Common sense can prevail in the housing affordability issue: Hotspotting's Terry Ryder

Amid increasingly irrational media coverage of property markets, occasionally there is a mild outbreak of common sense.

It’s doesn’t happen often, but sometimes someone who understands real estate and doesn’t have publicity as their prime objective will comment – and a media outlet will actually print it.

It’s unusual because media tends to favour sensational negatives from non-specialists for whom the main motivation is generation of publicity.

Amid the great seething mass of nonsense about housing affordability – dominated by people arguing their vested interest, political world-view or pet theory, often with a silver-bullet miracle solution – there is the occasional commentator who understands the issue.

This rare moment of common sense on the affordability issue came from Ken Morrison, CEO of the Property Council of Australia:

“For 20 years we have had a logjam of costly regulation, poor planning decisions and excessive taxation across all levels of government. This has driven up construction costs, impeded supply and resulted in the dramatic increase in house prices in our major cities …

“This affordability cauldron has taken years to develop, and it will take concerted effort over many years to unwind ...

"Too much of the housing affordability debate has misdiagnosed the problems, focused on measures that won't do anything to fix affordability, or set out to blame scapegoats for political convenience.”

That’s the best summary of the issue I’ve seen in all these years of hot air, parliamentary inquiries, political rhetoric, media outrage and lack of decisive action. But it has been drowned by the tsunami of emotive misinformation that has dominated the “debate”.

Then we have the issue of the alleged bubble, over-valuation of housing and impending collapse of values – usually from overseas observers looking at Australia through a very long telescope, although also from the usual local suspects such as Shane “Why can’t I ever get this right?” Oliver or Steve “Why are people still listening to me?” Keen.

Media just loves hearing from anyone silly enough to predict that our housing values will fall massively.

And then, recently, out of the blue someone with a rational, well-thought-out viewpoint was given some minor airplay.

Stephen Halmarick, chief economist at Colonial First State Global Asset Management (Australia’s biggest fund manager), said that the risks of a residential property crash were being exaggerated. He said he’s heard stories of impending doom in the property market for most of his 30-year career, but he doesn’t see any more risk of a crash this time.

“I do get a little bit worked up sometimes when I read in the paper that there will be lots of mortgage stress if interest rates rise sharply,” Halmarick said. “But inflation would have to increase dramatically above the target range before that occurs. So you ask yourself the probability of those things happening - and I think it is pretty low …

“I’ve seen so-called experts from overseas — usually Americans — saying that the housing market in Australia is a bubble that’s going to burst and take the banking system with it. They’ve been telling me that for 25 years and they’re still wrong.”

While he conceded that there are pockets of concern in the eastern capital cities, Halmarick said the Australian housing market “isn’t as vulnerable as some of the headlines would lead you to believe”. And he does not see much risk to the financial system from the property market.

“People just look at gross debt to income, which is high, at 190%,” he said. “But if you look at net debt to income — taking account of the redraw facilities — household debt has been roughly flat since 2006 because people have used the lower interest rates to repay their mortgages faster.

“So the value of housing assets has gone up a lot, as have super funds and other investments of households. So their net wealth continues to rise and is actually close to record highs.”

Many articles have characterised the current situation as a national property boom, with prices either soaring or skyrocketing – everywhere, apparently – and “white hot” markets running rampant with growth that is unprecedented.

And then recently Property Observer quietly put that into perspective with some data which showed that, compared to the previous cycle, it’s all far from extraordinary and unprecedented.

It reported that capital city dwelling values (the average across the eight cities) have risen 45 percent in the past seven years, compared to a rise of 98 percent in the previous seven years (2000 to 2007).

“So far this decade, dwelling values growth is less than half that over the same period last decade,” Property Observer reported.

This is because that previous period included the last time Australia had a genuine nationwide property boom. In 2003, according to ABS data, every capital city grew at least 13 percent in terms of median house prices, with four cities above 20 percent growth.

We haven’t had anything remotely like that this time around. The overall city growth figure for the past seven years is relatively low because only Sydney has had consecutive years of double-digit growth, while Melbourne has only recently challenged. Perth and Darwin have been going backwards for four years, while Adelaide and Brisbane have delivered very little growth. Hobart and Canberra have recently sprung to life.

So the scenario across the past four years has been big performance in Sydney, un-matched by any other city. Sydney’s situation dominates coverage by media, which has tended to extrapolate the city’s growth and pricing levels to the rest of the nation, creating a national crisis.

Terry Ryder is the founder of hotspotting.com.au. You can email him or follow him on Twitter.