Is housing headed for a hard or soft landing?
That’s one of the questions asked in Commsec’s “The Big Issues” report – which highlights the issues that are expected to influence our economy over the next 12 months.
This is the third year running this topic has been included in their report.
In 2015 they said: “the answer will be revealed over 2016.”
In 2016 they were more circumspect saying “we believe that discussion will continue to swirl about what sort of landing the housing market will experience.”
And indeed the issue has continued to be debated.
But arguably the longer that the issue is debated, the more likely that Australia’s buoyant housing markets, notably Sydney and Melbourne, will experience a soft landing.
Certainly there are many parts of the country that have far different experiences.
Perth and Darwin housing markets are going through corrections after mining and energy construction booms.
Adelaide and Brisbane have generally seen steady conditions.
However the significant apartment building in Brisbane has led to a very soft rental market.
Interestingly though, demand for some accommodation like townhouses is strong and not being met by supply, supporting prices.
The Hobart housing market is firm, benefitting from an overflow of housing demand from Sydney and Melbourne.
The issue is one of under-supply rather than over-supply.
And the Canberra housing market remains healthy, due in part to the control of land supply by the ACT Government.
The Sydney housing market has certainly softened with a combination of cooling demand and the gradual completion of more homes, especially apartments.
The auction clearance rate has eased to around 61 per cent, down from around 80 per cent a year ago.
But population growth remains solid in Sydney and rental vacancy rates are still low.
In Melbourne, the property market remains solid, again supported by population growth.
A key factor that points to the potential for a “soft” landing rather than “hard” landing in markets such as Sydney and Melbourne has been the policy of lenders.
Reflecting on the experience of housing oversupply in the US and Europe during the Global Financial Crisis, Australian lenders adopted a new policy.
Before lenders would provide finance to developers they sought that around 100 per cent of properties be sold “off the plan” by developers.
There is still scope for ‘indigestion’ in some markets with a lot of building going on, but less scope for a broader “hard landing”.
Watch your inbox over the next 5 days for our ongoing discussion of the Big Issues ahead for 2018.
You may also be interested in reading:
Source: CommSec Big Issue Report 2018
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