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In this episode of The nestegg Podcast, host Maja Garaca Djurdjevic checks in with our three experts, digging into the biggest headlines in the world of superannuation, property, investing and wealth creation, as well as touching on the new Omicron scare.

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Steve Waters, director of Right Property Group, talks about investing in a unit and whether first-time investors should put their money into a well-located apartment over a house in a regional setting. He touches on new versus old units and what history tells us.

RMIT senior lecturer of finance Dr Angel Zhong covers equity crowdfunding, what it is and how it’s trending. Dr Zhong also talks about legalities as well as risks for retail investors.

Finally, tax and super guru Timothy Munro chats about industry super funds turning to courts to amend their trust deeds and why this needs to stop. Mr Munro also chats about investing your super in crypto and the implications.

Have a question for our experts? Get in touch at [email protected], and you might get featured on the next episode.

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What’s the flow-on effect of the housing downturn?

By Cameron Micallef

October 18 2019
Share

Invest

What’s the flow-on effect of the housing downturn?

By Cameron Micallef
October 18 2019

A downturn in the housing market is reflected in a corresponding drain on individual consumers, the economy at large as well as inflation, the Reserve Bank of Australia’s deputy governor has explained.

What’s the flow-on effect of the housing downturn?

By Cameron Micallef

October 18 2019
Share

In a speech to the CFA Societies Australia Investment conference, Dr Guy Debelle outlined the impact that poor housing figures have on the economy at large.

Effect on inflation

The deputy governor said Australia’s falling inflation rate can largely be attributed to the falling household prices, particularly on the east coast.

He highlighted how consumers spend less as the price of dwellings fall.

“The decline in housing prices has also led to a fall in household wealth,” Dr Debelle said.

“Our standard estimate of the wealth effect is that a 10 per cent fall in housing prices leads to a 1.5 per cent fall in household consumption over time.”

Further, the two largest housing-related components of the consumer price index (CPI) basket are rents and new dwelling purchase by owner-occupiers, which together account for around one-sixth of consumer price calculations.

Inflation in these two components are reportedly at historical lows and reflect the conditions found in the housing market.

Dr Debelle also noted that as construction continues to experience downturn, with demand for new houses falling, developers are offering discounts in the ways of add-ons, which the ABS translates into a material reduction in the cost of detached housing in the CPI.

Housing prices

Dr Debelle noted that the downturn heralded the end of a long upswing in property values which first commenced back in 2012.

The economist indicated that he does anticipate the price of properties in Sydney and Melbourne to rise again as increases in demand continue to outpace increases in supply while credit remains low.

But, according to the deputy governor, it’s not just the low interest rates that are pushing prices up.

“Housing factors, including supply and demand in the housing prices, including population growth, housing income and rate of construction of new dwelling, have a greater impact on the property market than interest rate alone,” he said.

Dr Debelle indicated that the RBA is still “forecasting a further 7 per cent decline in dwelling investment over the next year, and there is some risk the decline could be even larger”.

“This will directly subtract around 1 percentage point from GDP growth from peak to trough, given that dwelling investment accounts for around 6 per cent of GDP,” he noted.

Lending conditions

Dr Debelle blames a lack of demand for new properties for the slump in credit growth and weak house prices, not the recent regulatory crackdown on loose lending standards.

“The slowdown in credit growth is primarily a demand story rather than a supply story,” Dr Debelle argued.

But, the low rates now available for lendees will lead to an increase in credit driven by borrowers looking to take advantage of historically low rates, he said.

“Loan approvals have begun to rise, but we have yet to see this flow through to a pick-up in housing credit growth, which has remained at historically low rates for both owner-occupiers and particularly investors,” Dr Debelle concluded.

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About the author

Cameron Micallef

Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your portfolio.

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