The property slowdown is hiding a much bigger housing crisis
Falling auction clearances and weaker price growth may suggest demand is cooling, but the real issue is worsening affordability, limited supply and buyers increasingly locked out of the market.
Recent commentary on the real estate market has referenced an increase in demand-side headwinds.
Certainly, sentiment is down. This is being reflected, to a significant extent, in lower auction clearance rates. It’s also being reflected in prices, which are failing slightly in some markets. Buyers are exercising extreme caution and this is being reflected in subdued transaction activity.
Interest rates are at the heart of this shift. Three consecutive rises have inflicted pain on mortgage holders and moved the goalposts for those interested in making a purchase. Borrowing capacity and repayment calculations now need to be made on a new and higher set of numbers.
These are the demand-side headwinds we’re hearing about. But it’s an illusion. Demand for housing is not weakening as a result of these factors.
What is weakening is a buyer’s ability to act. These are ‘purchasing’ headwinds.
Simply not enough homes
There are many people who would love to buy a home or an investment but feel their hands are tied.
Yes, significant affordability and serviceability constraints exist, but so does the lack of choice. Tinkering with negative gearing reduces rental supply and therefore harms only tenants, as investors have plenty of investment alternatives.
There is simply not enough property to meet demand. All we are seeing at this point in time is a temporary reprieve for the supply-side, not a weakening on the demand-side. And sooner or later, the issue of housing undersupply will re-intensify.
Nothing has been resolved on this score, and the National Housing Accord target is slipping further out of reach.
Dwelling values may be declining in some parts but that doesn’t mean they’re becoming more affordable.
Housing affordability can be expected to remain a key issue in the next election cycles, both at a state and federal level. Increasingly, so will the issue of homelessness. They are clearly intertwined.
So, what can be done? How about urgent and direct Government intervention in the provision of social and affordable housing? The headwinds, including taxation that developers must navigate, are constraining the private sector’s effectiveness to solve the supply crisis.
This financial year, the NSW Government will collect in the realm of $13 billion from property consumers in the form of stamp duty. Private companies would love revenue this robust.
It is time for Government to take a courageous stance by removing onerous planning barriers and tax burdens and play a genuine role in fast-tracking significant new housing supply.
