No bubble, but there is a platform for one to develop: ANZ’s Warren Hogan

No bubble, but there is a platform for one to develop: ANZ’s Warren Hogan
Jennifer DukeDecember 7, 2020

There’s no bubble in Australia’s housing market, but that doesn’t mean you can rest easy, according to ANZ’s chief economist Warren Hogan.

Speaking on ANZ’s BlueNotes, Hogan said that we have the platform to see a bubble develop over the next few years, particularly if more people start purchasing speculative investment properties for short-term growth.

“There’s certainly a risk that we’re moving into [bubble] territory but where we sit now in late-2014 is not a housing bubble,” said Hogan.

“There are some excesses forming around the Sydney market that is a very historically high level of investor activity. But this is not a broad-based bubble; outside of Sydney and Melbourne house price gains are lethargic – we’re talking 3%, 4%, 5% for the other capital cities. And the amount of leverage in the market outside of Sydney and Melbourne is quite modest,” he said.

His view is that a housing bubble must be characterised by a broad-based increase in leverage, rising prices and unsustainable speculative behaviour.

“The issue is that we have the platform to form a bubble in the next few years. We’ve seen a significant increase in prices in Sydney, in Melbourne over a number of years and there is some momentum outside of those major cities and that means that expectations for capital appreciation are starting to form,” he said.

“What we want to watch, and where we think it could become a real problem, is when we get a broader element of the community getting involved in investment property that is on a short-term speculative view. That’s where you get into problems.”

{qtube vid:=_Qt50EYF-2A}

Recently, Mirvac’s chairman John Mulcahy also expressed an opinion that the property market isn’t currently in a bubble. Instead, he pointed to lack of supply.

 “While we agree the level of activity in the sector has increased, and pricing has improved in certain geographies, we believe the primary driver of this is the fundamental undersupply of housing across the country,” said Mulcahy.

“In relation to foreign investors, we continue to see demand from offshore buyers, particularly for apartment projects located in our major cities. For the 2014 financial year, foreign buyers comprised 11% of all settlements.”

Mulcahy noted that the percentage of total investors, both foreign and domestic, versus owner occupiers, is just over half of their apartment business.

“This is at the top end of our historical band, however, we would need to see this reach much higher levels to suggest a bubble,” he said.

“Investor activity is certainly buoyed by low interest rates, a view that property is a safe investment and a more cautious outlook towards general equities. But the key driver of higher pricing is driven primarily by a lack of supply, particularly in Sydney.”

Jennifer Duke

Jennifer Duke was a property writer at Property Observer
Tags:
Bubble

Editor's Picks