Places Rory’s Ramble

I was speaking in a property Council of Australia forum recently about the residential housing outlook for 2021 as the arrival of vaccines suggest we’re finally emerging from the COVID-19 phenomenon.

Two clear scenarios were evident at the outset: firstly, how the market might unfold up until 30 June when HomeBuilder finishes, with JobKeeper cutting out at the end of March; and, secondly, how the market might behave for the rest of the year.

Hearing the perspectives of those people in the forum, from their different market angles, made for an illuminating exercise. I’ll touch on some of the more interesting points we raised.

First up, the PCA’s Matthew Kandelaars pointed to ABS figures showing the recent strength of the market, with new loans in Victoria totalling more than $3bn from October to December last year. He equated this with 110,000 jobs and broader economic activity totalling $8.5bn.

Nerida Conisbee, Chief Economist with REA Group, went on to detail numerous other positives, among them:

Record levels of wealth, with savings rates climbing from 9% to 20% of household income

Record housing approvals in December, with record low interest rates

– Migration looking more likely to pick up this year; that is, earlier than expected

– Massive changes in regional demand, with many people relocating from cities

– Prices holding strong through the pandemic growth

– Demand for bigger homes as people opt to work from home

Nerida pointed out that the market has been lop-sided, with strong buyer demand while rental demand has weakened, especially in inner Melbourne as overseas student numbers fell away. Melbourne in fact hosted 85% of Australia’s total drop in vacant apartments.

While homebuyer performance has been very active – courtesy 5% deposits, HomeBuilder and other incentives – it has moderated a little in recent weeks.

That said, investors are back in the market: including US buyers eyeing luxury apartments; retirement living activity rising; and off-the-plan activity, while a bit of a mixed bag between the CBD and inner suburbs, on the rise again.

In short, the confidence factor is riding high at the moment.

I’ve certainly noticed this with Villawood, where business has barely missed a beat in Melbourne or the regions. Our Bendigo

Rory Costelloe Executive Director, Villawood Properties

regional activity is actually up as much as 300%. I attended a Lorne auction recently where a knock-down job fetched an incredible $4.5 million – $1.6 million more than the neighbours’ house 12 months ago.

The percentage of home ownership in Australia has been declining for many years. But this decline has been reversed with incentives of $60K in Geelong and $50K in Melbourne for first home buyers. All people need is a deposit, and maybe a bit of parental help, to get into the market. I have had three of my own team buy at our Armstrong since HomeBuilder was announced. There are not many upsides to COVID but this is certainly one. The question is: Will this trend continue? Fingers crossed!

The trick now, as ICD Property’s Alice Smith told the forum, is ensuring the government doesn’t just drop its JobKeeper and HomeBuilder off a cliff and shock the market.

We need a phased withdrawal and return to normal stimuli. We also need the Government to make stamp duty exemptions for off-the-plan purchasers.

Some stimuli have been hit or miss, says Alice, and other factors are at play such as COVID-related design changes. Buyers are seeking out one bedroom study apartments rather than twobedroom offerings.

I see market confidence as a curious thing. Like a football team that’s flying in the first two quarters, it can easily fall over in the second half of the game.

Assemble’s Kris Daff told the forum that while apartment activity might seem to be falling, underlying demand not related to overseas students or Air BNBs remains quite stable. Longerterm overseas interest would remain strong too, he said, and capital investor interest was presently running very strong.

He did say that falling immigration levels due to COVID highlighted the need to make up the shortfall it means for housing. He suggested our intake be lifted and hoped our politicians wouldn’t go weak at the knees about the idea.

I’ve previously suggested that some visa holders in Australia unable to return home – workers, students, travellers – might be offered permanent residency to help take up some of the shortfall. They can be a resilient lot and, if they are allowed to work 36 hours instead of their current 20-hour limit, within a year or two could enter the housing market.

We’re not feeling the full effect of falling migration yet. New immigrants generally rent for a year or two to decide where they want to live before entering the buyers’ market.Therefore the full vacuum effect of no immigration is yet to come.

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