Unprecedented govt stimulus prop up housing market

North West PGA Land Use and Implementation Plans Photography. Balmoral Road, Kellyville. Photography by Quentin Jones. 22 April 2017.
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CAPITAL city dwelling prices could increase by as much as 9% in 2021, thanks to government incentives, interest rate cuts and the proposed changes to responsible lending laws.

SQM Research’s new report forecasts the countries dwelling prices rising by 5% to 9% next year, with Perth set to outperform the other states and territories.

The research is based on four separate modelled scenarios with best and worst situations and outcomes for the coming year. The factors involved in these scenarios depend on factors such as Quantitative Easing, JobKeeper rates, the Cash Rate and the containment of COVID-19 and the roll out of a vaccine.

“As 2020 draws to a close, the national housing market has responded to the unprecedented economic stimulus packages as well as record low lending rates,” said Louis Christopher, managing director of SQM Research.

The base scenario, which assumes ongoing support from the Federal Government and the Reserve Bank of Australia, also assumes a progressive rollout of a COVID-19 vaccine, as well as the potential for a third wave of the virus.

“Auction clearance rates have lifted since mid-year and various dwelling price measurements have started to record price rises. It is likely that the housing market will gain further momentum on the back of increased investor activity, especially from those who seek some sort of income yield,” continued Christopher.

In all scenario’s the extension of JobKeeper is highlighted as crucial to the recovery of the housing market, in scenario’s where it is prematurely cut off the market could stall, especially in Sydney and Melbourne.

The extended lockdowns in Melbourne will regardless lead to the city’s recovery trailing behind other cities, with forecasts expecting rates to climb between 2% and 6%. Record low interest rates and government stimulus will keep the city’s market progressing but the continuation of international border closures and interstate migration outflow will continue to keep Melbourne behind.

In Sydney, inner-city record price falls are expected to continue, while middle and outer rings are closing in on recovery. The city as a whole is expected to see an increase in dwelling prices of 7% to 11%. NSW Stamp Duty/Land Tax opt-in will also stimulate the market.

Contrastingly, Perth is set to rise between 8% and 12%, as their base commodities market endures to recover and investments in mining-based projects continue. There was an increase of 9% in market rents over the year in Perth, as stock in the rental market tightens and demand increases. These upward climbing rates are likely to stretch into 2021 and even lead to greater buyer activity.

“We have some misgivings on the longer-term consequences of these new stimulatory policies. If housing is regarded as an asset class that is not allowed to fall, Australia could have some rather serious social issues surrounding home ownership rates over the long term. In the meantime, risks have risen that this new recovery will be one of the more speculative rises seen in some time.

“Let’s keep in mind unemployment remains elevated and net migration is expected to be negative next year. We have a surplus of inner-city units in our two largest cities. And if there was another negative macro event in 2021, there is not much room left to cut lending rates further,” said Christopher.

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