Housing is the single most valuable asset
owned by the
majority of Australian households
“Housing is the most important asset owned by the majority of Australian households. It is a large component of household wealth and serves a unique, dual role as an investment vehicle and a durable good from which consumption services are derived. With most mortgages and many small business loans secured against residential dwellings in Australia, housing also forms an important part of the collateral backing the financial sector’s balance sheet.”
RBA Long-run Trends in Housing Prices Oct 15
The critical fact to remember is that there is no one, single, ‘Australian Property Market’ – different states, suburbs and housing types travel at different speeds depending on the prevailing economic conditions, demographic changes, income levels, supply constraints, and government incentives to name just a few influences.
The Reserve Bank provides Snapshots of key economic indicators, and it’s worth noting that despite the expectations of negative economic growth, volatility in financial markets and flagging business incomes, housing is to date, holding up better than expected. Australians are typically faithful payers of debt and our banks, for the most part, take their fiduciary responsibilities seriously, and so their credit assessments are conservative and responsible. Consequently, non-performing loans are still low at 1% but being realistic and uncertain as to how long the restrictions will stay in place, there is the expectation that they may rise.
Overall, housing risks are rated low, with only 3% in negative equity, a situation where the property is worth less than the outstanding debt.
Social distancing rules have changed the outlook for commercial property. With any significant upheaval to conduct and expectations, the eventual return to normal will come with some lasting consequences. The workforce has been forced to learn and adapt quickly and to become ‘digitalised’. Change is stressful, no doubt, but there will also be measurable efficiency and productivity gains. (greater flexibility and adaptability in the labour market is a supply-side generator of productivity gains and reduced costs) and management will be reassessing their need for expensive office space. It’s also hard to imagine that their successful and resilient work patterns haven’t bolstered the bargaining power of employees seeking flexible work arrangements over the last few months.
The diverse impacts, varying in degree, is again a reminder that the concept of a single property market is a misrepresentation and an oversimplification of a mechanism with many moving and complicated parts.