If you think house prices are high now, just wait until the really big property boom arrives! When that gets here, prices will skyrocket, according to the ANZ Bank’s senior economist, Paul Braddick.
“A growing housing shortage is setting the scene for the mother of all housing booms.
Underlying housing demand is already outstripping new supply, and the gap is set to widen sharply, driving pent-up housing demand to record levels.”
– ANZ’s Paul Braddick
Some might suggest that the ANZ have a vested interest in talking up a booming housing market, and I’d tend to agree. Some real estate agents (another vested interest party) have also suggested that property prices will continue to rise steadily as a result of the chronic housing shortage. Surely this underlying housing demand will only exist for as long as people can afford to buy new homes. As house prices go up, they become increasingly less affordable, so wouldn’t the demand for housing drop off? And when demand drops off, so does the impetus for rising house prices.
According to the HIA, we need another million houses built over the next five years, and if we don’t get that then there may not be enough houses to go around:
“Without a substantial increase in production there will almost certainly be a growth in the number of homeless and further affordability woes.”
– Housing Industry Associationâ€™s chief executive of policy, Chris Lamont
A lot of people who are currently homeless are in that situation not because of a shortage in homes being built, but because house prices are already too high for them, and if the housing market booms again then that will simply put affordable housing beyond the reach of even more Australians. Maybe one day we will be in a situation where there are too few houses to go around, but again I think it will be those who are unable to afford who will suffer the most. As far as I know there aren’t families living on the street with $600,000 in their pockets saying, “We’ve got the money, but we just can’t find a house to buy!”
At the moment you need a household income of about $125,000 to get a loan for a median priced property in Australia, assuming you’re starting from scratch. That’s above the average combined income of 2 people, so if house prices climb further then surely that will make it less likely that “working families” will be able to purchase their own piece of real estate.
The result of all this, as I see it, is that in order for house prices to boom again in the short term, we’ll need a strong economy and a significant rise in the average wage. But if that happens, then inflation rises, and so do interest rates. And when interest rates go up, house prices go down.
A substantial increase in the building of new homes is great, but prices of those new homes and all other real estate can’t rise significantly further without a whole lot of other things going on. In my opinion the demand for new housing is not enough, but I’m interested to know what you think. So please, feel free to leave a comment in the box below.