Transcription of Finance News Network interview with Dr Harley Dale, Chief Economist of the Housing Industry Association (HIA).David Chau: Hello, I’m David Chau for the Finance News Network.
Joining me today is Dr Harley Dale, the Chief Economist of the Housing Industry Association (HIA). We’ll be talking about the Australian economy and the latest issues in the property market.
Harley, thanks for joining us.
Dr Harley Dale: Thank you.
David Chau: How has the Australian property market been performing this year? Which states were the best performers, and which states performed the weakest?
Dr Harley Dale: In an aggregate sense, the property market has been performing very well. But that masks the fact that there are huge geographical differences around the country. The star markets have been Sydney and Melbourne – both in terms of residential property price growth and new home construction activity. The southeast corner of Queensland, in patches, is showing a little bit of promise as well. You kind of have an eastern seaboard story there.
But once you move away from that part of the country, then you’re seeing price declines – for example, in areas like Perth and Darwin. You’re seeing weak construction as well as price markets in places like Adelaide, and South Australia more broadly. So it really is a mixed bag.
David Chau: Thanks, Harley. As you know, the Reserve Bank (RBA) cut interest rates to a record low 1.5% in August. The RBA said that property prices only rose “moderately” this year and it is unlikely lower interest rates would exacerbate “risks in the housing market”. But won’t lower interest rates make it easier for people to obtain loans and potentially drive up property prices?
Dr Harley Dale: I think it’s fair to say that the RBA has taken a calculated risk here in lowering interest rates to a fresh record low of 1.5%. I think they were probably aware of the fact that the major financial institutions that, of course, hold the lion’s share of mortgage business in Australia were not going to pass on the rate cut in full.
I think they’re also cognisant that we’ve had a very long residential property price cycle in Sydney and Melbourne. Affordability really has got considerably stretched in those markets – particularly in Sydney. The gap between earnings growth and median house prices, in an established property sense, is starting to get a little bit too wide.
They’re probably also aware that, of course, APRA has clamped down on the investor side of the property market. I think it has clamped down too hard in the sense that the brush it’s used has had too much of a broad sweep. But there’s a constraint in what investors can do in a lower interest rate environment. Putting that all together, they obviously thought that other factors within the economic environment were more important.
They are probably are also aware that a further lowering of interest rates may indeed extend the new home building cycle in both NSW and Victoria, which is good for those economies. It’s also good for employment in those economies. They’re obviously the two fastest growing populations in Australia. They’re the two biggest populated areas of Australia. So there’s an activity boost, in lower interest rates, that offsets the risk of perhaps reigniting the residential property markets in Sydney and Melbourne.
David Chau: Harley, let’s talk about housing affordability. As you know, it’s a major issue in Australia these days. Do you think the Australian government is doing enough to address this?
Dr Harley Dale: I think the unequivocal answer to that question is ‘no’. That is because we have very little Federal government input into the challenge that is housing affordability in this country – particularly for younger generations.
I think without a firm commitment from the Federal government – [by appointing] a Housing Minister in cabinet sitting next to [for example, the existing] Health Minister, Education Minister and Infrastructure Minister ... without that guidance and policy direction from the Federal level, I don’t think we’re really going to address the issue of housing affordability. Even though I recognise many of the levers that you need to pull to try and address the issue come from a State government level – rather than a Federal government level.
David Chau: Last question, Harley. What’s your outlook for the property market over the next twelve months?
Dr Harley Dale: Well I think that really depends on where you are. It’s such a diverse market here in Australia. But the two best performing markets have obviously been Sydney and Melbourne – growing very strongly in terms of median residential property prices. That growth will continue but at a slower rate than what we’ve seen in the last few years.
Markets like regional NSW have some opportunity, I think, for further momentum and growth going forward – particularly over the next 12 to 18 months.
But outside the two key markets, you don’t have a situation where there is a fast rate of population growth occurring, or a situation where labour markets are looking especially strong. Government budgets are quite constrained in terms of their ability to kick-start economic growth. And that kind of overall environment (even allowing for the fact that interest rates are once again lower than they were), I suspect we’ll see modest growth in residential property prices. But I’d be surprised if we saw fast growth in any of those markets.
David Chau: Dr Harley Dale, thanks for joining us and sharing your property market insights.
Dr Harley Dale: My pleasure.
Ends
