Invest
Will stimulus push the price of property higher?
Will state and federal stimulus artificially prop up the property market? Ultimately, it could, but its impact will likely be confined to one certain type of home.
Will stimulus push the price of property higher?
Will state and federal stimulus artificially prop up the property market? Ultimately, it could, but its impact will likely be confined to one certain type of home.
Speaking on a recent episode of the nestegg podcast, Domain’s senior research analyst, Dr Nicola Powell, mused on the idea that incentives can “obviously increase demand, and that increased demand does help to support and can drive up price”.
Her comments come after the recent removal of stamp duty for first home buyers who purchase new homes in NSW and the advent of the Morrison government’s HomeBuilder sheme, which aims to prop up the Australian construction industry.
Both of the above measures were introduced in response to the COVID-19 crisis, but sit alongside previous state-based and national support measures that have been provided to the property industry, especially to assist first home buyers.
The advent of incentives to increase demand is not a new phenomenon.
“We saw that in the last downturn where there were already New South Wales government initiatives, and we saw the lower end of the market actually performing much better than any other,” Dr Powell flagged.
“It was helping to support prices because we did see an increase in first home buyer activities.”
According to the senior analyst, the current downturn could see the same response: “There is a possibility that it could continue to support prices at that lower end and we may continue to see prices at that lower end grow.”
Reflecting on the most recent property downturn, the researcher highlighted how many first home buyers have previously flocked to the outer peripherals of Sydney and up to the Central Coast to take advantage of stimulus and access cheaper property.
“These are some of the areas that [values] held up much longer in the last 2017 to 2019 downturn,” she noted.
But one key differentiator in 2020 is that much of the stimulus does centre around construction activity, which Dr Powell thinks of as a “fantastic” move.
“I think that price point [the $800,000 cap on stamp duty for new homes] is much more in line with the prices that we see in our much more expensive markets such as Sydney.”
She conceded that it’s hard to gain entry into a “very expensive” market such as the state capital, but the stamp duty concession’s restriction to new homes will work to stimulate construction.
“It’s a very ailing sector at the moment. We see that in those dwelling approvals over June – they fell 5 per cent,” the analyst commented.
“Over the past two months, they are down 20 per cent. It is a sector of industry that really needs help during this crisis and needs stimulating.”
That stimulation will ultimately come to fruition through the building of new homes, which, according to Dr Powell, could see a corresponding increase in the price of property for new purchasers.
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