How the cork was popped on property demand

A housing price boom has always been on the cards with a Coalition win releasing the floodgates on activity. Now, as confidence surges and supply is squeezed, prices will keep rising.

Leaving aside the election, in the last six weeks a series of major events have transformed Australia – the prospect of further interest rates cuts has all but disappeared, the housing market boom is underway, shares are rising, miners are making more money so will boost tax payments and consumer confidence is surging.

And so when new treasurer Joe Hockey does his revenue projections he will discover some pleasant surprises, particularly as volumes of iron ore shipments have risen along with higher prices.

I take as my base date August 4 – the day Kevin Rudd called the election. Just over a week later I made what most people thought was a very high risk call and I predicted a housing boom (Beware the mother of all housing booms, August 13).

Since then even I have been stunned at what has taken place. In making the housing call I relied on an Abbott election win and the simple forces of the market. The supply of housing in both inner and outer suburbs on the east coast is being restricted by the tough rules on bank finance for developers and heavy planning regulation.

But demand for housing is being fanned by banks being willing to lend at low interest rates to home buyers and investors – a classic supply/demand squeeze.

However there is currently a lot of land in outer suburbs and in some places, like Melbourne, there are a large number of apartments coming onto the market. But the force of the boom will take up much of this stock and we will be back to the restriction of supply.

Australian dwellings are already among the more expensive in the world so there is danger in another boom.

Not surprisingly Australia’s largest apartment owner and developer Harry Triguboff saw the boom and the dangers and began selling some off his Sydney apartments to cool the market (Putting a lid on property exuberance, August 21). 

All of these forces might have played out in a more orderly way but for the chaos in Canberra, which acted like a cork bottling up those forces. And the Canberra chaos and the high dollar may have forced the Reserve Bank to take rates too low. The election of the Coalition government removes the cork so there is a rush of demand which transforms the outlook. I highlighted this development in change seven of Abbott government road map (Abbott's 12-point plan to transform Australia: Part 2, September 10.) 

Now what’s ahead is being more widely recognised. The money markets no longer predict interest rate reductions and leading economists are catching up and warning of bubbles

Banks say they are being tougher in awarding credit to home buyers but I was yarning to a bank manager the other day and he has been given the nod by head office to ‘go for it’.

Perhaps the most fascinating development is what is happening to consumer confidence.

The weekly Roy Morgan Consumer Confidence Rating has now risen for six straight weeks and is back to the levels of April.

At the same time Australians are clearly more positive about the year ahead with 47 per cent (up 4 per cent) expecting to be ‘better off’ financially this time next year – the highest level for more than three years.

All of the above has helped drive the share market.

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