up demand built up over the past few years has been largely released and satisfied – and lacks the capacity to refuel rapidly from either lower interest rates or higher migration.

Monthly house price growth rates in most capitals have halved over the past three months and continue to track downwards – notwithstanding a likely short-term bounce-back from covid subdued early spring markets as restrictions are eased.

Housing markets are predictably running out of steam with boomtime conditions now self-adjusting after expanding the catch-up energy that has been driving them as a consequence of the interruptions to the orderly activity of recent years.

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And despite concerns, the Great Australian Dream is alive and well and has prospered during the recent boom, with first home buyers flooding housing markets over the past 2 years in near-record numbers.

Highest PriceAnd as higher prices are now predictably squeezing first home buyers out of the market together with reduced government incentives, the current market share for this group nonetheless remains above long-term averages.

Investors are the usual target for those advocating demand control policies, however, although investor activity is clearly on the rise, its market share remains well below long-term averages.

Investors have largely been bystanders to booming housing market conditions over recent years as a consequence of restrictive lending practices introduced previously by financial regulators.

A clear result of the recent record-low investor activity driven by finance constraints has been a collapse in apartment development and a chronic shortage of houses for rent in most capitals.

Any action to yet again target investors would only exacerbate the imbalances caused by previous similar interventions, accelerating housing shortages and driving rents even higher – which have been mitigated temporarily by the covid pause in migration - reducing new housing demand by hundreds of thousands – for now.

Concerns over possible overborrowing exposing borrowers in a bull market are not supported by current data that reveals continuing low levels of mortgage arrears and defaults despite recent volatile economic conditions and reflects the maintenance of strict lending conditions by financial institutions.

Reducing housing demand would also impede economic activity generally during a period of significant economic lockdown stress - impacting state governments particularly through reduced stamp duty collections.

Growing PricesThe usual jeopardy for housing markets perceived to be overheating is the prospect of a near-term increase in interest rates and is typically used as a justification for policy interventions.

The RBA has however consistently stated its position that rates will not rise until 2024 – at the earliest.

Following a period of significant activity and strong prices growth, housing markets are self-adjusting with the clear prospect of a more moderate and predictable outlook.

Beware the law of unexpected consequences from misguided demand control policies - and learn from the results of previous interventions.

And just build more homes - where people want to live.

NOW READ: Supply and Demand drives our property markets- here’s what’s happening to supply – September 2021

About Dr. Andrew Wilson Dr Andrew Wilson, Chief Economist of is widely regarded as Australia’s leading property economist.
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