June 1st, 2020Money with Matt

THE Australian housing market is a hot topic of conversation at the best of times, let alone in the midst of a pandemic. How will COVID-19 affect the Australian property market? It’s the question on everyone’s lips at the minute.

Over recent weeks I have listened to television broadcasters propose that the Australian property market ‘could’ decline by up to 30 per cent as a result of the coronavirus. I personally become concerned with these types of reports because the reality is that the property market ‘could’ also remain stagnant, or even perhaps increase.

The previous five years in the Hepburn region have seen an increase in prices to the tune of approximately 62 per cent. I also don’t think it’s outrageous to think there may be a natural correction in terms of a slight stagnation in prices simply due to the heavy increases we have recently experienced.

I’ll be honest though, this is speculation, and nobody can predict actual future results. The fact of the matter is, the housing market is susceptible to basic economics, and the theory of supply and demand.

In 2005, the Australian population was just above 20,000,000. In 2020, we are well over 25,000,000. To me, this tells us that according to supply and demand, the demand will continue to increase with population growth. As the demand increases (and with the help of natural inflation), so do the prices of dwellings that people want and need.

Housing affordability is another huge factor determining the ability of the average consumer to fund house purchases. As of today, the Reserve Bank of Australia has the official cash rate at 0.25 per cent. Allow me to remind you that this is an historic low, meaning that affordability with relation to lending has never been more achievable.

All of these factors create the perfect storm whereby people want and need houses, and can afford to buy them. This theory would suggest that at worst, prices would at least remain stagnant. I can honestly say that in my time as a public tax accountant, I struggle to think of a time where I’ve seen as many positively geared rental properties as I have recently, and further to this, rental vacancy rates in regional Victoria have also been reported at less than 2 per cent. This reinforces the notion that the investor market is as strong as it’s ever been. Additionally, I can’t see anyone selling their house for less than what they bought it for unless there are dire circumstances.

To quote Darryl Kerrigan, “A man’s house is his castle” and I think it’s reasonable to assume that nobody will give up their castle unless they absolutely need to. If you try to convince me otherwise, I’d tell you “you’re dreaming”!     

Matt Richardson is a senior chartered accountant with Cooke & Foley in Ballarat.