Housing boom ‘not expected to be sustained’ budget papers say
The Sydney and Melbourne property boom is facing a slowdown on federal government forecasts as closed international borders and the end of grants encouraging home building hit the housing market brakes.
This year’s federal budget expects a likely slowdown in property market activity following a rapid rise in prices across the country, with new supply entering the market sooner than expected on the back of generous grants like HomeBuilder pulling forward construction activity. At the same time, the international border is expected to remain closed until mid-2022 limiting the arrival of new migrants needing a new home.
The housing market is expected to slow.Credit:Bloomberg
Rising home values in the nation’s most expensive housing markets have been an unexpected feature of the recovery from the coronavirus pandemic. Record-low interest rates, federal and state government grants and extra savings due to stimulus measures have contributed to a home-buying frenzy, pushing Sydney and Melbourne house prices up 11.2 per cent and 7.1 per cent this year on CoreLogic data. In March property price growth was at its highest monthly level in 30 years.
Analysts have raised concerns the Australian Prudential Regulation Authority may need to step in to stop the market from overheating. The view in the federal budget now appears to be that the property market will cool down regardless.
“As the outlook for elevated levels of detached house construction unwinds, slower population growth is also expected to limit demand for higher-density dwellings in coming years, such that the recent strength in housing market activity is not expected to be sustained,” federal budget documents say.
The budget shows even with the current price surge factored in low interest rates mean mortgage repayments are lower as a proportion of disposable income than 15 years ago. But rising prices make entering the market more difficult due to the need to save a hefty deposit.
The federal government has created a new Family Home Guarantee to provide 10,000 single parents with the ability to buy a home with a deposit worth 2 per cent. An additional 10,000 new home guarantees have also been provided for first-home buyers to build a home with a deposit of 5 per cent and the First Home Super Saver Scheme has been expanded to allow up to $50,000 worth of voluntary contributions to be used for a deposit.
One of the reasons the property market has historically shown consistently strong growth is sustained population growth due to a significant number of people moving to Australia each year.
The coronavirus pandemic has disrupted international migration significantly due to border closures aimed at limiting the spread of the disease. Treasury estimates the national population will reach 25.75 million people by December 2021, up from 25.71 million last year. By the end of 2024 there will be 26.5 million people calling Australia home.
This is a shortfall of 40,000 people compared to forecasts for the same time period in last year’s budget and sees the population lagging 1 million people behind pre-pandemic estimates for 2022.
In NSW the population is not expected to grow enough to surpass 2020 levels – 8.16 million people – until 2023 due to a decline in residents this year. Victoria’s population continues to rise at a moderate pace, from 6.7 million in 2020 to 7 million by 2024, but remains lower than earlier projections.
SQM Research managing director Louis Christopher said the general expectation when considering official construction and commencement data was about 180,000 new dwellings to be built in 2021 across the country.
He said there was “definitely a future risk” of oversupply, with inner-city markets already showing a high level of empty rental apartments.
BIS Oxford Economics Sarah Hunter said the supply and demand for housing was “broadly balanced” even with the rise in building due to the grants coming through.
“Dwelling approvals are expected to fall through 2021 as the stimulus from HomeBuilder to detached houses fades,” Ms Hunter said. “Price momentum is also expected to moderate, partly because of the new supply of housing and partly because of an increase in the number of sellers of established dwellings.”
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