We believe that Australia’s housing market outlook is going to be very different from what has happened over the past couple of decades.
Let’s lay it on the line, shall we?
Anyone digging in their heels to protect past property mentalities is in for a surprise.
Looking forward we think that the Australian real estate market is likely to slow down, possibly significantly; and in certain locations; and for certain property types – values, sales and even rents could fall, possibly substantially.
A ‘reset’ is coming
We think this ‘reset’ could last for several years, maybe longer.
Many are already struggling with housing affordability. This trend is set to accelerate due to rising costs; limited wage growth; less full-time work and aging demographics.
But its ‘business as usual’ for a bit longer
Politics, both here and abroad, plus the RBA’s current easing bias, will try and keep things artificially afloat as long as possible. No political party, regardless of flavour or country, has the fortitude to implement an austerity package.
But this can only last so long. Australia keeps kicking it’s economic can down the road and with each kick the can travels less distance.
And sometime soon the can just won’t move, regardless of how hard we kick it.
For mine, we have two major problems – very high household debt and we are dangerously dependent on China.
China has escalated its borrowing in an attempt to arrest falling economic growth. Social unrest is also rising.
Furthermore, the rising Sino-US trade protectionism could bite the Australian economy, and depending how far it escalates, hard.
So maybe we face the economic cliff sooner rather than later?
Australia largely escaped from the GFC because we had a financial surplus and China, at that time, was growing strongly. This time around, we have very little to fall back on.
A housing compromise is coming
We believe that many Australians will be forced to compromise on their housing.
And if we are right, affordable compact housing – especially in major urban areas – should better weather the storm.
There will be a growing need for multi-generational dwellings and backyard housing solutions too.
Similarly – in regional locations and the middle to outer suburbs – dual occupancy homes look more promising than the more traditional housing options.
More people are sharing accommodation. Also the key to getting a better rental yield is to hold property that facilitates tenants sharing.
What type of investor are you?
The astute passive investor will buy strategically for a rental premium; and not just buy a property in anticipation of generic price growth. They will also buy a property with strong owner-resident resale appeal.
For the more active, land banking (at the right price) for future redevelopment; substantial renovation or backyard additions, should also pay dividends.
In addition, some may opt to invest into those markets at the bottom of their property cycle – buying effectively below replacement cost – and holding for the long term.
Our reports, workshops, public presentations and communiques all carry this mindset.
It is important to note that once we get through this reset, Australia’s medium to longer term housing and economic outlook improves.
But over the next five to ten years Australia’s housing market outlook, we believe, will be very different than that of the recent past.
To keep abreast of what we think and how things are changing, sign up for the Matusik Missive.