Hello, and welcome to The Australian's Money Puzzle podcast. I'm James Kirkby, the Wealth editor at The Australia and welcome aboard everybody. If you're a property investor, you're probably watching some key numbers this week out of the budget and it's promised to drop in inflation. If inflation drops, rates
should drop. If the government puts you know, a cumulative creoh party billion into a housing market in a spectrum of support initiatives, mostly mostly at the lower income side of the market, does that free up middle income side of the market, Does it create some space? Does it does it loosen the vacancy rate? Really really interesting and that's going to be reveal I sed post in the days ahead. But we do have a budget special remember
on Thursday, coming up on sixteenth with Will Hamilton. But inside property folks, I think the biggest question of all is that is this market, this post COVID property investment market that we're in, are we going to see a reversion to the natural order of things? You know, we'll standalone houses for instance, lose the sort of extreme premium they have over units and other key issues of the day for property investors who could answer these questions. Tim
Lawles Doyen of the Property Market. Doyen of the Property Market, head of research Core Logic. How are you, Tim, I'm really well, James. Thanks for the invitation to join you today. Man, you're welcome. The doyen is female. The Doyen is male. I just remembered, hence the correction there. Now. We've had a Actually we've spoken recent times, didn't we when we did a piece as well, and I thought it was really really interesting about changing shape of the market. But
we're why we're on budget week. Where are you coming from in terms? Are you of the opinion that rates will and if you are, when might that happen?
Well, rates will obviously drop at some stage. I think the timing is what's highly uncertain. I'm in the view that in the camp that we probably won't see interest
rates coming down until sometime next year. It's looking like clearly the Treasurer is trying to bring down inflation in the budget, at least based on the leaks that are coming through, mechanically offering up some intentives or rebates and so forth, which is going to be good news for households absolutely, but arguably that potentially does free up households to spend a little bit more, which arguably could put
some renewed upwards pressure on consumption. It's time will tell, and I think anybody is going to be jumping at a chance to see any sort of easy and cost of living pressure, that's for sure.
Yes, yeah, well, well it's very much. It's a deliver government, it's a third budget. It's going to be very supportive from a social perspective. With us, we know that that's where most of the money is going. It's going into education, is going into workers in various areas, it's going into cost of living support and housing. Housing is a really interesting one. So when we were talking recently, you told me an amazing stat and it really to me. It
really reflected what has happened in recent years. So we had this extraordinary COVID period and everyone rushed for space, understandably because we were all trapped inside our houses, and at the time, I suppose it was very real to us that we might be trapped there for a long time, or trapped there again in the future for some other pandemic, for some other reason. And so the premium that people put on standalone homes just went through the roof compared
to traditionally. Could you explain to people what's happened, first of all.
Yeah, absolutely, it's a fascinating paradigm here. Where As you say, James, we've seen this real preference shift towards space. It seemed to be lasting a lot longer than the pandemic itself.
Interesting enough, we did see an update from the Reserve Bank on the average household size, which is a key part of this this trend, and we haven't really seen too much of a reversal in that earlier trend where the average household size dropped from around two point six around two point five people per household, and a real reflection of this amplification of housing demand we saw through the pandemic, even at the time when international borders were closed.
But part and parcel with that was also the fact that people were looking for more space. There was this almost a shunning of medium to high density styles of housing. As people worked remotely, they wanted more living space, they wanted somewhere to work from home, they wanted not to have to share amenity like elevators and stairwells and so forth. But we're not really seeing too much evidence of that
changing up into recently. So what that meant, of course was house values as opposed to unit values just rocketed higher. In fact, if you look at the longer term trend from the onset of the pandemic through to the most recent end of month end of April of this year, we've seen house values across our capital cities have risen by about thirty seven percent, pretty significant amounts. Unit values are up by about a third of that amount, up by thirteen percent.
Yeah, yeah, right, they really really trailed behind her stand alone.
It's a phenomenal trend. That trend, though, was really narrowed partly because house values did show a larger correction through the early phase of the rate hiking cycle following that surge of growth, but also more recently we've started to see unit values rising at a more similar pace to house values even some cities. Sydney is a good example, so as Brisbane, heart adelatter all showing unit value is rising a little bit more rapidly than have values now and.
Of course the gap is closing a little bit closing. It's still you know, it don't seem to be particularly convinced that it's it's never going to go back, right, It's not going to go back to pre pandemic. It would have to go and the units would have to go crazy. Houses would have to do nothing for They've got to go back to where it was. Yeah, I'm exaggerating.
Think about I'll use the market like Sydney, which you know, we know is a really good example because it's already quite a mature density market. The gap between house and unit medium values in Sydney at the moment is about sixty eight percent. The height of the pandemic, it was
about sixty nine percent. So Sydney hasn't really narrowed all that much since those pandemic highs pre pandemic like coming into market of twenty twenty, the gap was only about thirty percent, right, So yeah, I agree we won't see that gap completely narrowing back to where it was in much.
But I think the fact that affordability is so challenging at the moment, and we've got such a ty rental market a lot of first home buyers coming in because they don't want to be renters anymore, I think the logical alternative is looking towards the unit sector, where price points are a lot lower and a lot more achievable.
Okay, so if you were an economist with the view of the reversion to the mean, you'd say, listen units from here on in the windows behind them, that they may actually dollar for dollar little better than single story, single standard on Holmes.
Yeah, I would say that, at least over the short to medium term. I think there is this other argument over the long term, the scarcity value of land, which is generally what drives house prices higher compared to units. It's still a thing, right, I think that's probably going to keep house values with ascending a premium. There's also the other factor, which is we haven't really seen much of a supply response at all in the medium to
high density sector. Houses at least had the benefit of home builder and there's been a supply response there, though it's fair to say there's still a lot of hurdles to getting that supply into the marketplace. We haven't seen
at the meetium. The high density sector and through developers getting MEETI into high density styles of housing stock into the marketplace has a lot higher barriers because getting a multi store unit into the marketplace is very expensive at a time where construction costs are high and labor is in scarce supply.
Yes, I see when you say units temp you mean apartments. Do you also mean like units as we know them, little garden units? And do you mean townhouses too? Is it everything except the standardone home in the traditional sense?
Yeah, thanks for clarifying, James. It is a bit of a catch all phrase units. You're right, it does include everything from say, town homes through the high rise. I think there's a pretty good argument that what a lot of developers or the industry would describe is the missing middle, which is your more sort of lowd and median density styles of multi unit dwellings. Townhouses would be the best example,
are probably going to be in high demand. Again, there's a real supply shortage, and it's kind of like the next best option. If you can't afford a house, then you're probably looking towards a townhouse or a terrorist or a villa.
Okay, that's really interesting, So folks, I meanst the head of research at core Logic, and you know, basically he's saying the dollar for dollar that the units, the immediate outlook could go better. PERSCUAMTERI would be like than standalone homes because the standalone homes just basically went out. The increase that they had not just in COVID but in the immediate post COVID year was so extraordinary. Okay, very
very interesting. I want to come back and we're going to take short break and I want to ask you in terms of this post COVID market team, I want to talk to you about the order of the property markets in Australia. We used to a very simple ladder. Sydney was at the top, Melbourne was second, and I sort of descended down. Hobart was at the bottom. That's all changed. We'll be back in the moment. Hello, Welcome
back to The Australian's Money Puzzled podcast. I'm James Kirkby, the was editor at The Australian, and I'm hoping to Tim Lowless, head of research at Core Logic and Man you will see regularly quoted on all things property and property investment around Australia. So Tim, once upon a time, that's that was it for me. I mean I had a very simple view which was established over the years, that Sydney was the leading market, It set the trends, it was the most expensive market and then it cascaded
down from there. You had Melbourne next, then you had Brisbane, then you had Perth Adelaide, and Hobart was at the end. I sued to have a joke that at the Hobart prices when they when they moved up, that was it. That was the that was the last link in the chain. As it was over. Basically, you know that everything it happened very slowly. Sydney always started any movements upwards and
Hobart ended it. That all kind of went out the window in the Corvid period and there was an extraordinary time where for instance, hall Bark was more expensive than Partha Adelaide. What's the situation now, Yeah, there is this natural order I suppose in the housing market, and it does tend to change over time or evolve and then revert. So at the moment we still have Sydney like heads and shoulders, the most expensive market based on median values.
And you've got a median house value in Sydney it's about one point four million dollars at the end of April.
And then you've got Camera. You know, a lot of a lot of space between Sydney and Camebra. Camera's got a median house value about nine hundred and seventy two thousand dollars and then Melbourne at nine hundred and forty one thousand. But there is a little bit of a changing of the guards happening here. I don't think Sydney at any risk of being overtaken for its median value at the moment, but it does look like, you know,
Brisbane will troublately overtake Melbourne. For example, there's not much difference there nine hundred and twenty thousand in Brisbane as an in nine hundred and forty thousand Melbourne. Melbourn's a flat market. Brisbane seeing housing values rising at nearly two percent month on months, So on those sort of trends, it won't take long before Brisbane overtakes Melbourne, which will be a little bit different.
That's interesting. You could have Cambra and Brisbane more expensive than Melbourne even though it's the second biggest city. Yeah.
Yeah, there's not much difference between Perth and in Melbourne either. Okay when you look at percentage difference, and with Perth housing values rising at about two percent month on month at the moment and even accelerating into the quarter and again Melbourne flat. You know, arguably, if we see these trends continue over the next six months, then Perth's going to be pretty close to Melbourne's value as well. A
bit of a changing of the hierarchy here. Yeah, you go back to go back to two thousand and six and for a little while their Perth was even more expensive than Sydney during the mining boom. That didn't last very We went through all over after that as.
Well, right, right, So actually there is perhaps a natural order, but the natural order bounces around considerably depending on obviously well Perath will right up and down with the commodities market, I suppose to an extent.
Yeah, I mean the mining, the mining commodity cycle, or more with an infrastructure cycle of the company's resources prices was the real driver of Perth. But now what's really driving the Perth market is a very healthy rate of affordability, at least in relativity to the Sydney and Melbourne, really strong rate of interstate migration and overseas migration and inherent lack of supply, and a very strong economy of course as well. It's got one of the strongest jobs growth
figures and one of the lowest rates of unemployment. The resources sector is very strong, but a lot of big infrastructure projects for transport underway as well. So yeah, it's looking very different to the mining boom in Perth. And despite such strong growth, it's still fairly affordable.
It's still affordable and on the other end of the scale, as I understand, Hobart has started to drop back through the wrongs on the ladder because a lot of people perhaps rush there during COVID. It would have been such a lovely place to be if you could were looky enough to be there when everybody is lockdown. But I think it's has it dropped a few tiers.
It had its absolutely even before COVID, Hobart was a very strong market. Look at the longer term growth rates, I say, with the five or ten year period, Hobart really stands out as such a strong market. But now its median house value is the second lelf of any capital city, now above Darwin and just below Perth. We're still seeing Hobart housing values down about eleven percent from their record highs So eleven and a half percent from
the record high is back in twenty twenty two. So yeah, it's a clear example of a market that was very strong, but it doesn't have the same demographic tail when most other markets, and that affordability you mentioned is really been quite a barrier to attracting more people into that market.
It's interesting, isn't it really is, Especially if you are an investor and you are prepared to invest interstate you can, you can. You can get it very right or very wrong. If you'd gone into Perth two years ago and then people had been saying for years, of course the Perth will come up, but it didn't until very recently and now it's really starting the steam. But if you had gone into hope Art, you'd have actually been at the peak looks like, and you'd be losing money if you
were selling. Interesting. Interesting, fascinating to talk to you, Tim, and you have that helicopter view of the market, really really interesting. I have curated some questions just for you, Tim, so I think we'll take a break and we'll try to get through all those questions in the moment. Hello, Welcome back to the Money Puzzle podcast. James Kirkby talking
to Tim Lowless. Tim. I've also the questions here and hopefully you can help me with some some you will not be able to help me with because they are really comments and complaints as much as questions. So I will to start with read orion i d He says, thanks for your response on my question on land banking, but I think your simple answer seemed a little dismissive. I expect more from a journalist who usually sounds pretty skeptical of the more self promoting claims of your guests.
Cank you read, Yeah, sorry, in no way did I mean to be dismissive on your on your question about land banking that time. I hope if you're a regular listener to the show, I've been quite earnestly interested in the broader area of housing provision across, not just from an investment point of view. But apologies there, okay, Zoe says, Now this is really interesting. Everyone's been knocking the first
home super scheme on the show. We've had lots of correspondence saying it's extremely difficult to deal with, it's too much, it's more trouble than it's worth. Zoe says, I've been listening to your podcast for the last twelve months as I saved four and have now purchased my first home. As someone starting out in the market. It's great to learn from the experience of those who's been in it
for longer. However, it troubles me the way the first Home super Saver scheme is depicted as rating your super I've heard that phrase on your show and disappointed to hear it again recently. The first Home super scheme is the only way I could save towards my deposit when I was renting, and I think it's one of the best policies out there to help first home buyers, even if it is complicated. And then Zoe puts points three things. She says, I found it really useful for three reasons.
One I couldn't touch my house deposit, which is very of course it would be the case if you buy in any event, but fair enough. Two it lowered my taxable income. Three it's keeping my deposit savings in my super increased the compounding interest on my super big because I had a larger amount invested. I hope these arguments incur is to rethink the FHSS. Well what about that?
Here we are with a point where the whole argument about superfer housing is so hot, and we have this curious scheme where you allowed to use your super contributions.
So thank you very much for that. So it's not it's not a view of herd many times, but it was very perspectively put tim on the housing for super You know that the opposition is really building on this, and they're now saying, certainly Andrew Bank is saying, and you send a committee that not if they get in, not only would they allow you use your Superfer housing, but they would allow you to use your entire Superfer
housing with basically with no limits. You could just whatever you soup, you could take it out, put it in buy a house. I'm not going to ask you whether you think that's good or bad. I'm going to ask you what would be its impact do you think on house our housing market?
Yeah, I mean to reminds you, but I think broadly clearly you're this is a demand side opportunity or stimulus to the market. It generally would tend to provide better
access to housing, would increase demands. Logically, when you have higher demand against this ongoing backdrop a very low supply, it probably would push prices higher, arguably, But if you look at some of the other research around the Productivity Commission's a good example, retirement wealth is very much underpinned by home ownership, so getting to the market earlier and using your super funds logically it was probably a good way to build wealth and set yourself up for retirement
much better. So I think there's a bit of pro and con here, but it would be interesting to see how it pans out.
Yeah, yeah, I look, I have I think i'd said this on the shore recently, if I haven't dometic here now. I did always think super should solve it super and housing should solve housing, and in principle that all what's
up fairly well. The thing is that in reality, the tax system is totally utterly biased towards the homeowner, and access to the pension is biased towards the homeowner, and the capital gains taxes biased towards the homeowner, and if you're not a homeowner, you don't get all those tax breaks that the entire system is constructed around. So I'm afraid that, in some way, reluctantly, I think that that super can be used for housing, and I can see
why people would want to do it. And not only that, but I could see how it could work out for people because having a little bit of super and no home is a much worse position than owning your own home in reality, in the way the tax system works. They're just putting that out there, Okay and Neil. In reforming negative gearing, one of the options discussed is to limit it to one property. This approach lacks equity, as someone with two five hundred thousand properties would get far
fewer reductions than someone with one one million property. Has the idea of a total cap being considered instead, Thank you and nil. Actually, well, we have no idea whether they're going to go near negative gearing in the budget. I'm speaking to you on budget morning. We go in at half past one for six merry hours. We were locked up together and looking at the budget. There's always rumors that they might go near capital against tax, might
go near negative gearing. I think specifically, perhaps a more immediate concern might be they could close down the ability of super fans to borrow for property because they could be backed up in that. There has been previous inquiries which says that should happen, including David Murray's inquiry Once upon a Time, which was commissioned by the Coalition. So I think that's actually a risk as we go in
there to date. I'll just finished with the final question of Andrew, which will trigger thoughts from both of us, Tim and who ask what do you want to see in the May budget which would strike the right balance of rugality and effectiveness. Thank you Andrew, big question. I think we know a lot about what we're going to see the nature of what we're going to see in the budget. So for someone like Tim, I would think policy wise, he's really looking at whether inflation will be
stoked and whether rates will move up and down. On the other issues, tam on the big ticket issues like housing, and it's humulative three years I said, thirty billion going into housing, nine billion a loan to single item in this budget. Aren't social housing? How would it affect the market broadly for investors? It won't have an instant effect, that's for sure, because even with more funding, which I
think is very welcome. By the way, social and community housing is pretty desperate for more funding and we clearly need it, but it's a pretty slow burn. We know there's a lot of hurdles to getting more supply into the marketplace, but longer term, absolutely this is going to fund more housing for people who need it and can't
afford it. And we know the government has really removed itself from owning public housing, and the way they're offsetting that is through funding more social and community housing of course, So I think that's that's certainly key.
I wouldn't be surprised if we see some other announcement or maybe further incentives from build to rent styles of institutional ownership to get more rental supply into the market. And of course the transport infrastructure side of things is also very important for housing as well, and no doubt there is a lot more being funded for a key transport infrastructure.
We often get questions about build to rent to which I have to answer in veribly each time, is that sorry, it's not accessible to the to the to the everyday investor just yet it's very much institutional. Have you looked at that area in terms of what's been going on and what might happen in the future.
Yeah, absolutely, it's it's very topical, and I think it's fair to say, even though there's a lot of hype around build to rent and a lot of interest, we aren't seeing a lot of activity or a lot of actually, you know, feat on the ground as such just yet. There are some good examples in Melbourne, but the few
and far between. Nationally, I think we're still seeing institutional investment quite cautious in this space, given the very low yield environment across Australian housing, and probably also some challenges around just financing these styles of developments as well amid a high interest rate environment.
So the big super funds they said, yeah, yeah, housing, it doesn't match our investment profund the yields out there, we don't get the chrends that we're looking for. So what are two million in Australians wrong to invest in property or are they comming in a different doorway?
Yeah, it's very different. Taxation policies look to be I suppose improving in the sense of lower withholding taxes, better depreciation benefits for institutional investors. But you're right, I think, just a point, putting my finger in the air, around eighty five to ninety percent of all rental housing in the countries owned by private sector investors, and of course taxation policy being capital concessions and negative gearing are a pretty big part of that.
Yes, So that explains perhaps to a substantial degree, the enthusiasm of the investors, ay, individual investors, and that's been sort of baked in for so long people as people work it into their figures and they don't expect it to change. Well, we'll see if it changes there anything changes around it later this afternoon. Okay, well, thank you very much, Tim, great to talk to you. Very interesting
to look at that market. I must say I am dumbfounded to hear that Sydney, Canberra and Brisbane are already dearer than Melbourne and Earth could be soon. Sitting as I am in the middle of the city of five million, I do wonder what on earth, what on Earth is happening? But as you say, it changes all the time. There is a natural order. But the pillars move all the time, and you see hope at thinking at the moment and Brisbane and ascending. So very interesting for the investor, especially
the investor who's open to moving cities with their money. Okay, thank you very much, Tim, Lola's had the research at core Logic.
Many thanks, James.
Lovely to have you on the show. And folks, let's have some questions. The email is the money puzzle at the Australian dot Com dot Au talk to you soon.