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Will Adelaide Grow While Nation Faces Property Crash?

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Economist Shane Oliver noted on 9 April 2018 that average capital city home prices fell 0.2% in March amid price decreases in Sydney and Melbourne. Falling auction clearance rates and home sales, as well as concerns of oversupply upon the onset of newly-built apartments unleashed into the market, provide clues behind the causes of the falling average capital city home prices.

According to this chart, average capital city house prices have been growing at a slower rate, even decreasing in some cases. While the green and blue plots are data for Melbourne and Sydney respectively, the national average—the red plot—reveals a decreasing trend overall.

Will There Be A Property Market Crash?

Given that average capital city house prices have exceeded their long-term trend by 27%, it has been suggested that Australia is long overdue for a property market correction. High levels of household debt relative to disposable incomes, deterioration of lending standards as interest only loans increase, and pent-up supply while housing construction takes place have been cited as reasons to be concerned about a property market crash. 

Why Shane Oliver Suggests that Claims of a Crash are Overstated

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However, Oliver maintains that high population growth has kept up demand for housing (only recently has supply started to keep pace with population growth), that the Australian Prudential Regulation Authority (APRA) has tightened lending standards, and that debt servicing payments relative to incomes have fallen. Australia also lacks the NINJA (no income, no job, no assets) loans that were prevalent in the United States preceding its property market crash. First home buyer approvals have also increased. In other states, prices have either increased modestly or fallen.

Regardless, a property market crash could stem from tightening of foreign investment, rising lender standards, a squeeze on investors, and increasing regulation on capital adequacy, all of which would reduce demand. Falling house prices, while household debt levels remain high, could push many into negative equity: the value of their liabilities would exceed the value of their assets.

What Does This Mean for South Australians?

Meanwhile, in Adelaide, the prospect of a crash in property prices appears far less likely. Residential cranes for the purposes of housing construction flatlined at peak and show little sign of increase or decrease. This means that it is unlikely for there to be an oversupply of housing relative to demand. Oliver concludes that it is likely for Adelaide to exhibit moderate price growth in the capital city. According to the ABS, dwelling approvals fell 0.1% in February 2018. The ABS note that dwelling approvals had fallen for the fifth consecutive month, likely intensifying on market property shortages. With these factors reducing  supply and a rise in interstate investment fuelling demand, Adelaide could grow while the rest of the Nation faces declining house prices.

Sources

https://corporate.amp.com.au/newsroom/2018/april/oliver-s-insights–falling-sydney-and-melbourne-home-prices

http://www.abs.gov.au/ausstats/abs@.nsf/latestProducts/8731.0Media%20Release1Feb%202018?OpenDocument

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