Dwelling Prices

<h2>EXPERT INSIGHT</h2>

Australian capital city average dwelling prices rose 1.8% in April according to CoreLogic and are up 6.4% on a year ago.

This is their seventh monthly gain in a row.

While down from the break neck pace of 2.8% seen in April, price growth is still strong and average capital city prices are now 5.4% above their September 2017 record high.

All capital cities saw prices rise solidly in April with Darwin the strongest at +2.7%, followed by Sydney at +2.4% and Adelaide at +2%. See the table below.

All capital city prices are at record levels except for Perth and Darwin which are recovering from 22% and 33% falls respectively between 2014 and 2020, which was in the aftermath of the mining investment boom.

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Regional dwelling prices rose 1.9% in April and are up 13% on a year ago with their relative strength over the last year reflecting lower levels of indebtedness and hence less vulnerability to the financial stresses caused by the pandemic driven economic downturn, less exposure to the slump in immigration and increased buyer interest as people seek to relocate from cities as part of a secular trend towards working from home and a greater focus on lifestyle.

Capital city house prices rose 2% in April and 8% over the last 12 months whereas unit prices lagged with a 1.2% gain in the month and a 1.8% rise on a year ago, with the relative underperformance reflecting a shift in preferences towards houses as a result of more working from home and a lifestyle choice and as weak rental conditions made worse by the slump in immigration constrained the inner city unit markets in Sydney and Melbourne. However, the Sydney and&nbsp;

Melbourne unit rental markets have shown signs of stabilisation and improvement in recent months and this appears to be helping unit prices, although they are still lagging.

The slowdown in price growth compared to March was inevitable given that the 2.8% average gain that month was the strongest since October 1988 and was always going to be hard to beat. Moreover, the moderation is also consistent with some pick up in new listings which has seen auction clearances slow a bit from March, some easing in the impact of government incentives and perhaps some of the initial boost from four year fixed mortgage rates below 2% having run its course.

However, average home gains of 1.8% a month are still very strong, housing finance commitments remain around record highs suggesting more demand to come and auction clearance rates in Sydney and Melbourne remain very high and at levels consistent with strong home price growth. While first home buyers led the initial recovery, spurred on by various incentives, housing finance data suggests that first home buyer demand may now have peaked but that investors are now jumping in to take over from first home buyers and that demand from owner occupiers generally remains very strong.

The fundamentals of still ultra-low mortgage rates, ongoing government incentives, economic recovery, the strong jobs market and an element of FOMO (buying now for fear of missing out) point to further home price increases ahead. We expect average home prices to rise another 10 to 15% out to the end of 2022, but this to mask a slowing from 15% this year(of which they have already done 7.5%) to 5% next year. 2023 could start to see another cyclical downturn in property prices as the interest rate cycle starts to move up more decisively.

There are six reasons to expect a gradual slowing in the pace of capital city dwelling gains going forwards:

First, government housing incentives are likely to be wound back a bit. The First Home Loan Deposit scheme is likely to see home price thresholds increased in the Budget, but HomeBuilder has now ended and some states may start to wind back various incentives.

Second, poor affordability is starting to become an increasing constraint again and is likely already starting to weigh on first home buyer demand going by housing finance data.

Third, the RBA and APRA are expected to reach yet again for macro prudential controls to slow housing lending sometime in the next six months. While they don&rsquo;t target house prices and are of the view that we have not yet seen a significant&nbsp;deterioration in lending standards, past experience indicates that surging house prices leads to a deterioration in lending standards and increasing financial stability risks. And the metrics APRA and the RBA look at are starting to push up in the direction of a deterioration in lending standards with record housing finance, an acceleration in housing debt (see the next chart), an increasing share of lending at high loan to valuation ratios and a rising share of interest only loans albeit from a low base. The first thing to do would be to increase interest rate buffers but limits on high loan to valuation ratio lending and high debt to income ratio lending may make sense too.

Fourth, it&rsquo;s likely that the 30 year tailwind for the property market of falling interest rates has now run its course. While variable rate hikes are probably two years away at least, four year plus fixed mortgage rates have started to move up with the rise in bond yields and shorter dated fixed mortgage rates may also start to move up over the next year. Longer term the RBA is more determined than ever to see inflation sustained in its target range which will ultimately put an end to the long term downtrend in interest rates and mean higher variable rates.

Fifth, the hit to immigration and a likely only gradual recovery in it once international borders are reopened combined with continued strong home building is likely to lead to an oversupply of property in the next few years.

Finally, the &ldquo;escape from the city&rdquo; phenomenon unleased by the pandemic and made possible by technology enabling more working from home compared to prior to the pandemic is likely to take some further pressure off capital city property prices &ndash; albeit this will drive a further catch up in regional prices.

The “escape from the city” phenomenon unleased by the pandemic and made possible by technology enabling more working from home compared to prior to the pandemic is likely to take some further pressure off capital city property prices

soliver

6 reasons to expect a gradual slowing in the pace of capital city dwelling gains: Shane Oliver

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GUEST OBSERVER
Housing approvals recorded a strong June, but in trend terms are flattening out at levels well below last year’s peak. 
We expect further declines will come through in the remainder of the year, although it is likely the most sizeable falls have already occurred. 
Meanwhile, despite a small fall in June non-residential approvals remain elevated, led by strength in Victoria’s office segment.
<a href="https://www.propertyobserver.com.au/images/2017/08/03/Screen%20Shot%202017-08-03%20at%208.36.24%20AM.png" target="_blank">Click to enlarge</a>
<img src="https://www.urban.com.au/images/2017/08/03/Screen%20Shot%202017-08-03%20at%208.36.24%20AM.png" alt="">
Housing approvals rose sharply in June, with 10.9% m/m growth more than offsetting the previous month’s decline. The monthly rise was driven primarily by the unit/apartment segment in New South Wales, which rose 43% m/m. Victoria also recorded a solid rise in June, up 6% overall, adding to May’s increase.
<a href="https://www.propertyobserver.com.au/images/2017/08/03/Screen%20Shot%202017-08-03%20at%208.37.36%20AM.png" target="_blank">Click to enlarge</a>
<img src="https://www.urban.com.au/images/2017/08/03/Screen%20Shot%202017-08-03%20at%208.37.36%20AM.png" alt="">
The upshot of this strong result is that total building approvals (in trend terms) have started to stabilise some 15% below the peak of last year. We still expect further declines will come through over the second half of 2017, driven by tighter credit conditions and higher interest rates for investors, although the size of these falls will likely be tempered by the fact that the RBA is not yet embarking on a tightening cycle. At any rate, it appears that the sharpest falls in approvals are behind us.
Click to enlarge
<img src="https://www.urban.com.au/images/2017/08/03/Screen%20Shot%202017-08-03%20at%208.38.40%20AM.png" alt="">
While NSW housing approvals are proving resilient, Victoria is the shining light for the non- residential sector. In trend terms, non-residential approvals in Victoria are 60% higher than at the end of 2016. The office segment has been the key driver of this strength, with monthly approvals now sitting at record levels. This is likely to provide some offset to the eventual decline in housing construction as the current backlog of work is eroded. 
Daniel Gradwell is the senior economist for <a href="https://www.anz.com.au/">ANZ</a>.
 
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jchancellor-FAypfDUnLy

Australian housing approvals still falling: Daniel Gradwell

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GUEST OBSERVER
A new report by the Australian Housing and Urban Research Institute (AHURI) reveals, for the first time, the extent of housing need in Australia.
An estimated 1.3 million households are in a state of housing need, whether unable to access market housing or in a position of rental stress. This figure is predicted to rise to 1.7 million by 2025.
To put it in perspective, 1.3 million is around 14% of Australian households. This national total includes 373,000 households in New South Wales, where the number is expected to increase by 80% to more than 670,000 by 2025 under the baseline economic assumptions of the modelling.
The first graph below shows the average annual level of housing need to 2025. The second, showing the percentages of households, permits a direct comparison by state. NSW and Queensland are in the worst position. The ACT is calculated to have the lowest proportional level of need.
<a href="https://www.propertyobserver.com.au/images/2017/08/03/Screen%20Shot%202017-08-03%20at%2011.17.48%20AM.png" target="_blank">Click to enlarge</a>
<img src="https://www.urban.com.au/images/2017/08/03/Screen%20Shot%202017-08-03%20at%2011.17.48%20AM.png" alt="">
 
<a href="https://www.propertyobserver.com.au/images/2017/08/03/Screen%20Shot%202017-08-03%20at%2011.18.59%20AM.png" target="_blank">Click to enlarge</a>
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What does this mean for households in need?
Housing need is defined as:
… the aggregate of households unable to access market-provided housing or requiring some form of housing assistance in the private rental market to avoid a position of rental stress.
This includes potential households that are unable to form because their income is too low to afford to rent in the private rental market. These households would traditionally rely on public housing and community housing to meet their needs. However, more and more are being forced into the private rental market, paying housing costs they are unable to afford without making significant sacrifices.
To 2025, on average 190,000 potential households in NSW will be unable to access market housing in a given year. The graph below is the most revealing as it illustrates the gap between affordable housing demand and supply.
<a href="https://www.propertyobserver.com.au/images/2017/08/03/Screen%20Shot%202017-08-03%20at%2011.19.54%20AM.png" target="_blank">Click to enlarge</a>
<img src="https://www.urban.com.au/images/2017/08/03/Screen%20Shot%202017-08-03%20at%2011.19.54%20AM.png" alt="">
The lack of social housing and subsidised rental housing prevents such households forming under affordable conditions. Many will manage to form but will have to spend well over 30% of their income on housing costs to do so, putting them in a position of financial stress.
The results also reveal the increasing pressure the affordable housing shortfall places on the housing assistance budget, notably Commonwealth Rent Assistance.
The absence of a significant new supply of affordable housing – there has been no large-scale program since the National Rental Affordability Scheme (NRAS) began in 2008 – has left state governments trying to find ways to plug the affordability gap.
Responses have been largely on the demand side, such as first home buyer concessions recently announced in NSW. But such incentives are no use for low-income households. To help them, intervention needs to be on the supply side.
How does Australia compare?
The AHURI research built on ideas emerging from research into housing need in the UK. It revealed interesting differences between the two countries.
UK government policy prior to 2010 emphasised the role of the planning system in helping to substantially increase affordable housing supply. This reflected evidence from England and Scotland that found a link between low levels of new housing supply and higher and rising house prices.
In this project, we found plenty of evidence of deteriorating housing affordability in Australia. But we did not find a particularly strong relationship between housing supply and  price growth. This might reflect how other drivers of deteriorating housing affordability are more important in Australia – such as tax incentives for investors.
These findings suggest we need to look more closely at how new supply and investment demand interact, and in what circumstances boosting new supply is likely to improve affordability.
From our analysis of individuals’ labour market circumstances and incomes, it was also clear that the Australian workforce has not escaped the erosion of secure, full-time employment opportunities seen in other countries.
The combination of widespread insecure, part-time employment opportunities, high housing costs and low supply of rented social housing means the housing of many working Australians is extremely precarious.
How was the research done?
The research modelled housing need at the state and territory level to 2025 using an underlying set of economic assumptions and interrelated models on household formation, housing markets, labour markets and tenure choice.
The models were underpinned by data from the Housing, Income and Labour Dynamics in Australia (HILDA) Survey, the Australian Bureau of Statistics (ABS) and house price and rent data.
This research delivers, for the first time in Australia, a consistent and replicable methodology for assessing housing need. It can be used to inform resource allocation and simulate the impact of policy decisions on housing outcomes.
The intention is to further develop the model to assess housing need at the level of local government areas.
So, what are the policy implications?
The scale of the affordable housing shortfall requires major action from federal and state governments.
NRAS had its problems but at least delivered a supply of below-market housing. Australia cannot rely on the private sector to deliver housing for low-income households without some form of government subsidy as it is simply not profitable to do so.
The question is what government is going to be prepared, or even able, to spend big to close the affordable housing supply gap?
<a href="https://theconversation.com/profiles/steven-rowley-201914">Steven Rowley </a>is Director, Australian Housing and Urban Research Institute, Curtin Research Centre, Curtin University.
<a href="https://theconversation.com/profiles/chris-leishman-391783">Chris Leishman</a> is Professor of Housing Economics, University of Adelaide.
Both are authors for <a href="https://theconversation.com/au" target="_blank">The Conversation</a>.
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Affordable housing shortfall leaves 1.3m households in need and rising – study

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A recent application for an eight-room boarding house in the leafy north Sydney suburb of Cromer attracted over 800 objections from residents and the school community.
Proponents of the project, including governments, may be tempted to dismiss these residents as NIMBYs – members of the not-in-my-backyard brigade.
Our research, however, found that ignoring residents' concerns and failing to allay their fears helps nobody – least of all those in dire need of affordable housing options.
Misconceptions and stereotypes
We investigated what makes opponents tick and how proponents – including planners, developers, councils and other levels of government – can allay the fears of residents who opposed affordable housing development in their suburbs.
We looked at four council areas where residents had opposed affordable housing developments – Parramatta in NSW, Port Phillip in Victoria, and the Queensland cities of Brisbane and Cairns. We interviewed opponents and affordable housing residents and read submissions from residents who fought the developments.
We found that many objectors had misconceptions about prospective affordable housing tenants, assuming they were mostly deviants and undesirables. While this generalised portrayal of boarding house tenants has probably never been fair, it is particularly untrue of the new generation of boarding houses. They are very different products and they target different sections of the community.
New names for new designs
Most people are more familiar with traditional boarding houses that offer short-term lodgings with shared bathrooms and informal agreements, like a bed in a backpackers’ dorm.
But new boarding house developments, like those proposed in Cromer and throughout NSW following new planning controls and registration requirements, are a very different product.
The rooms are typically self-contained with kitchenette and en-suite, more akin to studios or “micro-apartments”. They are now also subject to formal occupancy agreements that offer tenants (and landlords) more security and certainty.
With these improvements, however, new boarding houses come at a higher rent and so are often out of reach of the most down-trodden, historically catered for by this form of cheaper accommodation.
As it happens, the new boarding house rules were launched in Sydney around the same time as “micro-apartments” in New York. The two have a lot in common, in both physical form and social purpose, but the difference in reception is stark. New Yorkers have largely hailed them as an innovative response to unaffordable housing; the Sydney case got us to the Cromer and Parramatta protests.
It shows what a difference a name can make.
New designs for new households
New boarding houses have these different features because they target a very different market.
A growing section of Australia’s population don’t live in nuclear families, and the housing stock is shifting alongside this. High-density built forms are part of this shift. But there is need for more diverse choices for people who want to continue to enjoy the amenity of suburban neighbourhoods, and keep their existing social networks there.
It’s too early to know for the Cromer case specifically, but in the cases we studied the boarding rooms were intended to meet demand within the local community. These people aren’t looking for family houses and often can’t afford them. However, they are seeking the same “local character” that we found opponents often fear will be lost by the development. It is not in the interests of the landlord or tenant to see the neighbourhood’s character tarnished, nor to have a business model that relies on a diminishing pool of prospective tenants.
Our research also found that opposition often stemmed from the perceived impacts of boarding houses, like additional noise or traffic. However, these impacts come with the people, not housing stock. In many instances, a purposely designed and managed boarding house will be better equipped to minimise, for example, the impacts of noisy students than if those same students were renting a family home.
Neighbourhoods will accommodate their changing community more painlessly if the housing stock is designed to mitigate any impacts. And if residents are informed that affordable housing is intended to ensure their adult children or parents or divorced friends can continue to live locally, they’re less likely to imagine the worst.
Information is the best defence
Housing diversity need not threaten established neighbourhood character or social values.
When change occurs, people often fear the worst. There are no guarantees that better engagement measures will allay everyone’s fears but we found that when affordable housing developers don’t engage well with communities, residents let their imaginations run wild.
Engaging with the most vocal opponents instead of dismissing them as members of the NIMBY crowd will make a difference. At best, affordable housing proponents can get them onside and make them vocal supporters. At the very least, proponents can limit the extent to which fear is spread.
 
Edgar Liu is research fellow at City Futures Research Centre, UNSW Australia and can be contacted <a href="https://theconversation.com/profiles/edgar-liu-32200" target="_blank">here</a>. Ryan Van den Nouwelant is senior research officer and can be contacted <a href="https://theconversation.com/profiles/ryan-van-den-nouwelant-199969" target="_blank">here</a>. Both are authors for The Conversation.
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Don’t fear boarding houses: they’re probably not what you think

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GUEST OBSERVER
The release this week by the Greater Sydney Commission of city-wide draft plans mandating some measure of affordable housing in new developments is a step in the right direction. However, the target of 5-10 percent on rezoned land is too low to make a serious impact on the city’s affordable housing shortage. It must be more ambitious.
Research highlights the central importance of affordable, stable housing to economic and social wellbeing. Yet, in Sydney, the lack of affordable housing has reached crisis point. Everyone from community housing providers to Commonwealth Treasury secretary John Fraser is pointing out that rising house prices are creating massive social and economic problems.
Housing researchers and academic housing economists across Australia agree that an essential part of the policy mix is to mandate a significant percentage of affordable homes in all new housing developments. This is known as “inclusionary zoning”.
Other global cities such as New York and London have recognised the important role of housing in their economies and have inclusionary zoning policies. Other states in Australia have also set affordable housing targets. These have not had harmful impacts on housing investment.
<h2>Fighting to keep windfall profits</h2>
Predictably, parts of the property industry are already resisting any level of inclusionary zoning. Some developers claim that affordable housing targets will increase housing costs for the majority. They argue that profits lost on affordable housing will have to be recouped elsewhere. 
While we can expect this line of argument from those who profit from the status quo, it is fundamentally wrong for a simple reason. Housing developers will not bear the burden of these targets. Rather, it will be borne by land holders who currently make large windfall gains from selling land for development.
When land has been zoned to enable higher-density development, landholders reap these windfall profits without actually delivering any new housing or infrastructure.
For example, the site of a recently completed development in Sydney’s inner west was first purchased by a property company as industrial land for around A$8.5 million. Following a rezoning to higher-density residential, the site was sold again for A$48.5 million. In this case, the first buyer made a 471% windfall profit without building anything on the site.
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The seller of the rezoned site of the Lewisham Estates development made a 471% windfall profit without building a thing. Inner West Council
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If a fixed percentage of affordable housing becomes a condition of rezoning such sites, this will only affect the size of the landholder’s windfall gain. Developers will offer lower prices for the land, based on the mandated requirements for affordable housing. 
Remember that the uplift in land value results from public policy changes that allow for housing development or higher-density housing. It is not unreasonable, then, that landowner windfalls should be limited to achieve the important public policy outcome of housing affordability.
This is why some property developers do not object to inclusionary zoning. Indeed, some have been part of the push for inclusionary zoning, through their membership of the Committee for Sydney. They recognise that so long as the “playing field” is level for all, mandatory targets for affordable housing can be achieved without making development unprofitable or housing more expensive.
<h2>Government is conflicted</h2>
The New South Wales government has been reluctant to set significant inclusionary zoning requirements for new developments in several important parts of the city. One possible reason is that the government itself stands to reap revenue from rezoning and/or redevelopment of government-owned land.
It is especially inappropriate that government-owned land should be exploited in this way. In big development schemes where government is the major landowner, such as Central-Eveleigh, the Bays Precinct and Olympic Park, public good should trump Treasury “profits” on land release. Government should not be in the business of extracting its own windfall at the cost of housing affordability.
Inclusionary zoning targets should therefore be much higher for housing developments on government-owned land, especially in major renewal precincts. Not only would developments on such sites still yield a “profit” for the taxpayer, they would deliver a social benefit to the wider community at no real cost and without impacting feasibility.
<h2>What targets should be set?</h2>
We join those in the housing sector who believe that at least 15% of housing in new private developments should be affordable. On publicly owned land, at least 30 percent of new housing developments should be affordable.
Of course, the details of land zoning matter. If targets are set, we must ensure the definition of “affordable” actually achieves the goal of reducing housing stress for people on low and moderate incomes while maintaining housing quality.
Substantial inclusionary zoning requirements will not make development more expensive. They will make it harder for land speculators to make large profits while making no contribution to the social and economic future of New South Wales.
It is high time the foxes in the henhouse were called to account.
 
<a href="https://theconversation.com/profiles/laurence-troy-2403" target="_blank">Laurence Troy</a> is research associate - City Futures Research Centre, UNSW Australia
<a href="https://theconversation.com/profiles/dallas-rogers-5269" target="_blank">Dallas Rogers</a> is urban studies researcher: Institute for Culture and Society &amp; Urban Research Program, Western Sydney University
<a href="https://theconversation.com/profiles/emma-power-250930" target="_blank">Emma Power</a> is senior research fellow, Geography and Urban Studies, Western Sydney University
<a href="https://theconversation.com/profiles/hal-pawson-147969" target="_blank">Hal Pawson</a> is associate director - City Futures - Urban Policy and Strategy, City Futures Research Centre, Housing Policy and Practice, UNSW Australia
<a href="https://theconversation.com/profiles/kurt-iveson-1223" target="_blank">Kurt Iveson</a> is associate professor of Urban Geography, University of Sydney
<a href="https://theconversation.com/profiles/louise-crabtree-128457" target="_blank">Louise Crabtree</a> is senior research fellow, Institute for Culture and Society, Western Sydney University
<a href="https://theconversation.com/profiles/michael-darcy-119569" target="_blank">Michael Darcy</a> is professor, Urban Research Program, Western Sydney University
<a href="https://theconversation.com/profiles/peter-phibbs-27130" target="_blank">Peter Phibbs </a>is chair of Urban Planning and Policy, University of Sydney.
All are authors for The Conversation.
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Sydney needs higher affordable housing targets

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<div class="column">Australian residential property price growth has continued to surpass expectations in recent quarters, suggesting more limited scope for further gains.</div>
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<div class="column">Consequently, NAB Economics has reduced its forecasts for detatched house price growth in 2016. Nationally, prices are now forecast to increase 2% in 2016 (from 3%), largely reflecting a slower pace of growth in Sydney and Melbourne.</div>
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 While price growth will slow, a sharp correction in prices is still not expected given supportive market fundamentals and continued foreign demand for new dwellings. Risks have increased, however, especially in the apartment market which has seen a sharp increase in construction activity.
House price strength not expected to continue.
In last week’s NAB Residential Property Survey, we cut our forecasts for house price growth in 2016. This was a reflection of both the stronger than expected growth seen in house prices to date, which appears increasingly unsustainable, and some tightening in financing conditions observed in the mortgage market (largely brought about by macroprudential changes and major banks’ reactions to higher capital requirements). 
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For 2015, NAB Economics is expecting average national house price growth of 9.9%, which is much higher than expected earlier in the year. The rapid pace of house price growth has not been experienced uniformly across the market. Capital growth has been led by Sydney and Melbourne, with house price growth forecast to be 14.9% and 15.7% respectively over 2015.
 Modest gains in 2015 are also forecast for Brisbane (3.6%), while Adelaide will be up modestly. In Perth, house prices are expected to fall (-6.7%), with the slowdown in the mining sector and associated softening in population growth playing a negative role in the local market.
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In an environment where income growth continues to be modest, alongside lower population growth, the rates of house price growth seen in Sydney and Melbourne are unlikely to continue, suggesting more modest price gains in 2016. The ratio of median house prices to household disposable income has lifted considerably in these markets since the RBA commenced easing monetary policy in 2011, cutting the cash rate from 4.75% to 2% currently (Chart 2).
Additionally, regulatory changes to address risks in housing credit (particularly investor credit) have tightened conditions in the mortgage market, which is likely to have at least some impact on housing demand (even if only at the margin). However, the response from some corners claiming that these factors point to a sharp correction in house prices in the medium term, are extreme in our view. 
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One major reason for this is because housing affordability has not deteriorated as much as price to income ratios would suggest. A major drawback of these simple ratios is that they do not capture the offsetting (positive) impact from lower interest rates (smaller mortgage repayments) on housing affordability.
To capture the effects of lower interest rates, it is more informative to compare median house prices to the hypothetical borrowing capacity of the average household (in each respective state). This comparison suggests much less cause for concern, although continues to point to a somewhat overheated market in both Sydney and to a lesser extent Melbourne. 
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This result is broadly consistent with estimates of market (over)valuation produced by the IMF in their latest ‘Australia – Selected Issues’ report (published in September).
It is important to note that all property market valuation techniques have their shortfalls – such as being highly sensitive to the assumptions made – but can be a useful guide to market risk. The IMF concluded from their analysis that house prices in Australia were moderately higher than fundamentals, but less overvalued than ‘a comparison to historical or international averages would suggest.’ We would concur with this finding. 
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In addition to record low interest rates, a number of years of sluggish growth in housing supply (relative to demand), has helped to allay fears of a severe market correction – at least in certain markets. While measures of pent-up demand are highly sensitive to the assumptions used, simple measures such as rental vacancy rates suggest that pent-up demand is still supportive in some markets, especially Brisbane and Sydney. While new supply through apartments has come on line, new detached housing supply has not increased greatly for most markets relative to population (see below).
Having said that, population growth in Australia has been slowing in line with the winding down of the mining boom, although growth in the major eastern states has remained robust, supported by interstate flows. Foreign student arrivals are also expected to be strong, especially in these states, assisted by a more favourable AUD – which should be particularly beneficial for apartment demand. Overall, these trends suggest that slower population growth will imply weaker house price gains, but that the major eastern states should prove to be somewhat more resilient.
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In light of pent up demand and an environment of low interest rates , it would most likely require a substantial shock to the labour market and/or for interest rates to increase sharply to trigger significant declines in house prices – while there are risks, neither of these are anticipated in our forecasts. Rather, the most likely outcome would be a prolonged period of very subdued capital growth. A period of subdued capital growth would also be consistent with our expectation of a period of subdued rental growth. 
 
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Nevertheless, there are signs that elevated prices are discouraging home buyers and cooling the housing market. The Westpac-Melbourne Institute survey of consumer sentiment, for example, shows that households consider it to be a pretty poor time to buy a property. This sentiment has been reflected in market indicators, with the national clearance rate holding below 70% in the week ending 18 October (Sydney was at 66.6%). 
The forecast for average national house price growth in 2016 has been lowered to 2.3%, previously 3.0%, following an expected 9.9% for 2015. A strong supply response in the apartment sector (Chart 8), however, suggests a weaker outlook for this market, and greater reliance on foreign buyers and domestic investors adds a degree of unpredictability to the outlook. In 2016, the slowdown in average national house price growth to 2.3% is largely driven by a moderation in both Sydney and Melbourne prices growth (see Chart 2). NAB Economics expects house price growth to decelerate in Sydney to 1.2%, while price growth in Melbourne will ease to 3%. Brisbane is tipped to see the fastest house price growth (4.5%), and the Adelaide market is expected to improve (2.4%). Perth will remain weak, although price declines are forecast to ease (-1.2%). 
 
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Overall, our assessment is that the possibility of a sharp correction in the Australian housing market is remote, although continued rapid price growth in Sydney and Melbourne over the past 6 months suggests the risks have risen. While it would take a sharp deterioration in the labour market and/or a large increase in interest rates to trigger a severe decline in house prices, worsening affordability will most likely cap price growth going forward. 
Supply is also responding to higher prices - this may exert downward pressure on some segments of the market, although measures of pent-up demand (under-supply) vary across markets (e.g. still quite supportive for Sydney housing) and do not capture foreign demand. However, approvals for new apartments have been large in some areas (e.g. Melbourne CBD), which poses a risk in these segments. 
 
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Alan Oster is group chief economist, National Australia Bank, and can be contacted <a href="https://business.nab.com.au/author/alan-oster/" target="_blank">here</a>.
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Residential property price growth surpasses expectations: NAB's Alan Oster

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GUEST OBSERVER
For all the talk of a housing affordability crisis across Australia, having unaffordable housing isn’t necessarily bad for people.
This is perhaps a dangerous statement to make, but housing cost stresses and other problems – when experienced in isolation – may be tolerable. Difficulties usually emerge not from one problem but from an accumulation of problems.
Housing affordability alone may have limited impact on people if they are able to adjust the household budget or their rental or mortgage costs. But if a household has an accumulation of problems (for example, unaffordable housing, plus insecure tenure, plus unemployment), that greatly reduces their capacity to adjust or respond effectively.
Acknowledging the difference between separate problems and an accumulation of problems is more important than you’d think. If we don’t, we underplay the impact of multiple problems on people, incorrectly identify who most needs assistance and probably misdirect our attempts to help.
Generations of Australians have enjoyed very high housing standards compared to most other nations. For the last couple of decades, though, cracks have appeared (and are widening) in the Great Australian Dream.
Australia now has some of the most unaffordable housing in the world. The problems of housing quality and insecurity in the private rental sector are increasing.
And the public housing safely net is now so small it cannot catch all of the people who need it.
Researchers, governments and Australia as a society are concerned and heavily invested in understanding and responding to housing-related problems. But perhaps we are too “problem-focused”.
We often seek to understand and solve housing affordability, or rental insecurity, or homelessness, or even more broadly, employment or problems associated with disability. But we tend to look at each aspect separately.
In doing so, we overlook the fact that many housing-related problems are experienced in combination – usually by the same people.
Teasing out patterns of problems
What if we were to think of people with multiple problems, instead of the separate problems that multiple people have?
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In the current edition of Cities, we model how people’s problems accumulate. Using data from the Household Income and Labour Dynamics in Australia (HILDA) dataset, we look at more than 17,000 adult Australians in unaffordable housing. We define people as having unaffordable housing if they have low to moderate incomes and spend more than 30% of their household income on housing costs.
Our research set out to test the degree to which these people experience multiple housing and related problems. In this experiment we focus on six problems: affordability, locational advantage, security, welfare, employment and disability.
This simple analysis far from captures the full breadth of housing-related problems that individuals face. Even so, it reveals enough about people’s accumulation of housing problems in Australia to challenge our current thinking.
Our analysis shows us that only a relatively small proportion of people (around 10%) have an accumulation of these housing-related vulnerabilities. But simply identifying who has multiple problems doesn’t necessarily indicate the package of assistance they might need.
When we examine the collection of accumulated problems among the 10%, we see few clear patterns of shared problems. Even in this small analysis, there are 40 distinct combinations of problems.
The largest group sharing a pattern of problems represents only 12% of the 10%. Remember that we are only looking at a limited list of six problems here. It would almost certainly be much more complex in the real world.
The findings allow us to reflect on how assistance might shift if focused on people with an accumulation of problems. Using the example of housing affordability, we might seek to address it for every person in the whole population of 17,000 classified as having unaffordable housing.
However, this research shows that more than half of these people (60 percent) do not have any other problems.
How does this affect policy?
Perhaps our concern for housing affordability should be disproportionately focused on the small group who have an accumulation of multiple problems.
What this research leaves us with is a call for a different way to think about and respond to housing-related problems. It suggests we should look beyond separate problems – such as housing affordability – and focus more attention on the people with an accumulation of multiple problems.
The substantial variation in combinations of housing problems also suggests that “individualised” responses may be much more effective than generic packages of problem-focused assistance.
To some extent, the suggestion that we should be thinking about people’s accumulation of vulnerabilities and problems is not new.
Policy thinking appears to be heading in this direction anyway. Australia is well down the path of exploring individualised welfare, with approaches and packages like Consumer Directed Care and the NDIS (the intentions of which were well discussed in recent work).
Perhaps the way we think about housing affordability just needs to catch up.
Emma Baker is associate professor, School of Architecture and Built Environment, University of Adelaide and author for The Conversation. She can be contacted <a href="https://theconversation.com/profiles/emma-baker-172081" target="_blank">here</a>.
 
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Housing affordability problems might not be all bad

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GUEST OBSERVER
Higher property prices are not only associated with higher income inequality but also with a higher inequality in household spending, our research shows.
We examined three decades of data from 1982 to 2012 in Iran, where income inequality is the highest in the Middle East.
We found that a 1 percent increase in housing costs increases income inequality by 0.125 percent. This is taking into account other important economic, political and social determinants of inequality (such as income per capita, inflation, government spending and the quality of political institutions). We also found that inequality of spending increases by 0.248 percent when housing costs are 1 percent higher.
Although our findings are based on data from Iran, this a common theme for much of the developing and developed world. For example, a similar study in Singapore shows a significant correlation between increasing private property prices and increasing income inequality. 
Researchers in the UK also argue that increases in housing prices change the distribution of welfare towards home owners, and away from non-homeowners. Another study showed housing is driving a long-term rise in income in seven large developed economies (the United States, Japan, Germany, France, the UK, Italy, and Canada). 
Income inequality is among the top challenges for policy makers globally. In a recent survey of 1,767 leaders from academia, business, government and non-profits, The World Economic Forum’s Global Agenda Council found increasing income inequality to be top global concern in 2015.
Income inequality has several harmful consequences for societies. For example, a World Bank study shows that income inequality has a significant negative effect on GDP in the long-run. Inequality has also been identified as one of the main drivers of social unrest in the Arab World, in the recent British vote to leave the European Union and in the US Presidential election. 
<h2>Why housing costs and inequality are linked</h2>
There are a number of reasons why increases in house prices and inaccessibility of housing can lead to increased income inequality. 
Property is a very important asset for households that brings many income advantages. Some of these include a return on investment from increases in house prices and the savings households make when they don’t have to pay rent. So unaffordable housing restricts low-income households from accessing these financial benefits. 
There are also intergenerational effects of housing on inequality. If affordable housing decreases, wealthy families and lower income families become more segregated. This leads to greater differences in education for the children of poor and rich families.
For example, research showsparents can make it more likely for their children to grow up to be high income earning adults through the education and the peers that their children have. Those who have a better quality schooling are more likely to earn more as adults.
Because of this research also indicates wealthy parents have an incentive to cluster into neighbourhoods with other wealthy families, to decrease the cost of providing high quality education for their children, and for other social reasons.
If there is less affordable housing it makes it easier for this segregation to occur, increasing inequality. For example, there is a significant gap between the quality of education between northern parts of Tehran (home to Tehran’s most expensive houses) and southern parts of Tehran. 
Rising house prices also stop the migration of unskilled labour to more productive regions, this in turn slows down a mixing of people with different incomes in these areas. This mixing can reduce income inequality, as poorer geographic regions experience faster economic growth. 
Rising house prices may also lead to a concentration of wealth, this means those who have wealth also have greater returns on it. 
In terms of tackling this type of inequality, governments should expand access to affordable housing finance to lower income families. Policymakers also need to redefine capital gains tax on investment properties to reduce the income differences between landlords and tenants. 
Finally, taxation that better caters to low income first-time home buyers may allow lower income households access not only to more stable housing, but also to the longer term financial benefits associated with owning their own homes.
Hassan F. Gholipour is lecturer in economics, Swinburne University of Technology and can be contacted <a href="https://theconversation.com/profiles/hassan-f-gholipour-309444" target="_blank">here</a>.
Jeremy Nguyen is lecturer in economics, Swinburne University of Technology and can be contacted <a href="https://theconversation.com/profiles/jeremy-nguyen-316390" target="_blank">here</a>.
Mohammad Reza Farzanegan is professor of economics of the Middle East, University of Marburg and can be contacted <a href="https://theconversation.com/profiles/mohammad-reza-farzanegan-316293" target="_blank">here</a>.
All are authors for The Conversation.
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Higher property prices linked to income inequality: study

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Housing price growth of between 4 and 6 percent is expected for 2017 for both detached houses and apartments supported by strong population growth and limited signs of oversupply according to Paul Bloxham, HSBC chief economist.
He said apartment prices are expected to track at a slower pace than detached houses. 
"In the detached house market there is only modest growth in new supply expected," he said.
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"Overall housing price growth should cool somewhat in response to continued tight prudential settings, particularly in the apartment market. 
"Weaker foreign demand, due to a lower RMB, is likely to weigh on the Sydney apartment market. 
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Weaker foreign demand to hit Sydney apartment market: Paul Bloxham's 2017 forecast

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GUEST OBSERVER 
Australian dwelling price growth has moderated over October. The latest CoreLogic RP Data figures show that dwelling prices rose by a small 0.2% over the month.  House prices were up by 0.1% and units rose by 0.4%.  Cooling house price growth fits in with other indicators of the housing market which show that the pace of activity is moderating.
A sizeable fall in dwelling prices in Perth over October was offset by rises across the other capital cities. Perth property prices are reflecting the combination of rising supply and vacancy rates at the same time as economic growth is slowing and population growth rate is falling.  
Dwelling price growth looks to be cooling in Sydney while property price growth has remained buoyant in Melbourne despite plenty of additions to the stock of housing. For Melbourne, it’s all been about the lift in house prices as opposed to unit prices.  House prices are running at 15.1%pa in Melbourne compared with 5.5% for apartments. The divergence is unusual and reflects the big lift in high‑rise construction over the past few years which has seen the available stock of apartments lift considerably against the stock of houses.  This trend looks likely to continue given the pipeline of high‑rise construction to come.
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There is nothing in today’s dwelling price data that looks surprising. Recent moves by the ‘big banks’ to lift mortgage rates were always going to have a cooling influence on the housing market. And they have come at a time when vacancy rates and rental yields are both falling and housing supply is lifting. The combination of the aforementioned means that dwelling price growth was always going to slow. 
The question is really a matter of how much price growth will slow and the short answer is that we simply don’t know.  In our view, running models to project dwelling price growth is too fanciful because there are too many moving parts that impact on dwelling prices. 
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One of the more accurate leading indicators of dwelling prices is auction clearance rates. These have been on a downward trend since record high levels mid‑year.  So we expect to see some further moderation in dwelling prices over coming months, particularly given the small lift in mortgage rates which will ease the pace of credit growth, especially to investors.  
One thing which could potentially reignite the housing market over the short run is a near term RBA interest rate cut, possibly as early as tomorrow. Market pricing is putting the odds of a Melbourne Cup day rate cut at around 40% and that looks about right to us.  We have the RBA on hold at 2.0% tomorrow. 
 
We don’t think that policymakers will be too perturbed by the easing in house price growth.  Indeed, they will most likely welcome it.  As recently as two weeks ago the RBA aired concerns around parts of the housing market in its semi‑annual Financial Stability Review.  Last week’s private sector credit data showed a marked lift in business credit growth and an easing in housing credit growth which is exactly what policymakers have been looking for – a lift in business credit growth is a precursor to capital investment.  So it looks like the different parts of the credit space are moving in the directions that policymaker’s desire. 
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Gareth Aird is economist at Commonwealth Bank and can be contacted <a href="https://www.propertyobserver.com.au/https://au.linkedin.com/pub/gareth-aird/14/790/905" target="_blank">here</a>.
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