Stop worrying about the future of our property markets, with Ken Raiss [PODCAST]

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The media is full of concerns about the future of our property markets, so in today’s podcast, I’m chat with Ken Raiss, Australia’s leading property tax accountant about the future of our markets and why we believe you shouldn’t be concerned.

I know there are lots of commentators out there who have a different view, but Ken has been involved in property almost as long as I have and if you’ve been regularly following this podcast or my blogs on Property Update you’ll know that we have been pretty accurate in our forecasts over the last couple of years, so today we’ll discuss how Covid changed our property markets, what’s currently happening on the ground and what to look forward to.

At the end of today’s show, I hope you’ll have more clarity on what’s ahead.

The Future of Our Property Markets

Now that life is getting back to what some of us would call Covid Normal the housing markets are changing in front of our eyes.

So how have our markets changed and what will the main drivers of our property markets be moving forward?

That’s what I want to chat about today with Australia’s leading property tax accountant Ken Raiss director of Metropole Wealth Advisory.

Let’s first start by exploring some of the major impacts of the pandemic on the Australian housing markets over the last 2 years.

• Australian home values rose 25%, to record highs
Despite negative predictions, last year was an extraordinary year in the housing market – around 98% of locations around Australia recorded rising property values with many properties rising in value by more than 20%.

Before COVID-19, the ABS valued Australia’s residential property at $7.1 trillion.

It ended in 2021 with a valuation of $9.1 trillion.

To put it another way, the growth in property wealth in the past two years is higher than all the gains over the decade before COVID-19 (2010-2019) combined.

But that was an extraordinary market – a once-a-generation property boom, and this year property markets will behave differently. They will both behave more normally and be more fragmented

• First homebuyer activity spiked
From June 2020, first home buyer activity surged amid the introduction of the HomeBuilder scheme, used alongside the First Home Loan Deposit Scheme, as well as other state-based grants and stamp duty concessions for first home buyers.

The result was a spike in first home buyer activity, which peaked in January 2021. The spike mirrors first home buyer participation in 2009-10, which marked a temporary boost to the First Homeowner Grant.

Since the January 2021 peak, first home buyer activity has diminished, reflecting higher barriers to entry as housing values substantially outpace incomes.

• Rents rose 11.8% to record highs, while gross yields fell to record lows
There are multiple reasons rents have risen.

• Investor activity had been relatively subdued between 2017 and mid-2020.
• Rental supply may also have been eroded through the rise of rental services like Airbnb. • This trend may have been particularly prevalent in tourism destinations across Australia, some of which have flourished amid a rise in domestic tourism in the past two years.

• Rents may have increased due to higher purchasing prices for investors who have recently purchased long-term rental accommodation.

Over the course of 2021, annual rent value growth was at its highest level since 2008.

The headline numbers hide the diversity of rental conditions.

There has been a clear shift in rental preferences toward lower-density housing options through the pandemic, where the upwards pressure on rents has been more substantial.

This trend has evolved over the past year, with rental affordability gradually deflecting more demand towards higher density rental options where the cost of renting is more affordable.

• Housing debt levels hit record highs
Rapid increases in housing and rent values in the past two years were largely the result of a sizable reduction in the official cash rate.

However, it is important to frame debt levels in the context of high asset values, and relatively low interest costs.

RBA data shows housing interest payments to income have fallen to their lowest levels since 1999, and household debt has trended lower as a portion of housing values.

• The premium of house prices compared to units hit record highs
Both the composition of the buyer pool and the impacts of COVID may have contributed to a record gap between house and unit values.

Investors, who may have a preference for units, have been a relatively small part of demand through the upswing.

Additionally, detached houses may have been in higher demand as Australians spent more time at home through the pandemic.

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