This week we’re going to look backwards: where we’ve come from in property over the past 20 years and the key factors that have helped us get there. Unless you know the past, you won’t really know the future. We like to analyse why something has happened, not to assume it will continue but to use it as a means to forecast. We’re going to speak about five major trends that have influenced residential property over the past two decades.
Dwelling prices have increased three-fold and rent has more than doubled over that time. There have been some major changes in prices and rents over that time.
Asset growth and interest rates
One of the major trends that has driven the past couple of decades in terms of asset growth has been that it’s an inflating world. Prices are going up. Another major factor is what has happened with interest rates. They have fallen from high teens now down to high 3’s and 4s. The historic average variable rate is about 7%. The impulse of the interest rates is very important. Even from 7% to 3% has had a major impact on people’s perception and how they borrow. When they fall from 3% to 2% that impact is nowhere near as much.
Liquidity has increased. The cost of money has dropped and the ease in which you could get money has changed. There was one stage when my wife and I borrowed 110% of that value, but also 20 years ago you largely had to have 20 – 30% deposit. Now you can get online and speak to a loan broker, you used to go to the bank to get a loan, so it has been deregulated.
Here we speak about our capital gains tax and negative gearing.
GST has also influenced the price of property, making them more expensive. Townhouse development has experienced a boost in price because there’s a new benchmark. Government handouts like first home buyers grants and baby bonus have left a major impact on property.
Demand and population growth.
Baby Boomers cohort are growing in volume and upgrading, buying bigger homes. We’ve also seen most households in Australia with one person working and one person staying home, now because of rising prices and deregulation, it has moved to two incomes, increasing ability to pay off loans.
The range of reforms, Fred Hilmer in the late 90’s did some work to actually change the way taxation happens in Australia. It used to be that local government charged all infrastructure charges to general revenue, but Hilmer’s reform found they’re better off charging for the providers of that new housing.
About 10 or so years ago, particularly in Queensland, but also in other parts of Australia, we had regional plans start to happen which restricted the amount of new housing supply and development opportunities, again lifting price.
We’ve seen inflation, falling interest rates, taxes supportive to property growth, expanding demand by population growth, doubled incomes, government reforms and planning which are restricting supply. All of these things have added to the capital growth of property.
I don’t think this list in its entirety will happen again in the next 10 – 15 years. However, in the next podcast, we’ll cover how it may play out over the next few years.
The Rentvesting Podcast, available on iTunes, was created by Red & Co’s Jayden Vecchio and expert financial planner Louis Strange. Together, Jayden and Louis unpack the facts behind the property market, explain what’s really going on & where the market is heading. They believe in challenging the status quo and want to get out there to educate absolutely anyone looking to enter the property market.