The latest house price figures show that while the rest of the economy shuddered to a halt in the first half of this year, the housing market continued on its merry way. Thus far however this has had little impact on the rest of the economy, but with a surge of construction work via the homebuilder program the hope is that next year will see construction begin once again to boost the economy.
Looking at house prices you could be forgiven for wondering “what recession?”
The latest residential house price index shows that in the September quarter prices grew in every capital city except Melbourne:
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They even increased in Perth and Darwin where prices have been falling for five years due to the end of the mining boom. And residential prices in every capital city except Darwin are higher now than they were a year ago. This is the first time since the end of 2014 that has been the case in Perth:
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Instinctively it doesn’t make a lot of sense; after all, in September the number of people employed full-time was 3.3% below what it had been a year earlier – the worst fall since 1991. And yet house prices rose around the country by an average of 4.5%.
Madness. And yet, not surprising.
As I have previously noted, the increased number of home loans that have been taken out this year has suggested that house prices would remain solid, and the latest figures suggest next year could see the strongest growth for a decade:
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This is especially so in Perth, where the increase in housing finance has absolutely exploded:
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Even in Melbourne, where the lockdowns have been the most severe, residential prices have held up and look to grow solidly next year:
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As has been the case for most of the period since the Reserve Bank began its long run of cutting rates at the end of 2011, the biggest price growth has been for established houses rather than attached dwellings/apartments:
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Over the past year, only in Hobart have apartment prices risen by more than that of established houses. In Sydney, Brisbane, Perth and Canberra the price increases of houses is more than three percentage points higher than the growth of apartments.
As is often the case with the housing market, it is best not to look at the underlying fundamentals of the economy to try to work out what is going on.
Yes, a strong economy would suggest that more people would be in the mood to buy a house, but only to the extent governments do not intervene – and the Australian housing market is very much one that is affected by government intervention.
Such is the nature of our economy, wherein more than half of household assets are property and the family home makes up nearly 60% of the assets of median-wealth households, governments will always work to keep the market buoyant in a downturn:
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We saw this during the GFC when first-home buyer grants for construction created a boom, and so too are we seeing this now with the government homebuilder scheme, where grants of $25,000 were available (now reduced to $15,000) for new housing construction:
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The grant, combined with record low interest rates, has made building a new home very attractive for those whose incomes are secure.
In some ways grants that focus on housing construction grants are a version of “trickle-down” economics. The hope is that those who can afford to build a home will be encouraged to do so and this will in turn create jobs for those in the construction industry at a time other work might be drying up.
Such a stimulus comes at a moment when overall dwelling construction has been declining for some time due to the end of the boom of apartment building that occurred from 2014 onwards:
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But the key of the GFC stimulus is that while the housing construction did add to the growth of the economy, it was slower to begin and was completely dwarfed by the impact of the work generated by the “building the education revolution” stimulus:
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The housing market has remained buoyant in the face of a deep recession due to efforts by governments to keep it going.
This should help generate some growth in the economy throughout 2021. But if history shows us anything, the real impact the government can make on the economy is not on grants to homeowners but investment in public works.
