If you are worried about a housing bubble, you’re in good company.
Earlier in April, the Reserve Bank of Australia considered it a serious enough concern to put off delivering a rate cut that the economy badly needs.
But so far the RBA’s caution has made little difference. In the second weekend of April, Sydney experienced another stellar auction result with an 86 per cent clearance rate, while Melbourne cleared 78 per cent compared with 70 per cent for the same weekend last year.
Furthermore, National Australia Bank says the proportion of first homebuyers signing up for loans with the bank with the backing of a family member has lifted to 6.7 per cent from 4.8 per cent in 2010, indicating it’s becoming increasingly hard for first homebuyers to enter the market on their own.
So, is the Australian property market entering a bubble that will one day burst? Or if not, does this mean first homebuyers are priced out forever? We look ahead 20 years to see whether concerns are real, exaggerated, or just plain hysteria.
The only way is up (mostly)
According to Paul Blackburne, Managing Director of Blackburne Property Group, property will be more expensive in 20 years’ time.
“Property has roughly doubled in value every 10 years for the past 50 years and I see no reason for this trend not to continue,” Mr Blackburne says.
“I think growth will be more moderate at around four per cent by that stage, rather than our long-term average of around seven per cent.”
Property expert and author Michael Yardney agrees prices will be higher in 20 years’ time, arguing the long-term drivers of property price growth will be our growing population and the wealth of our nation.
“This means it is likely that the median price of property will continue to increase in our big capital cities at a similar rate to the last 20 years, averaging growth of about seven per cent over the long term,” Mr Yardney says.
But not all property is created equal
But those who have managed to get a foothold on the property ladder shouldn’t rejoice just yet. Not all properties will increase in value, according to Mr Yardney, as some will outperform and underperform the average.
“Regional areas and outer suburbs with poor infrastructure and fewer amenities are likely to languish,” Mr Yardney notes.
Furthermore, according to buyers’ agent Miriam Sandkuhler from Property Mavens, there will be a number of “corrections” along the way as the property market moves in cycles.
“Holding property over the long term and – more importantly – only buying investment-grade property that outperforms the market will mitigate the effect of those corrections,” Ms Sandkuhler says.
Bye bye to large backyards
In 20 years, Mr Blackburne envisions an increase in demand for apartments, as about one-third of us make do with less space to live close to cities.
“There will always be demand for homes, however part of the home market will move towards smaller blocks so people can afford to be in better locations at a price they can afford,” he says.
“Apartments will be very popular and I think will probably be around 30 per cent of the market.”
What about the regions?
Mr Yardney does not portend high property prices for the regions – at least not in comparison to their capital city counterparts.
“While population growth will occur in every state over the next 20 years, the majority of our new population is going to where the jobs will be and these will predominantly be in our four big capital cities,” he says.
However, Ms Sandkuhler is more optimistic about the future performance of the regions, and says she buys in “large regional cities that display the economic drivers to support capital growth”.
“I look for affordability, infrastructure, employment opportunities, lifestyle, proximity to Melbourne and bang for buck,” says Ms Sandkuhler.
Meet the new nation of renters
It has always been hard for first-time buyers to enter the market, and rising prices will only exacerbate this, according to Mr Yardney.
“Many first-time buyers will require assistance from their parents while others will need to lower their expectations of what a first home should look like,” Mr Yardney notes.
“Generation X didn’t have the same buying power that baby boomers had and so it goes for each generation. Consider the price of property in London and New York. Melbourne and Sydney are heading in that direction – it’s just a matter of time.”
Or as Mr Blackburne puts it: “Every generation says it can’t go much higher. People said it when property hit the $100,000 average and they will say it again when it hits the $1 million average.”