The state with an oversupply of property

about the buffer. That is, for what it's worth if you go into a bank anybody, whatever the interest rate number is on the documents that you have got ready to get your loan at the bank, they add three percent. So if you think you're getting a loan at six percent from the bank, they have to assess you on the basis of nine. That's called the buffer. Three percent buffer.

There's been a campaign to try and cut that back or eliminate it entirely, and I'm afraid to say APRA, the regulator, came out yesterday and said sorry, we're not touching that buffer, So we're going to have to struggle on with that as investors. That's suppose the news you don't want to hear the news. You probably do want to hear is that AMP is still a very important

institutional player in the local market. They've done a fairly thorough deep dive into residential property this week and basically the message from that report is that nothing is going to stop both prices running higher and rents running higher in the year ahead, and we could easily see prices match where they went last year. They did nine percent across the board last year. They've done about four and a half this year. Already plenty of time to get

to that same number. So eight or nine percent again this year looking pretty good, I have to say. In all markets except one big one Melbourne, second biggest city in Australia, and guess what the prices are going down. Prices are going down in Melbourne. Go figure there are marching steadily forward everywhere else. We may talk about that

for a moment with my guest today. She has herself done some very interesting work in recent times on property on an area I never saw before, and she has a model if you like what's going on in the market post COVID and how as investors we will actually be rewarded by buying bigger space that beyond doubt the rental growth coming down the line will come on bigger properties. Interesting work she's been doing. Her name is Eliza Owen. She is at least a research economist at co Logic.

How are you, Eliza.

In the year to during rent growth in five bedroom plus houses we're sitting at eight point seven percent and that ranges all the way down to these houses with two or fewer bedrooms, where annual growth was seven point six percent. In the unit segment, we're still seeing relatively smaller units attract the highest rate of growth, two bedroom units sitting up seven point nine percent in terms of

rental growth in the past year. But crucially, these small units have seen the rate of annual rate growth decline rapidly, so down from about fourteen percent group this time last year. Where is the larger units three or four bedrooms and that is wall strata properties, so it will include things like townhouses as well. Rent growth there has been much more steam. So at a very high level, I guess you could say larger properties are currently attracting higher or more stable growth in rent values.

are eight hundred and seventy four dollars a week. But when you divide this by the number of bedrooms, so the small houses by two, the big houses by five, what you find is that your rent per room goes down. Interestingly, that also means that on a percentage yield basis, your gross rent yields are actually higher technically the smaller properties, even when the overall rent is higher on larger dwellings.

And then on top of that, you're telling me that these type of properties stand alone if they have multiple bedrooms, and that ability to be a shared house would seem to be a really strong rental option for investors.

return on from that sense. But for a lot of investors in Australia, obviously capital growth is the name of the game, and so that's where landed dwellings can be a benefit as well.

fluctuation and deviation in rent growth among that segment. I think long term will probably get back to a normalized pattern where the growth and rents is a bit more uniform. But again, longer term, the capital growth has been higher in larger dwellings, so that will be consideration for investors as well.

national accounts making a view. And that report from AMP this week just made that core point that they couldn't see anything stopping price rises and rental rises motoring along this year. The outstanding point they make, which is the point every economist makes, is that there's a lack of supply, that there is under supply in most States, and that is to some extent compounded by labor shortages, by elevated immigration, and those factors all combined will keep pushing the market higher.

They're talking that we could see something in the order of eight or nine percent this year on houses, five percent maybe on rental growth. What do you think of that? Are you comfortable with that sort of outlook? There's or anything you would disagree with there.

through the month of July. So there are some additional headwinds to consider for the market at the moment, namely that we're at the point in the interest rate hiking cycle now where even if breats don't go up any further, they're likely to be higher for longer than first anticipated. So people who had previously been pricing in this expectation of a rate reduction later this year maybe holding back

a bit. And we're seeing that twenty eight day change slow down through the month, and that could be a reflection of weakening economic conditions now as well, because we're to point where those high entries rates are starting to unwind the labor market, create a slow downing business confidence, consumer sentiment. That could all have an impact on creating a slower growth rate through to the end of twenty twenty four.

on in the property market now. One of the things she said, if you remember, in the first segment, was about how diverse this market is. And I just wanted to doraw out something with you now, Eliza, which is I knew that perhaps was the strongest market, and I knew Queensland was going very well, and I knew Victoria was the weakest market, and I was amazed. Actually, I didn't quite realize that it's literally going backwards, right. So it's about minus one percent so far this year in Victoria.

Why the rest of the nation is about four percent. But what I didn't know, Eliza was there's actually an oversupply of property in Victoria. Is that so could you explain what's going on?

seven percent in regional Victoria. If you can see of the transaction activity in regional Victoria in the Gink quarter, for example, there were ten thousand properties added to the market for sale in the period, but only about six thousand, eight hundred properties were actually bought in that same time. So that points to a massive oversupply in the sense of more people looking to sell their property, the more

people looking buy. This note from AMP also spoke to the fact that construction levels have been high and relative to population growth, obviously, Victoria has suffered a deterioration in nets interstate migration through the pandemic. But on top of that, the state has just supplied a lot of property and that helps to absorb additional demand and keep growth in

property prices low. So if you look back to dwelling completions between twenty ten and twenty twenty three, there were about seven hundred and seventy three thousand properties established across Victoria completed across Victoria cumulatively in the period. That is not only the highest of any of the states and territories, but it beats New South Wales, our most populous state, by about about one hundred thousand dwellings.

the property market goes into decline. But that also points to this state of oversupply in the market, which means buyers have more negotiating power to bring prices down and that lowers the asset value overlying.

has been completely eroded. The median house value across Brisbane is actually now higher than across Melbourne, saying for typical unit values, so that supply and demand will start to balance out across the state and I think from that perspective it could be a good buying opportunity. I think Melbourne is one of the best cities in the world and it's currently available at a discount.

Eliza courses in columnists that core Logic. We talked to her rightly on the show. Very interesting as always, and what I really like about talking to Eliza is I find out things I didn't already know. I didn't know that there was an oversupply of property in Melbourne. That is really interesting and it really, i think, in a way confirms beyond all that that it is not just a sort of bargain basement of the nation from property

investment point of view. But it's going to stay that way for some time because over supplies that's something you can change very quickly. It's also unique in our market because under supply is the big problem and has been for so long, and that's what we read about all

the time. And I think a minor but really interesting sort of dimension of what she was alluding to in those first segments of the show is that traditionally there's always been this net migration out of Victoria to Queensland and that may not keep going at anything like the levels that did previously, because simply it doesn't make sense financially anymore because Brisbane's got dearer or Queensland's got dearer.

So you sell your house and you move to Queensland if it costs the same, then you might be as fast to go. The dealer's falling apart from a financial point of view. Very interesting, Eliza, really great. Thank you very much for those observations, and also what you were saying at the start of the show about how the big house with the many drums that can become a shared house. It's such a rentable opportunity now and has

that extra dimension that standard one properties tend to do better. Anyway. Okay, really interesting. I'm going to do some questions, all right. The first is not actually on direct property, but I'll read it out. It captures a lot of issues that investors face. It's from Warren, would you be able to do something on getting exposure to the Australian property markets through the ASX. I can think of various building product manufacturers,

ates and commercial property. There's also less obvious players like Harvey norm that own a lot of land. Okay, Warren a couple of things. The issue of accessing the property market through the stock market is a completely and totally different game than only direct property, and what you might learn in direct property would not tell you much about how to assess a rate or a property trust. That's one thing I think I've learned over a long period

of time. I think it would make it alterra different to try and assess companies the property value of companies because they own some property like Harvey Norman or loose corporate instance, which owns its own buildings. It's very hard to assess from a property perspective. It's too complex, I think for retail investors. So you're back to what they call the reads the property trust. There's a spectrum of them, maybe ten or twenty, probably about seven or eight that

really matter. I think we need someone else on the show to talk about them. The only thing I would say is over twenty years watching them, Goodman Group is just in the league of its own. It's something like the common Wild Bank. It's it's just what the others do, but it does. It's so much better from a stock perspective, and it's been rewarded and doing so. It's now a

top ten stock. Do you ever look at the property trust, Eliza, and do they tell you anything at all in terms of informing your daily work and analyzing the residential market.

the market. That's a great question, Karen. Most mortgages at twenty five or thirty years there are. By the way, I did some work for you, Karen, and I went to one of the financial product companies that look at mortgages just to see what the situation was in relation

to this. It turns out that there are some banks and finance companies in the market that will offer a forty year mortgage, and that be very useful because if you're thinking that you might extend your mortgage, then if you could do that, if you could extend, say a thirty year mortgage to a forty year mortgage, it would be very useful for you. Dave Mickenbecker, who has been on the show in the past, he's very good on this whole area and this whole issue. He's from the

can Star Group. Karen I asked him particularly about this, and he says, thirty year mortgages remain dominant. Only a handful of lenders offer longer, and half of those are for first home buyers. Okay, and he says only one lender in the past two years has gone over the thirty year mark. But there are it's very small. There's only four lenders offering nine different products on a forty year basis. On a thirty year basis, there are eighty

eighth lenders offering three hundred and sixty. So there you go. There, you can see they're out there. They're out there, but it's very rare. Are you familiar with this, that people are extending their mortgages to bring the brggage, the monthly mortgage built down, Eliza, Yeah, I.

interest payment. Forty years is also the lowest term that I've seen flirting around, but again, like you say, it can be harder for older Australians to take on those longer loan terms. These tend to be the non bank lenders as well that take on those more unique terms. And of course, as Karen would probably know, this is going to increase your mortgage interest costs over time as well, so that's something to be conscious of.

so keep that in mind. It's very much a case of buy now, pay later on a grand scale. If someone's right up against it, and it really makes sense to pay off the mortgage rather than losing an investment property, say, it's certainly something worth exploring if you can do it, okay, finding questions from Andrew, it would be great to hear a hypothetical discussion about who inflation and deflation could then be more effectively handled by raising or lowering the GST

rather than interest rates. This would evenly spread out the pain and incentivize people during tough times all products, rather than just pounding those with outstanding mortgages. This comes up all the time. Is there any other way to steer the economy than this terribly blunt instrument of mortgage rates interest rates, which hit those in the property market, particularly

owner occupiers and to that extent, investors. You're an economist, well credentialed, Aliza, what do you say to experiments beyond rate setting?

You think about some of the debates we've had around GST in recent years, or even the Stage three tax cuts. These issues are debated for a long time, They take a long time to actually pass through parliament and take effect in people's cost of living and take pain and things like that. At the end of the day, monetary policy has been used for a long time because it's much more responsive to economic conditions than the fiscal policy.

I would challenge the idea that an increase in the DST spreads pain equally famously, GST can actually act as a bit of a regressive tax, because a ten percent increase in the cost of goods and services means more to low income households than it doesn't feel high income households. So unless you're actually taking that GST money and giving it that directly to lower income households to make it

more progressive. It's not necessarily equally affecting households. And the other thing I would say is beyond the household sector, where we are actually seeing a decline in discretionary spending. More people curve, they're spending struggling with the cost of living. It's not just a question of households spending. Let's we also need the government to be spending less, winding back infrastructure projects. We are seeing that comes from in fiscal

policy as well. So there's definitely things that the government can do to help reduce inflation. But I don't think that looks like a change in tax settings or superannuation settings or anything like that.

a block, of course for many people. Especially investors. But that is macro predential policy, isn't it. That's halfway house between rates or fiscal policy. That is actually a regulatory move to try and massage the economy, isn't it by the RBA or by this by the regulators the opera?

long time. I think it potentially could be in place when the cash rate starts to move lower as well, because the Council of Financial Regulators may be conscious of the effect of a rate reduction in reinvigorating house price growth and the ef that could have in terms of

wealth effects and inflationary pressures as well. So I think as long as we're getting to this kind of sticky last leg of our high inflation journey, and by the way, high interest rates have been working to bring that inflation down, it's just the final leg is a little bit trickier. I think they're going to want to keep lending conditions pretty conservative while that is happening, and while we get

an adjustment to interest rates. So that's my guess. I don't have any particular inside knowledge or anything like that.

one other person. Very simple, Okay, keep that in mind. Keep in mind that we have an email for all correspondents. It's the Money Puzzle at the Australian dot com dot a you and today's show was produced by Leah Samangli.