The Real Estate Institute of Australia says the median house price has risen more than 400% in the past 25 years
There were two pieces of positive news in the past week which demonstrate the value to the nation and its citizens of growth in the property market.
One came from research from the Real Estate Institute of Australia which shows that the median house price for the Australian capital cities has risen from $160,000 in 1996 to $825,000 today.
The Real Estate Institute of Australia says the median house price has risen more than 400% in the past 25 years.
It sounds extraordinary – but, to put it in perspective, it equates to an average annual increase of 6.6% per year. Healthy, and certainly ahead of inflation and wages growth, but not monumental.
This is despite fairly muted growth since 2016. The data shows that over the past five years, the median house price in the capital cities grew 25%, from $683,000 to $825,000, while “other dwellings” rose by 10% to $600,000.
The other item of note came from the Australian Bureau of Statistics. It says that a booming property market helped add half a trillion dollars to Australia’s household wealth in the December Quarter, taking the total to just over $12 trillion.
The nation recorded its biggest gain in quarterly wealth since 2009 despite COVID-19 concerns and employment fears over the end to JobKeeper.
According to the ABS, total household wealth increased 4.3%, or $502 billion, in the last three months of 2020, marking the highest quarterly growth rate since the December Quarter of 2009.
The property market was the key driver. During the December Quarter, residential assets grew by $246 billion, or 3.5%, the biggest rise since the December Quarter of 2016. That came on top of a $200 billion rise in house values for the September Quarter.
ABS head of finance and wealth Katherine Keenan says: “The growth in residential assets was seen across both owner-occupier and investor housing in the December Quarter. Owner-occupier housing loans grew 1.9%, the strongest growth in four years, while investor housing loans grew 0.4%, which was the first positive growth in the past two years.”
The housing debt to income ratio decreased from 139.2 to 139 over the quarter, as growth in income exceeded growth in housing debt. The ratio has fallen for the past four quarters.
This is mostly good news for nation. I’m telling you this because you won’t hear it from mainstream media. What you will hear is that it’s a crisis. Indeed, several crises. An affordability crisis, a debt crisis and a social crisis.
But I see mostly positives. The key factors here are that this gives confidence to most Australians, encouraging them to spend, which benefits the economy and creates jobs, and it helps people establish the financial base to fund their retirement.
Successive federal governments for the past 20 years or so have encouraged Australians to invest to provide for their retirement years, placing less reliance on the public purse.
For many Australians, real estate is the option of choice because they feel they understand it and they see it as a safe and solid option for growth.
The current national property boom is a big step down that path.
Article Source: www.urban.com.au
This is how long it takes Brisbane first-home buyers to save for a house
Brisbane first-home buyers have bucked a nationwide trend. They are now taking less time to save for a deposit, with closed borders, government grants and a softening of entry-level house prices launching locals onto the property ladder faster than a year ago.
Despite the city’s soaring property market recently pushing median house prices to record heights, new data from Domain’s First-Home Buyer Report, released on Monday, revealed it now takes the average couple four years and two months to save a 20 per cent house deposit – which is four months less than this time last year.
Brisbane was the only capital city to see savings time slashed over the 12-month period, with Sydneysiders forced to tack an extra six months onto their already painfully slow savings haul – which is now seven years and one month for the average couple.
Domain senior research analyst Nicola Powell said the data revealed just how sunny the market remains in the Queensland capital – with grants and wage growth easing the squeeze for first-home buyers alongside COVID, which had worked wonders for savvy savers.
“Brisbane bucks the trend really in terms of what we’re seeing across our other cities, and while it doesn’t have the quickest time to save, it’s seen more favourable conditions over the past year,” Dr Powell said.
“It was the only city to see a decline in time for houses while for units it remained stable … and what we’ve also seen is tax cuts and compounding interest on savings have helped speed up that time.
“I think over the past 12 months, we’ve all saved more, and for first-home buyers, it has supercharged their savings pot … the pandemic has also really unlocked an element of affordability. For those first-home buyers who can work from home, they are able to now seek different locations to reside, which opens the door to affordability.”
Stamp duty v land tax: the pros and cons explained
Housing affordability continues to be a hot topic and the often-raised suggestion of replacing stamp duty on the sale of a property with a universal land tax is back on the table again.
The idea has been around for more than a decade after former Treasury secretary Ken Henry claimed that stamp duty not only is a disincentive for people to move, but also gives state governments erratic income – their coffers overflow when the property market is booming but withers away when the market slumps.
The NSW government is dusting off the idea again by commissioning a consultation paper and inviting interested parties to provide their views until July 30.
The proposal envisages that a homebuyer could either opt to pay stamp duty on a property purchase price, or an annual land tax that would be based on a property land value that would then be attached to it forever. In other words, once a purchaser opted for the annual land tax option in lieu of stamp duty, there would be no going back.
In the event of the scheme proving popular, the paper envisages a price threshold based on the value of the property. If that was the case, a buyer of a $5 million property could still be liable for stamp duty on its purchase and could not opt to pay land tax instead.
State governments receive more than $20 billion a year from stamp duty, so any introduction of a new scheme would need to be phased in.
The proposal floats the possibility of the amount of stamp duty forgone being capped at, say, $2 billion a year in the early years, with the cap changing over time as the number of people opting out of stamp duty increases.
Proponents of the scheme claim that the property market would boom because buyers could use the extra money now required for stamp duty to increase their home deposits and qualify for bigger mortgages. However, this begs the question, do we really want to encourage homebuyers to take out even bigger loans? After all, interest rates are at rock bottom and must rise in the future.
If you think mortgage stress is bad now, imagine what a 2 percentage point rise in mortgage interest rates would do.
The biggest problem with a tax based on land values is that, in many states, it is common practice to leave the rate of land tax unindexed, which means that each time a property increases in value, the land tax bill increases, too.
A homeowner who chose the land tax option would most likely be faced with an increasing land tax burden as the years passed. This could be particularly hard on retirees, who could see their home costs increase while their capital decreases.
Another major flaw in the proposal is that it would likely provide a “free kick” for property speculators. It is generally accepted that speculators competing with regular homebuyers has been a major reason for property prices soaring to record highs.
In NSW, a person who buys a property today for $800,000 would pay stamp duty of $31,335, irrespective of whether or not it is their primary residence. This large upfront cost is a major disincentive for speculators who want to buy property now and quickly flip it.
However, speculators may have a field day if they could choose an annual land tax bill instead of stamp duty. If they held the property for only a short time, there may be no land tax at all payable.
There is a further complication with the land tax proposal.
Investors already pay land tax on rental properties and this cost is usually passed on to their tenants.
It would be manifestly unfair if stamp duty – which is a capital cost, not a deduction – was waived on property purchases for investors, while continuing to allow them to claim a tax deduction for the land tax, which had already indirectly been passed on to tenants.
The land tax proposal is merely in the consultation stage. Let’s hope there are further deep discussions of all the pros and cons to avoid any potential property market disasters.
Article Source: www.brisbanetimes.com.au
Return of property investors raises questions for regulators
It is becoming clearer that the window for large numbers of first home-buyers to scramble into the property market is fast closing, with investors and speculators chasing big capital gains returning.
With the house price boom showing few signs of cooling, this baton-pass should ensure an ongoing and lively debate about whether it is time for regulators to place restrictions on mortgage lending.
Earlier this year, first-home buyers were flooding into the property market in numbers not seen since 2009, attracted by generous taxpayer incentives and record-low interest rates. Sadly, the first-home-buyer party appears to have been short-lived. New lending to this group has fallen for three months in a row, no doubt partly in response to the explosion in prices.
Meanwhile, investors are flooding back into the market, with their share of new lending rising from 23 per cent to 26 per cent. New investor commitments in April were at their highest level since 2017, when we were in another property boom.
Importantly, investors’ share of the market is still well below the sky-high 46 per cent of new lending reached in 2015, and below its long-term average of about 35 per cent. However, the harsh financial realities of this property market suggests that this trend still has a lot further to run.
For one, CoreLogic analyst Tim Lawless says first-home buyers tend to be the most sensitive to rising prices, especially when it comes to scraping together enough cash for a deposit.
Investors, on the other hand, typically have better access to funding because they can borrow against their owner-occupied residence, or other property investments. They also often have higher incomes, and Lawless says they’ll probably become more active in the market chasing capital gains.
So far, banks say there are only early signs that investors’ interest is stirring, and owner-occupiers are still overwhelmingly driving the market. That is one reason regulators have pushed back against imposing credit restrictions so far. But with the Reserve Bank of Australia (RBA) saying it expects to keep official interest rates at just 0.1 per cent until at least 2024, more house price growth looks likely.
If there is a further significant rebound in investor lending accompanied by related property price surges, it could force regulators to think more carefully about introducing housing credit curbs.
Why? The RBA has made it clear that an investor-driven market has distinct risks.
In 2015, the central bank said that when house prices were being fuelled by “speculative demand” from investors chasing big capital gains, it tends to “amplify” the run-up in prices, while potentially raising the risk of bigger property price falls in the future.
To be clear, we are not in a 2015-style investor housing boom today. However, interest rates are much lower and asset prices everywhere are rising, suggesting these risks are as relevant as ever.
Politicians might also find it more challenging to allow the market to continue its red-hot run if investors start playing a bigger role, while first-home buyers dwindle.
So far, the financial regulators have argued they are not responsible for house prices and will only act if the banks erode their lending standards. That does not appear to be happening, suggesting credit curbs are not imminent.
Even so, the growing signs of investors coming back to the market, as first home buyers head for the exits, is an important shift the authorities will be watching closely.
Article Source: www.brisbanetimes.com.au
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