Property prices must drop by half, says expert

by Miklos Bolza27 Mar 2017
Sydney's house prices need to be slashed in half and the average property value needs to decline by more than 35% to deal with the affordable housing crisis, according to a leading property analyst.

Michael Matusik, who runs a consultancy in Brisbane, said this decrease in house prices was necessary to ensure an affordable ratio of average household income to median house price.

While the accepted housing affordability benchmark puts dwelling prices at three or four times the average household income, Matusik took into account differences between various locales, adjusting this to six times for Sydney and Melbourne, five times for south east Queensland, Canberra and Perth, and four times for the rest of Australia.

This means that house prices in Sydney would have to fall by $602,000, or 47%, to reach an affordable price of $682,000. Melbourne prices would need to fall by $185,000, or 23%, to $619,000, while property values in south east Queensland would have to only fall by $55,000, or 9%, to $546,000.

The average property value across Australia would have to drop by $323,000, or 37%, bringing the value to $557,000.

Whether this would actually happen though was unknown, he told Australian Broker.

“If things stack up against the market – rising costs, including everyday items plus less work/little wage growth – then there is a higher chance. The housing market might deflate or crash. It cannot stay on its current trajectory or just be a bubble and sit – to sit things would have to be improving economically and they aren’t. Our productivity is poor and we have overall, an aging demographic.”

Matusik also questioned whether the federal government has the will to actually do anything about creating affordable property options.

“Lots of hot air about the issue, but will we really see any action?” he said in an online missive.

Current government policies merely add to demand without improving supply, he said. They also intervene with normal property cycle machinations.

“It is always politics not policy. We don’t have a housing policy in Australia. We need one.”

To increase affordability, Matusik recommended blocking foreign buyers completely from the Australian market and scrapping all government incentives, including for first home buyers.

Overseas buyers were why Sydney and Melbourne have enjoyed massive price growth – a trend which started when Canada tightened their overseas buying regulations in late 2012, he added.

“Overseas buying, much of it illegal, included buying second-hand stock and much of the supply of new apartments and houses. Overseas migrants also settled in Sydney and Melbourne. FOMO (fear of missing out), coupled with changes in superannuation which most misunderstand, means that investors have jumped on the property bandwagon. It is like trying to pinch pennies in front of a steamroller.”

He also suggested redirecting immigration to regional Australia, moving taxation away from its current leniency towards capital gains, implementing one set of planning regulations, and standardising all property-based fees.

“But that will be way too hard,” he wrote. “So, we will continue doing what we have done for the past 20-odd years – kicking the can down the road, so to speak – by easing credit and spruiking more government incentives.”

Matusik said he wrote the original missive as a way to show politicians what housing affordability actually looked like.

“The figures [presented] would be judged by most residents in those cities as affordable. Will the price fall occur to make that so? Who knows. If it does take place, in most cases it would have big economic (negative) impacts over the short-term. In the longer term it would be a good thing.”

He questioned politicians' rhetoric and talk that the May budget would tackle housing affordability.

“If you aren’t going to use the loo, get off it,” he told Australian Broker.

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Rise in single-person households impacting supply

Housing affordability requires a “broad” solution: CBA