Home prices are rising and so is unemployment - that's a first

You can argue about housing affordability until the cows come home, however being right is an entirely different matter. Let’s face it, Sydney today is a basket case given the gridlocked traffic congestion which simply identifies that it can’t cope as our population surges. This was recently reinforced with the state government forced to declare that some major roads will now be 24 hour, seven days a week clearways.

With great interest I read this week a report that was released Sydney’s ‘global’ vision is bad news for local housing affordability, which identified in a recent government briefing paper that in the last decade medium rent for all properties in the inner ring of Sydney more than doubled from A$195 to A$560. Now that’s scary although realistic given the strategy, part of the “Global Sydney” vision from the NSW state government, is almost 10 years old. Updated government forecasts suggest Sydney’s population will grow to 5.8 million by 2031 – approximately 200,000 more people than predicted in 2010.

The report reveals that we can expect little policy movement on private housing subsidies by federal or state governments. Negative gearing has increased the wealth of middle and high income Australians. Developers endlessly lobby governments for taxation concessions. No major political party would dare propose reform.

With the Reserve Bank of Australia (RBA) deciding to leave the cash rate at 2.50% many were quick to declare that the RBA turns blind eye to housing boom, although I must admit, the current state of the property market has everyone baffled and requiring deeper investigation.

The question that dominates the market is why are there so few listings if the market is this strong? Well that is now easier to address given Roy Morgan unemployment hits 11.3% – highest in 19 years. I (like many others) use the Roy Morgan methodology over the Australian Bureau of Statistics (ABS) given it’s absurd and totally unreasonable to consider somebody who works just one hour a week as being in full employment. It is also widely acknowledged that politicians much prefer the ABS figures given it makes them look better. Historically, property markets always contract when unemployment is rising as the two go hand in hand, although at the moment we are witnessing the complete opposite.

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So we were told this week that Australia’s 9.3 million homes have reached a new high Australian homes worth $5 trillon with the nation’s residences jumping a huge $184 billion in the last three months of 2013. What many find startling is that previously when unemployment is escalating property prices start dropping however this time around home values are rising and so is the unemployment rate.

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The number of houses on the market changed little with just 81 houses on the market. The most startling statistic being there are just two houses for sale in Neutral Bay – previously the record low was four houses with an all-time high of 22.

The cold truth about hot property prices answers many questions given the Australian labour market hasn’t been this weak in over a decade. Investors are driving the values up as they have identified weak infrastructure and escalating rents given our population explosion.

Governments won’t address any of the issues as they are worried about losing voters so to coin an old Australian euphemism – “Bugger you Jack – I’m all right!”

Robert Simeon is a director of Richardson  Wrench Mosman and Neutral Bay and has been selling residential real estate in Sydney since 1985.

He has also been writing real estate blog Virtual Realty News since 2000.

The RWM real estate model has sold in excess of $1 billion in database sales globally.

 

Robert Simeon

Robert Simeon

Robert Simeon is a director of Richardson Wrench Mosman and Neutral Bay and has been selling residential real estate in Sydney since 1985. He has also been writing real estate blog Virtual Realty News since 2000.

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