➡️Prices virtually flat for three years – well down in real terms ➡️For Sale listings elevated – circa 34% above 5 year average
Why?
💰A punishing tax and tenancy regime on investors 📈Elevated interest rates, tipping many over the edge; and 🏠Relatively good history of new housing delivery
It's not interest rates alone; if it were, QLD, SA, WA or NSW wouldn't have seen rapid growth over the same period. Particularly when VIC has the highest population increase.
Is this a housing supply and affordability policy win from the Victorian Government? Kill off investors and bring in the first home buyers?
Interestingly VIC still leads in terms of overall new housing completions (but not per capita growth). An overhang from when the market was stronger, a 2-3 year lag.
And VIC is now relatively attractive for FHBs who are geared to purchase in the near term. Loan data shows FHBs are elevated relative to investors in the State.
I can see the political spin teams siezing the short term situation to mistakenly argue they have the settings right. I would caution against any such celebration.
These gains will only cause considerable housing pain mid-term: • As investors exit, the rental pool is dropping – 20k (3.2%) fewer rentals in VIC in the past 12 months (based on bond data) • Many being bought by owner occupiers which is good, but properties gone from the rental pool are not being replaced (based on approval data), let alone growing with population • Stagnant established prices = record low new commencements as the price gap is too great
Thus, once the most impacted investors are out and interest rates turn, Melbourne's established house prices and rental rates will accelerate – fast.
Record low approvals over the past 2 years, plus the cost of building new dwellings – especially types favoured by policy makers – will mean new starts will be a fraction of those needed to keep up.
That is when the plannining purists' preoccupation on less desirable, less feasible new dwellings will first be felt. And it will be impossible to reverse course quickly due to the lag effect.
🔮My crystal ball indicates housing supply and affordability in Victoria is not going to look so great over the next few years.
It's easy to look at current "success" based on historic decisions; it's much hard to understand how today's settings will impact future outcomes.
❓Do you think I have this assessment right?