Low housing supply
A notable trend observed since 2020 has been the persistent decline in the number of property listings in many capital cities, with total listings dropping from approximately 300,000 listings before 2020 to around 230,000 since 2021, representing a 23% decrease.
While Sydney and Melbourne have maintained similar listing levels before and after 2020, with 30,000 listings in Sydney and 40,000 in Melbourne, other mid-sized cities have experienced notable declines. Brisbane’s listings fell from 30,000 to 18,000, a 40% drop; Adelaide saw a reduction from 16,000 to 8,000, down 50%; and Perth’s listings decreased from 27,000 to 13,000, a decline of 52%.
Conversely, Canberra and Hobart have recorded significant increases in listings, rising from 2,500 to 4,000 in Canberra and from 1,200 to 2,900 in Hobart.
This trend highlights ongoing challenges in housing supply in Brisbane, Adelaide, and Perth, which are reflected in low vacancy rates and surging sale and rental prices over the past three years.
Rising investor activities
According to the Australian Bureau of Statistics (ABS) lending indicators data released on 6 September 2024, total housing loan commitments have shown an overall upward trend. They increased from $22.8 billion in February 2023 to $30.5 billion in July 2024.
Owner-occupier loan commitments have displayed a notable upward trend, rising from $15.1 billion in February 2023 to $18.8 billion in July 2024. This increase indicates strong demand that is driven by factors such as high population growth and the availability of first home grants across the states.
Investor loan commitments have followed a similar pattern, rising from $7.8 billion in February 2023 to $11.6 billion in July 2024. As investors play a crucial role in the dynamics of the housing market, the rise in investor loan commitments suggests the strong prospects of the property market in the years ahead.
Nationally, the share of investor loan commitments has shown a steady increase over the last 16 months, currently comprising 37% of new mortgage lending as of May 2024.
Inflation has slowed and interest rate cuts are on horizon
The monthly CPI indicator rose 2.7% in the 12 months to August, down from a 3.5% rise in the 12 months to July 2024. This is the lowest figure since August 2021, entering the central bank’s target range of 2 to 3% for the first time in three years.
An alternative measure of inflation – the trimmed mean measures underlying inflation that reduces the impact of irregular or temporary price changes. Annual Trimmed mean inflation which excluded both the falls in Automotive fuel and Electricity, alongside other large price rises and falls, was 3.4% in August, down from 3.8% in July.
The labour market has been easing, with the unemployment rate stabilising at 4.2%, while wage growth dropped marginally to 4.1% in the June quarter of 2024. This will reduce input costs for businesses, and, in turn, help lower the prices of goods and services.
Major economies, including the U.S. and the Euro Area, have begun easing monetary policy with significant rate cuts: a 0.5% drop from 5.5% to 5% in the U.S., and a 0.6% drop from 4.24% to 3.65% in the Euro Area.
Overall, more favorable global and domestic macroeconomic conditions are paving the way for interest rate cuts in Australia. This would substantially enhance borrowing capacity, potentially driving increased pressure on property prices.
Negative gearing and capital gain tax debate
The debate surrounding negative gearing and capital gains tax has re-emerged as the next election approaches. This issue has been revisited many times and remains a significant topic due to its impact on approximately 70% of the Australian population who are property owners.
Negative gearing allows investors to offset the cost of owning rental properties against their income, thereby reducing their overall tax burden. Supporters argue that property investors provide essential rental services to the public, which is similar to running a business, and should therefore be entitled to the usual tax deductions. In fact, without these incentives, fewer people would invest in property, exacerbating the rental supply shortage.
On the other hand, opponents argue that negative gearing and favorable capital gains tax treatment inflate property prices, making it harder for first-home buyers to enter the market. They contend that these policies disproportionately benefit wealthier Australians and contribute to housing inequality.
Overall, the benefits of a strong and in-depth rental market outweigh the costs of negative gearing and capital gains tax. These are long-standing policies that have been factored into the financial planning of governments, businesses, and individuals, and any changes could cause significant disruption to the property market and the economy. Therefore, the probability of any significant policy changes is minimal.