Matusik: solving the housing crisis, revamping migration rules and a 2024 market prediction
Looking ahead to 2024 and rents and property prices are both expected to rise, but a deeper look into foreign property ownership rules, a tax system overhaul and a uniform national building code could transform the real estate landscape.
Well, it nearly Christmas again. Time does fly, especially as one gets older!
And at this time of year, it is somewhat common practice to provide a market wrap and a stab in the dark as to what is likely to happen next year.
So, let’s keep up that tradition.
Interest rates should ease
Bad decision by the RBA in November to raise rates if you ask me.
Inflation isn’t being driven by domestic consumption. It is rising due to geopolitical tensions, poor government policies and green/red tape.
For example, the latest clutch of housing construction rules adds up to $50,000 per new build depending on location and household type.
If domestic consumption was to blame, then why not do something meaningful, like placing the GST on all goods and services and raising the level of this consumption tax, say from 10 to 20 per cent, for six to 12 months at a time.
Much has been said about the future direction of interest rates, with the RBA head Michele Bullock saying the data will decide where the cash rate goes in the future. For mine, and given the current state of play, the only statistic the RBA needs to monitor is real wages.
As to where the cash rate goes next, the financial market is thinking they are likely to remain steady for much of next year, with a slight chance of a fall.
To me, the RBA has gone too far, and by about 1 per cent, and I think the cash rate will fall by about this amount by the end of 2024.
Trusted economic indicators and especially of the job market, suggests Australia is heading for harder financial times over the coming years.
The Australian Bureau of Statistics (ABS) has released a new population forecast data set, calibrated from 2022, which suggests Australia’s population could grow between 3.7 million and 4.6 million people over the next decade.
This would see between 30.2 million and 31.2 million people call Australia home.
As at mid-2023, some 26.4 million people lived in Oz and by late November 2023 about 26.9 million live here.
Some 30 per cent of our population is born overseas. This will lift to 33 per cent by 2033. It was 27 per cent ten years ago.
Heaps of folks are calling for this growth to stop but without it we are stuffed economically.
What we need are immigrants of conviction, not convenience, and we should be much more selective as to who we allow in and critical when it comes to how they behave.
We can attract some of the best citizens in the world and we should try and do so.
This is how Australia’s population is currently growing:
- one birth every 1 minutes and 42 seconds
- one death every 2 minutes and 52 seconds
- one person arriving to live in Australia every 42 seconds
- one Australian resident leaving to live overseas every 2 minutes and 30 seconds
- an overall total population increase of one person every 47 seconds.
Solving the housing crisis
I don’t know about you, but I have grown tired of this general conversation.
Chart 3 shows that the rental vacancy rate has been down before. It will, like in the past, bounce back.
Tenants are going to have to share, and we need to encourage (not just allow) more of the housing that the market can afford.
In short, this is the “missing middle,” which includes moveable dwellings plus backyard homes.
Land tenure also needs to change, and the town planning metric should be population per hectare not dwelling.
Also, home buying – for both new and old dwellings – again in my opinion, should only be allowed for those that hold an Australian passport.
The housing sector also needs major taxation reform, grandfathered, and including changes to stamp duties, infrastructure charges, negative gearing and capital gains tax, in concert with the implementation of a federal land tax.
We also need one building code, Australia wide, with climatic zonal differences.
New development applications, supported by the appropriate documentation, should be decided in three to six months, not years, let alone decades!
Unless we do this stuff, nothing meaningful will happen in this space.
The current federal and select state government largesse in the space will just inflate prices and see very few extra homes actually built.
Housing outlook: rising rents, continued undersupply
Real estate is all about supply and demand.
Demand (i.e., sales) is steady when compared to the past ten-year average, while supply (stock listed for sale) is down some 20 per cent against the long-term trend.
We also have an undersupply of rental stock and new builds.
Unless things go really pear-shaped then, for mine, Australian housing values and rents are likely to rise during 2024 and 2025.
Now inflation is likely to be stuck between 3 per cent and 4 per cent for some time, so there will not be a lot of real price growth.
Rents could rise between 5 per cent and 10 per cent per annum over the next couple of years, until the vacancy rate lifts above 2 per cent, which is another 18 months to two years away.
Ironically, in an increasing uncertain world, Aussies will likely invest even more strongly in real estate.
So next year, in particular, could be a strong one for Australian housing.
So, spend some time over the Christmas-New Year period with someone that matters. Do something you want to do. Smile, better still laugh. We are only here once.