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Michael Yardney Podcast

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Listen and learn from Michael Yardney, Australia’s most trusted property commentator and a group of experts as they discuss Property Investment, Success, Money and Finance to help you multiply your wealth.
While Michael is best known as a property expert, he is also Australia’s leading authority in the psychology of success and wealth creation. You’ll enjoy the way he challenges traditional finance advice with innovative ideas on real estate investing, personal finance and wealth creation. 
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Apr 20, 2022

The media is full of concerns about the future of our property markets, so in today’s podcast I’m chat with Ken Raiss, Australia’s leading property tax accountant about the future of our markets and why we believe you shouldn’t be concerned.

I know there are lots of commentators out there who have a different view, but Ken has been involved in property almost as long as I have and if you’ve been regularly following this podcast or my blogs on Property Update you’ll know that we have been pretty accurate in our forecasts over the last couple of years, so today we’ll discuss how Covid changed our property markets, what’s currently happening on the ground and what to look forward to.

At the end of today's show, I hope you’ll have more clarity on what’s ahead.

The Future of Our Property Markets

Now that life is getting back to what some of us would call Covid Normal the housing markets are changing in front of our eyes.

So how have our markets changed and what will the main drivers of our property markets be moving forward?

That’s what I want to chat about today with Australia’s leading property tax accountant Ken Raiss director of Metropole Wealth Advisory.

Let’s first start by exploring some of the major impacts of the pandemic on the Australian housing markets over the last 2 years.

  1. Australian home values rose 25%, to record highs

Despite negative predictions, last year was an extraordinary year in the housing market – around 98% of locations around Australia recorded rising property values with many properties rising in value by more than 20%.

Before COVID-19, the ABS valued Australia’s residential property at $7.1 trillion.

It ended in 2021 with a valuation of $9.1 trillion.

To put it another way, the growth in property wealth in the past two years is higher than all the gains over the decade before COVID-19 (2010-2019) combined.

But that was an extraordinary market – a once-a-generation property boom, and this year property markets will behave differently. They will both behave more normally and be more fragmented

  1. First homebuyer activity spiked

From June 2020, first home buyer activity surged amid the introduction of the HomeBuilder scheme, used alongside the First Home Loan Deposit Scheme, as well as other state-based grants and stamp duty concessions for first home buyers.

The result was a spike in first home buyer activity, which peaked in January 2021. The spike mirrors first home buyer participation in 2009-10, which marked a temporary boost to the First Homeowner Grant.

Since the January 2021 peak, first home buyer activity has diminished, reflecting higher barriers to entry as housing values substantially outpace incomes.

  1. Rents rose 11.8% to record highs, while gross yields fell to record lows

There are multiple reasons rents have risen.

  • Investor activity had been relatively subdued between 2017 and mid-2020.
  • Rental supply may also have been eroded through the rise of rental services like Airbnb.
    • This trend may have been particularly prevalent in tourism destinations across Australia, some of which have flourished amid a rise in domestic tourism in the past two years.
  • Rents may have increased due to higher purchasing prices for investors who have recently purchased long-term rental accommodation.

Over the course of 2021, annual rent value growth was at its highest level since 2008.

The headline numbers hide the diversity of rental conditions.

There has been a clear shift in rental preferences toward lower-density housing options through the pandemic, where the upwards pressure on rents has been more substantial.

This trend has evolved over the past year, with rental affordability gradually deflecting more demand towards higher density rental options where the cost of renting is more affordable.

  1. Housing debt levels hit record highs

Rapid increases in housing and rent values in the past two years were largely the result of a sizable reduction in the official cash rate.

However, it is important to frame debt levels in the context of high asset values, and relatively low interest costs.

RBA data shows housing interest payments to income have fallen to their lowest levels since 1999, and household debt has trended lower as a portion of housing values.

  1. The premium of house prices compared to units hit record highs

Both the composition of the buyer pool and the impacts of COVID may have contributed to a record gap between house and unit values.

Investors, who may have a preference for units, have been a relatively small part of demand through the upswing.

Additionally, detached houses may have been in higher demand as Australians spent more time at home through the pandemic.

Government policies such as the HomeBuilder grant may have also contributed to increased detached housing demand, due to tight construction timelines to qualify.

The result is a record-high gap between house and unit values.

  1. The rise of the regions

Migration trends over 2020 and 2021 revealed an uptick in the volume of people leaving cities for regions outside of lockdown periods, and a decline in people leaving regions for cities.

The result has been higher than normal housing demand against unusually low levels of listings across regional Australia, in both the sales and rental market.

Where to from here?

The current housing market upswing has delivered extraordinary value gains, providing a significant wealth boost for homeowners, but larger hurdles to enter the market for non-homeowners.

But since April of 2021, monthly gains in national home values have softened.

Arguably, there are more headwinds than tailwinds now stacked against continued growth in the property market, with the potential for sooner-than-expected cash rate increases, affordability constraints, and weakening consumer sentiment slowing demand.

While some structural shifts through the pandemic, such as remote work, may sustain demand in regional Australia long term, it is likely that housing values will start to decline on a fairly broad basis later this year.

Links and Resources:

Ken Raiss- Director Metropole Wealth Advisory

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Shownotes plus more here: Stop worrying about the future of our property markets, with Ken Raiss

Some of our favourite quotes from the show:

“Interestingly, some tenants became first homebuyers, I think that’s one of the other big trends that happened during COVID.” – Michael Yardney

“Houses will always be more expensive than apartments, but I can see a catch-up for the right sort of apartments and values.” – Michael Yardney

“What brings the seeds of success to life is the pursuit of a dream and the goals behind a dream.” –Michael Yardney


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