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Chapter 1: What is the main topic discussed in this episode?
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National property price rises have stalled. That's according to the most recent data as three successive rate hikes and planned property tax changes seem to have dramatically shifted the market. So where to from here? And as the Australian Bureau of Statistics prepares to release GDP data later this week, there's a larger conversation going on about what it measures and what it doesn't.
Welcome to ABC Business Daily.
Welcome.
I'm Carrington Clarke. And I'm ABC News Business Editor Michael Yarder. Michael, lovely to be sitting across with you. I've taken the keys back to the pod. Is there anything I should know about how it was driven in my absence?
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Chapter 2: Why are national property price rises stalling?
Property momentum has shifted and we're not seeing the huge rate of growth that we were at the end of last year.
Yeah, that's definitely true. I mean, I think the fair thing to say is that the property market momentum had shifted well before even the leaks about capital gains tax and negative gearing started coming out in the lead up to the budget.
Basically, as soon as the Reserve Bank started talking about raising rates towards the end of last year and then actually did it in February, that was a hammer blow to the momentum, which until then, you know, second half of last year had been red hot in the property market. I mean, the price gains were, you know,
again, almost out of this world and running well ahead of inflation and wages and all these things. So in a sense, and Tim Lawless from Cotality, their senior analyst says this in the release about the data. there was a sense that momentum had to run out because the gains were so strong.
But you factor in rate rises and now these tax changes that affect property, and it's no surprise that the market's really run out of puff.
Let's break down some of the numbers because obviously that headline figure is that there was no property price growth for the month of May. However, if you look over the past year, still up 8.8%. So with a zero for one of those 12 months, you've still got 8.8%, which is an extraordinarily high rate of increase for an unproductive asset.
Property is supposed to be a pretty safe investment, but these kind of rises are quite extraordinary for something that is relatively, or has been, relatively risk-free.
Yeah. And also, again, well ahead of incomes, well ahead of consumer price inflation, well ahead of rental increases, meaning that yet again, rental yields for Australian property have fallen even further and are incredibly low.
For any other asset class, you'd look at getting a 3% or less gross yield and professional investors would be running a mile, especially with the risk of potential price falls if there's the market correction. So As I said, it seems like a story if we had this big momentum, it's almost fallen under its own weight as it does from time to time.
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Chapter 3: How have rate hikes affected the Australian property market?
So some state treasuries might have to re-evaluate their forecasts.
And the argument about why we'll impartly for lower transactions because of the taxation changes is that people who own existing properties that have access to the negative gearing still have that discount. They're not going to want to sell those properties as quickly as they might have otherwise sold them and buy a new house, for example, because you won't get the same tax treatment.
Yes, it's going to have a significant impact in lots of different ways. But that broader question about whether or not this is a good or a bad thing, I think that is being debated in the community. And yes, for a very long time, for as long as I've been a journalist, people have been talking about property being unaffordable for first home buyers, that they've been at a disadvantage because
of the taxation arrangements that investors were able to take advantage of. And this is something that many economists have suggested for a long time. The difficulty I think for the government is yes, the treasury modeling says, well, this might lead to house price growth being 2% lower than it would otherwise be.
The problem is if it would otherwise be in these current circumstances already going backwards, That's a much harder kind of message to sell, isn't it? They were just, they're just going up less than they would otherwise.
And it is a risky time to have bought these in because of rising interest rates. And because the fact, look, Sydney and Melbourne were already well on the way to falling home prices before these changes were even flagged. As soon as interest rates reversed course and started going up, Sydney was going to have home price falls. We've seen it before.
It was already happening in the auction clearance rates falling quite dramatically, the sentiment. had already turned. In fact, if anything, people talk about the government leaving space for the Reserve Bank. These housing tax changes, if they do take even more steam out of the housing market, we may well be talking about the Reserve Bank not raising rates any further.
We're already saying a June rate hike is pretty much off the agenda as far as markets are concerned. Bets on another rate hike in August or September later this year are being lowered. And there's a good chance if this does lead to a housing downturn that we could start talking about rate cuts again by the end of this year, putting a bit of a floor under how far these house price falls go.
So swings and roundabouts, that would obviously be good news for the government because it existing homeowners with a mortgage really love their mortgage rates falling. And if this contributes to that, that's a pretty positive selling point.
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Chapter 4: What does recent property data reveal about market trends?
So it's actually, you know, trying to build new houses is expensive.
It's controlled by the governments and there's a lot of talk in economics about the planning rules, but people also forget, including the advocates of changing the planning rules and making it easier to develop. but it's also controlled by the private landholders who already exist.
So there's no point relaxing the development restrictions in, you know, say, inner West Sydney if the people who currently own large houses in inner West Sydney don't want to sell them. And they're so expensive now, using that example, that
There are people who are like, well, actually, even though a developer would come and pay me four and a half million dollars for my block of land, someone else who wants to keep it as a single block of land would still pay $4 million for it. So.
Yes, but it would definitely depend on how high you could potentially build on those particular blocks of land. Uh, it was part of the argument, right? Is if you actually allowed to full free range in lots of these places, then you would see significant infill and that would lead, you would think, most economists would agree, to significant reductions in the price of properties there. However...
It might also lead to less people wanting to live in those areas.
And it would significantly push up the price of the remaining standalone houses in those areas. And, you know, until we start getting good at building three and four bedroom apartments that families can live in, there's going to be a substantial market for well-located family homes that currently is mainly being met by standalone dwellings.
We do have a significant piece of data released this week. That's Australia's GDP or gross domestic product. These will be the numbers for the March quarter. Now, GDP has kind of been the gold standard for trying to measure economic activity within economies.
There has been a long-running debate about whether or not it is the right measure, whether or not it does properly account for things that aren't captured in that data. when it comes to things like health outcomes, environmental outcomes, equity. And there was once again an attempt by the UN to come up with a new measure that could at least complement GDP, if not displace it.
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