HIA talks property outlook for 2017


by David Chau

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Transcription of Finance News Network interview with Housing Industry Association Chief Economist, Dr Harley Dale.

David Chau: Hello, I'm David Chau with the Finance News Network, and joining me today is Dr Harley Dale, the Chief Economist from the Housing Industry Association. And we'll be talking about the Australian property market and how it's going in 2017. Harley, thanks for joining us.

Dr Harley Dale: Thank you.

David Chau: Firstly Harley, could you give us a brief overview of how the Australian property market has been performing these past 12 months?

Dr Harley Dale: The Australian property market's very diverse. It's made up of thousands and thousands of different markets. Sydney's been going gangbusters. Melbourne's been going very strongly. If you take outside those two markets, then I think most people in the Australian residential property market would be questioning exactly what a property price boom is. Regional New South Wales, for example has been doing better. But overall, it's Sydney and Melbourne, and everybody else.

David Chau: Harley, the question on everyone's mind is, "Are we in a housing bubble?" At least some parts of Australia?

Dr Harley Dale: Well look, I've got to say that I've been in my current role for over 13 years now, and when I began my role in the Housing Industry Association, people were asking me if we were in a housing bubble, and that's in late 2003, early 2004. It is a perennial question.

No, I don't think Australia is in a housing bubble, predominantly because there is such a diverse degree of conditions going on between capital cities, regional areas. Sydney, Melbourne on the one hand, the rest of the country on the other.

But certainly, by our metrics, Sydney, in particular is becoming very, very stretched in terms of housing affordability.

David Chau: Throughout the course of this year, how much do you expect property prices to go up by?

Dr Harley Dale: Sydney and Melbourne I think have probably got more upward price pressure in them. If you look at the Sydney and Melbourne markets, the migration that's coming in from overseas, which is historically still quite high, is predominantly coming into Melbourne and, to a lesser extent, Sydney.

Those two markets have the fastest rate of population growth of anywhere in the country, and it's primarily driven by net overseas migration. And when these migrants come into Australia, they want somewhere to live, quite obviously. Many of them look to build a home to begin with. Many of them look to own their own home as soon as possible. A considerable number look to rent for a while before they move into the home ownership market.

But they're all placing demand on the property market, and I would suspect that you would continue to see further growth in residential property prices in Sydney and Melbourne in particular, in 2017.

But there are markets like Canberra and Hobart that are very small markets where people have begun to realise there's good value there. The economic conditions have improved in recent times. And you can see prices are actually rising in those small markets.

So it's not only a Sydney and Melbourne market, but it's the Sydney and Melbourne markets that have just shot the lights out, if you like, in terms of the growth in recent years. And I suspect 2017 will be another year where growth is quite strong, and therefore it's going to be quite challenging for our Reserve Bank of Australia to work out, "Well, how exactly do you manage that?"

David Chau: It's interesting that you mention migration. So in order to keep housing prices in check, do you think there should be tighter regulation on foreign investment?

Dr Harley Dale: Look absolutely not. I'm dead against that. I think in 2016 we saw a situation where the Federal Government tightened up on foreign investment regulation. We saw all three states on the eastern seaboard in their own state jurisdictions impose increased taxes and increased transaction costs.

It's actually a lot more costly to invest in a residential property, new residential property, because it's illegal to invest in existing property, except around some very tight areas, but it's actually a lot more costly to do it now than it was 12, 18 months ago. And that's a combination of Federal and State policy announcements and advancements that have been made. I think it would be detrimental for the Australian economy if we went any further.

We live in a world where capital is extremely mobile. It can move from Australia to New Zealand to Canada to the UK to South Africa, to all over the place. And if we're sending a message that we don't want foreign capital coming into our country, then that foreign capital would just go somewhere else.

David Chau: It seems the American economy is picking up, and the Fed is expected to raise interest rates at least twice this year. How do you think the Reserve Bank in Australia is going to respond in respect of interest rates?

Dr Harley Dale: So I would suspect that the Reserve Bank's going to sit back and go, "Right, we'll just leave it as it is. We'll assess what's going on from time to time. We expect that the Federal Reserve in the US will raise interest rates a bit more. We expect that borrowing costs are going to go up anyway”. In a way, if the Reserve Bank of Australia wants slightly tighter monetary conditions than they've already got, they're probably going to get them anyway without doing anything.

David Chau: Last question, Harley. Do you have any other predictions or opinions on how the Australian property market will perform this year?

Dr Harley Dale: I think it's a year where it's really, really difficult to call, and I think everyone basically needs to come back to what they always need to think about. And that is, if you would like to make a decision in the housing market, are your finances in order, are you able to commit to the decision you've made? If you are, the bank will lend you money. And if you're willing to do that, get on and do it, because it's a very low borrowing cost environment.

And there will be lots of negative news about Trump and about Brexit and all the rest, but at the end of the day, the Australian economy will just do what it does.

David Chau: Dr Harley Dale, thank you very much for your time and for your insights.

Dr Harley Dale: My pleasure. Thank you very much David.