Property Ladder

Over the last twenty years or so, we have seen our dwelling prices increase something like threefold, while rents have risen by more than double.

Whilst property fortunes have fluctuated over that time, in general, it has been an upward and quite lucrative path – a property ladder, as many correctly described it.

What drove the property ladder during this time includes:

  1. Inflation
  2. Falling interest rates
  3. Increasing liquidity
  4. Financial deregulation
  5. Relaxed property taxation
  6. GST on new property
  7. Government handouts and assistance
  8. Strong population growth
  9. Baby boomer cohort
  10. Loosened foreign ownership laws
  11. Change from one to two income households
  12. A strong China and Aussie resource boom
  13. Strong wage growth
  14. Low unemployment
  15. Affordable housing
  16. High rental yields
  17. Hilmer and other government reforms
  18. Introduction of regional town plans
  19. Under-building
  20. Government surplus

It is a convincing list and it is little wonder that dwelling prices and rents rose so much over the last two decades.

Now, revisit the list and tick off those that no longer apply.

Better still, have a go at marking off those that you think will apply in two; five or even ten years’ time.

We will let you draw your own conclusions.

Matusik Mindset

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 Chinese-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.

Matusik Mindset

Our reports, workshops, public presentations and communiques 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.

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