WEBVTT - Why are we still waiting for house prices to drop?

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<v Speaker 1>Already and this is the Daily this is the Daily OS.

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<v Speaker 2>Oh now it makes sense.

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<v Speaker 1>Good morning and welcome to the Daily Odds. It's Friday,

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<v Speaker 1>the seventh of March. I'm Sam, I'm Billy.

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<v Speaker 2>Wait Sam, Before we start the podcast, yeah, I would

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<v Speaker 2>like to acknowledge that we're in a new studio setup

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<v Speaker 2>and we have these beautiful chairs. And if you watch

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<v Speaker 2>us on YouTube, I'm looking at the camera now for

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<v Speaker 2>the people following on YouTube, you'll see that we have

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<v Speaker 2>these beautiful new chairs. I feel like I'm on the

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<v Speaker 2>call her Daddy set. That's kind of what it looks like.

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<v Speaker 1>It's the small things that make a huge difference to

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<v Speaker 1>a podcast like the Daily OS. Yeah.

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<v Speaker 2>I think it's really going to uplift the quality of

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<v Speaker 2>our podcasts.

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<v Speaker 1>It's fantastic. And I actually just said to you before, Billy,

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<v Speaker 1>they feel like therapy chairs. Yes, and so maybe it

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<v Speaker 1>means that when we have you know, Prime Minister in here,

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<v Speaker 1>the opposition leader in here, they're going to be a

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<v Speaker 1>bit more open, a bit more comfortable, more in touch.

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<v Speaker 1>Love it. But that is enough chair chat for your Friday.

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<v Speaker 1>Let's get into what we're talking about today, and that

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<v Speaker 1>is the Australian housing market. It's been in the news

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<v Speaker 1>again with property prices continuing to climb despite some interest

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<v Speaker 1>rate relief from the RBA last month. So for young

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<v Speaker 1>Australians hoping to buy their first home, the situation does

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<v Speaker 1>seem to be getting increasingly challenging. And I think what

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<v Speaker 1>interest rates dropping presented to us was a glimmer of

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<v Speaker 1>hope ahead of a federal election where the cost of

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<v Speaker 1>living and how and where young Australians are going to

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<v Speaker 1>get their first home. We're going to have a discussion

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<v Speaker 1>about whether the Australian dream is in more trouble than

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<v Speaker 1>ever before. And to do that we're going to be

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<v Speaker 1>joined by Tim Lawless. He is the head of research

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<v Speaker 1>at core Logic, who released some new housing data this

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<v Speaker 1>week that shows that despite the RBA cutting interest rates

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<v Speaker 1>last month, house prices are ticking back up.

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<v Speaker 2>So Sam. Housing affordability has been a topic that we

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<v Speaker 2>have been talking about, well Australia has been talking about

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<v Speaker 2>for dec really, but I feel like since the pandemic,

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<v Speaker 2>the conversation about affordability of housing in Australia really ramped up.

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<v Speaker 2>We saw a massive increase in the price of houses

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<v Speaker 2>in Australia, not just the cost of a house but

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<v Speaker 2>also the price of renting in Australia. I want to

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<v Speaker 2>start by just looking at what is the state of play,

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<v Speaker 2>what does the market look like right now when it

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<v Speaker 2>comes to housing in Australia.

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<v Speaker 1>So the base of this discussion with Tim is core

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<v Speaker 1>logics finding that house prices went up point three percent

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<v Speaker 1>in February, and that is after a three month period

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<v Speaker 1>where house prices were dropping. And so you have the

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<v Speaker 1>state of play in February being that in every capital

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<v Speaker 1>city except Darwin and in regional Australia, it's more expensive

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<v Speaker 1>to buy a house than it was a month ago.

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<v Speaker 1>And that's a really interesting way into thinking about whether

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<v Speaker 1>we're in a better spot than we were twelve months

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<v Speaker 1>ago to try and buy a house. You're right about

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<v Speaker 1>the renting point. That's a really interesting discussion and Tim

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<v Speaker 1>had some really interesting stats about how incredible the rent

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<v Speaker 1>rises were in the pandemic and they're better now but

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<v Speaker 1>still not great. And then I asked him about the

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<v Speaker 1>election and as an analyst, what he sees his role

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<v Speaker 1>to be in trying to break down the housing policy.

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<v Speaker 1>We're going to be thrown at in the next couple

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<v Speaker 1>of weeks.

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<v Speaker 2>Okay, I think that gives us some good context for

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<v Speaker 2>your interview with Tim Lawless. In my mind, he's like

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<v Speaker 2>a mini celebrity because I see him on every press

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<v Speaker 2>release from Callhord Jick. So I'm excited to hear his

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<v Speaker 2>voice and see his face put a face to the

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<v Speaker 2>name on the press releases. So here is that chat.

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<v Speaker 1>Tim, Thank you so much for joining us this morning,

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<v Speaker 1>No problem, Sam, thanks for the invitation. So housing affordability

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<v Speaker 1>has been something that we've talked about a number of

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<v Speaker 1>times on this podcast. We saw a rate cut from

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<v Speaker 1>the RBA in February. Did that relieve some of the

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<v Speaker 1>pressure on house prices in Australia?

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<v Speaker 3>Well, not really, because we actually saw house prices rise

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<v Speaker 3>in February, breaking a three month downturn if you'd like

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<v Speaker 3>to call it that. It was more of a pause

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<v Speaker 3>in the marketplace where we saw a measure of home

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<v Speaker 3>values nationally peaked in October and fell for three months,

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<v Speaker 3>and then it bounds back by point three percent, virtually

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<v Speaker 3>taking the market back to where it was at the

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<v Speaker 3>end of last year. So yeah, I think in that

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<v Speaker 3>sense we're still seeing affordability as a real challenge fair enough.

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<v Speaker 3>Serviceability might have improved a little bit with a twenty

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<v Speaker 3>five basis point rate cut, But in the grand scheme

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<v Speaker 3>of things, if you're on say a seven hundred and

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<v Speaker 3>fifty thousand dollars mortgage, that twenty five basis point rate

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<v Speaker 3>cut means about one hundred and twenty dollars a month saving,

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<v Speaker 3>So in the grand scheme of things, it's not much,

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<v Speaker 3>and we need to see rates coming down a lot

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<v Speaker 3>further before you'd really describe interst rates as being stimulatory.

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<v Speaker 3>It's still quite high.

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<v Speaker 1>So obviously we've got the benefit of hindsight here. But

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<v Speaker 1>were you surprised to see those February numbers come through

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<v Speaker 1>showing a tick back up.

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<v Speaker 3>I'll say no, maybe kind of actually, because normally you

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<v Speaker 3>wouldn't see markets responding that quickly to a rate cut.

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<v Speaker 3>But I think what we drove values a little bit

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<v Speaker 3>higher in February was probably just the sentiment that had

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<v Speaker 3>already been growing as we saw expectations of a rate

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<v Speaker 3>cut were building, and everybody knew it was just a

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<v Speaker 3>matter of time or when, rather than if, so I

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<v Speaker 3>think that's probably the biggest thing behind why we saw

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<v Speaker 3>this fairly broad based rise in housing values in February.

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<v Speaker 3>Albeit zero point three percent rise isn't that much at

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<v Speaker 3>all in dollar terms. That means nationally we saw about

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<v Speaker 3>a twenty four hundred dollars increase in the median value.

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<v Speaker 3>But I think the key thing was almost everywhere saw

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<v Speaker 3>a rise in values that there was only a couple

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<v Speaker 3>of exceptions Darwin Regional Victoria with the two where we

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<v Speaker 3>didn't see a rise in values. So yeah, I think

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<v Speaker 3>it was more about sentiment than the actual rate cut itself.

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<v Speaker 1>So is it easier to enter the housing market as

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<v Speaker 1>a first time owner now or say twelve months ago

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<v Speaker 1>from your perspective.

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<v Speaker 3>Probably not, because over the past twelve months we've seen

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<v Speaker 3>housing values nationally have increased by about four percent, or

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<v Speaker 3>in dollar terms, they've gone up by nearly thirty thousand dollars.

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<v Speaker 3>So I think for most people they wouldn't have seen

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<v Speaker 3>a thirty thousand dollars boost to their income over the

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<v Speaker 3>past twelve months. So yeah, even though serviceability might have

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<v Speaker 3>improved a little bit, and that absolutely that's one of

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<v Speaker 3>the barriers to getting into the marketplace is proving up

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<v Speaker 3>to the bank that you can pay them back. So

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<v Speaker 3>interest rates coming down a little bit definitely, that's a positive,

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<v Speaker 3>but compared to a year ago, prices are quite a

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<v Speaker 3>bit higher, especially if you're looking to buy into markets

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<v Speaker 3>like say Perth, both housing prices are up about fourteen

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<v Speaker 3>percent in twelve months. Adelaide Brisbane are also well have

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<v Speaker 3>been very strong markets. If you're looking to get into

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<v Speaker 3>a market like Melbourne, prices are actually quite a bit

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<v Speaker 3>lower in Melbourne than there were twelve months ago. They're

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<v Speaker 3>down in Melbourne by about three percent, or in dollar

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<v Speaker 3>terms they're about twenty five thousand dollars lower than a

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<v Speaker 3>year ago. So there are some exceptions to the rule,

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<v Speaker 3>and I think you'll find that first home buyers do

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<v Speaker 3>become more active in those markets. Melbourne, Hobart, Canberra all

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<v Speaker 3>good examples where values have come down over the past

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<v Speaker 3>twelve months and where there's probably a good opportunity to

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<v Speaker 3>get into the marketplace at a bit of a discount,

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<v Speaker 3>at least relative to recognize.

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<v Speaker 1>How are things looking in the regions then tim especially

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<v Speaker 1>for first time buyers, much.

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<v Speaker 3>More resilient actually, so we haven't really seen the regional

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<v Speaker 3>markets behaving like the capital cities. Sure they're slow down

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<v Speaker 3>in the rate of growth, but they've still remained positive.

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<v Speaker 3>But again there is a lot of diversity here. Some

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<v Speaker 3>of the markets that are really driving the stronger regional

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<v Speaker 3>trends tend to be quite rural markets areas like Gladstone

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<v Speaker 3>or Townsville, Rockhampton. Go to somewhere like Ballarat or Geelong

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<v Speaker 3>in Victoria and these markets are well down over the

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<v Speaker 3>past twelve months, and from their peak. Areas like Newcastle

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<v Speaker 3>or Woongong around Sydney have generally still seen growth, but

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<v Speaker 3>much more subtle levels of growth as well. So it's

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<v Speaker 3>quite diverse. But I think broadly regional markets are still

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<v Speaker 3>experiencing this additional rate of population growth than what they're

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<v Speaker 3>seeing pride of the pandemic. More people leaving the capital

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<v Speaker 3>cities to go to regional Australia and that seems to

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<v Speaker 3>be on a bit of a second wind at the moment.

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<v Speaker 1>Isn't that interesting that we're seeing kind of another wave

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<v Speaker 1>of regional movement two years after the pandemic ended.

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<v Speaker 3>Yeah, and maybe that's related to still that the affordability

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<v Speaker 3>of regional Australia relative to the capitals is still there,

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<v Speaker 3>even though it's not as pronounced as it used to be,

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<v Speaker 3>say prior to twenty twenty. But also I think it

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<v Speaker 3>demonstrates some of this I guess permanency of hybrid working

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<v Speaker 3>situations as well. A lot of people have returned to

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<v Speaker 3>the office, but generally if you're in a professional or

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<v Speaker 3>a white collar environment, tends to be sort of three

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<v Speaker 3>days a week back in the office. So those sort

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<v Speaker 3>of regional commutable markets, they're in that sweet spot of

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<v Speaker 3>maybe being within an hour or two of a major

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<v Speaker 3>capital city. I think that they've probably seen a structural

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<v Speaker 3>change in their underlying demand where they probably will be

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<v Speaker 3>more popular going forward than what they were prior to COVID.

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<v Speaker 1>And just quickly talking about rental markets, a lot of

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<v Speaker 1>our listeners would be renters. Have rental markets calmed down

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<v Speaker 1>since the pretty wild days of the pandemic where we

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<v Speaker 1>heard lots of stories anecdotally from our readers. I'm included

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<v Speaker 1>in that bucket as well, the rents went up really quickly.

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<v Speaker 3>Yeah, Sam, I think that's a good way to describe it.

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<v Speaker 3>They have calmed down that they certainly haven't fallen, so

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<v Speaker 3>we're still seeing rents rising, but nowhere near as rapidly

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<v Speaker 3>is what they were. To give you a couple of examples,

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<v Speaker 3>go back to the middle of twenty twenty one. That

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<v Speaker 3>was the height of the rental boom, and we're seeing

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<v Speaker 3>markets like Sydney and Melbourne, particularly the unit sectors of

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<v Speaker 3>Sydney and Melbourne, were seeing rents rising fifteen sixteen percent

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<v Speaker 3>per annum. It was extremes.

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<v Speaker 1>That's a massive jump, but.

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<v Speaker 3>It's huge, absolutely a typical rental market movement oversee the

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<v Speaker 3>past ten years. An end or growth rate, a normal

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<v Speaker 3>one would be about two to three percent. So yeah,

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<v Speaker 3>there's fifteen to sixteen percent rise in rental values was

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<v Speaker 3>an absolute shock to a lot of renters. The good

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<v Speaker 3>news is we're now seeing vents rising at a much

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<v Speaker 3>more mild level. Typically in Sydney and Melbourne, unit rents

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<v Speaker 3>a rising two to three percent, house rents roughly the same,

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<v Speaker 3>but still that comes after this period of extreme growth,

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<v Speaker 3>and they're not going backwards in most cases, which means

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<v Speaker 3>rental affordability is still a real challenge.

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<v Speaker 1>We always have this conversation with our listeners about interest

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<v Speaker 1>rates and cost of living and trying to kind of

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<v Speaker 1>make the point that even if things slow down, your

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<v Speaker 1>coffee that's five dollars is very unlikely to ever go

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<v Speaker 1>back to being four dollars. Can you apply that logic

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<v Speaker 1>to renting? I mean, you know you've mentioned there twice.

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<v Speaker 1>Rents haven't gone backwards. Could we realistically expect them to

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<v Speaker 1>go backwards?

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<v Speaker 3>Well, we could see rents go backwards, but I think

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<v Speaker 3>not not materially, not significantly. And I agree with you

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<v Speaker 3>it's very rare to see the price of something actually retreat.

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<v Speaker 3>There could be a situation where we do see rents

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<v Speaker 3>go backwards temporarily. And at the moment, we are definitely

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<v Speaker 3>seeing significant reduction in overseas migration, for example, and a

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<v Speaker 3>big part of that boom in rental conditions was simply

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<v Speaker 3>the additional demand we're seeing as borders reopened and an

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<v Speaker 3>influx of temporary migrants came to Australia, and that really

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<v Speaker 3>drove rental demand significantly higher at a time when households

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<v Speaker 3>had become smaller across the country as well through the pandemic,

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<v Speaker 3>which really amplified rental demand. We've now seen overseas migrations

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<v Speaker 3>fallen by about sixty five percent from its peak back

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<v Speaker 3>to much more normal levels, and that's helped to reduce

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<v Speaker 3>rental demand a little bit. But we're also seeing rental

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<v Speaker 3>households becoming larger. I think that luxury of having maybe

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<v Speaker 3>the second or third bedroom as a home office for

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<v Speaker 3>a lot of people is simply that a luxury, and

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<v Speaker 3>they've had to tenant that room out to cover their

0:11:41.720 --> 0:11:42.439
<v Speaker 3>mental costs.

0:11:42.840 --> 0:11:46.040
<v Speaker 1>A final question from me, Tim, We're about to enter

0:11:46.400 --> 0:11:50.000
<v Speaker 1>a federal election cycle. We're expecting the election to be

0:11:50.040 --> 0:11:52.320
<v Speaker 1>called any day now. I'm not going to ask you

0:11:52.360 --> 0:11:55.719
<v Speaker 1>to give me kind of analysis of which platform you

0:11:55.760 --> 0:11:57.800
<v Speaker 1>think is better, but more I want to ask about

0:11:57.800 --> 0:12:00.720
<v Speaker 1>your role in the election. How are you going to

0:12:00.720 --> 0:12:03.400
<v Speaker 1>approach as a researcher, as an expert in this space.

0:12:04.120 --> 0:12:06.200
<v Speaker 1>What signals are you going to be looking for as

0:12:06.240 --> 0:12:08.800
<v Speaker 1>the parties come out with housing policy, and how are

0:12:08.840 --> 0:12:11.760
<v Speaker 1>you going to try and help Australians make sense of

0:12:11.800 --> 0:12:12.120
<v Speaker 1>it all.

0:12:12.520 --> 0:12:15.319
<v Speaker 3>Yeah, great question, and I think as an analyst, I'm

0:12:15.360 --> 0:12:18.640
<v Speaker 3>here to provide the information and the data to make

0:12:18.679 --> 0:12:21.520
<v Speaker 3>informed decisions. And I think we could see this across

0:12:21.520 --> 0:12:24.600
<v Speaker 3>at least the major political parties that Australia is in

0:12:24.640 --> 0:12:27.600
<v Speaker 3>the grips of a massive supply issue. Housing supply issue.

0:12:27.600 --> 0:12:29.800
<v Speaker 3>We need to be building more homes. And once you

0:12:29.840 --> 0:12:32.800
<v Speaker 3>start building a lot more homes, then that starts to

0:12:32.840 --> 0:12:35.320
<v Speaker 3>resolve some of the affordability challenges because it helps to

0:12:35.360 --> 0:12:38.200
<v Speaker 3>keep a lid on price growth in housing prices. So

0:12:38.240 --> 0:12:40.280
<v Speaker 3>I think that's probably the key to this election is

0:12:40.640 --> 0:12:44.000
<v Speaker 3>those political parties that have a real supply side focus

0:12:44.040 --> 0:12:47.320
<v Speaker 3>in their policies, trying to enable building more homes and

0:12:47.320 --> 0:12:49.520
<v Speaker 3>a whole range of homes, not just apartments. We need

0:12:49.559 --> 0:12:52.560
<v Speaker 3>to see more medium density and low density homes as well,

0:12:52.600 --> 0:12:54.440
<v Speaker 3>and we need to see a lot more transport that's

0:12:54.640 --> 0:12:57.760
<v Speaker 3>connecting these homes to make them desirable and efficient to

0:12:57.760 --> 0:13:00.680
<v Speaker 3>commute from. So I think that's where we're probably see

0:13:00.840 --> 0:13:04.200
<v Speaker 3>the most influential policies being announced that are going to

0:13:04.200 --> 0:13:06.119
<v Speaker 3>be determining housing outcomes.

0:13:06.520 --> 0:13:09.720
<v Speaker 1>A very interesting election period coming up. It's fascinating to

0:13:09.800 --> 0:13:12.800
<v Speaker 1>kind of have this one rate drop before the election

0:13:12.960 --> 0:13:16.199
<v Speaker 1>really goes into full swing, house prices being a bit

0:13:16.200 --> 0:13:19.080
<v Speaker 1>stubborn and staying where they are, if not ticking upwards.

0:13:19.600 --> 0:13:22.240
<v Speaker 1>And then yeah, the discussion, I agree with you, will

0:13:22.280 --> 0:13:26.040
<v Speaker 1>focus more on supply. And I'm really relieved that you

0:13:26.040 --> 0:13:29.240
<v Speaker 1>actually mentioned that point about transport because I find that

0:13:29.240 --> 0:13:32.640
<v Speaker 1>that's often missed in these conversations about housing, and it's

0:13:32.640 --> 0:13:35.280
<v Speaker 1>not just transport right, it's about schooling, and it's about

0:13:36.360 --> 0:13:40.040
<v Speaker 1>employment opportunities in the regions where there's meant to be

0:13:40.120 --> 0:13:42.679
<v Speaker 1>more houses being built. So I appreciate that a lot,

0:13:42.720 --> 0:13:45.400
<v Speaker 1>and I'm really excited to see the dynamics of this

0:13:45.440 --> 0:13:48.040
<v Speaker 1>housing conversation in this upcoming election.

0:13:48.640 --> 0:13:51.040
<v Speaker 3>Well said Sam, and yeah, I think we could talk

0:13:51.080 --> 0:13:53.880
<v Speaker 3>for days about the need for amenity and infrastructure linking

0:13:53.960 --> 0:13:57.440
<v Speaker 3>up areas where new housing is going in. But fully

0:13:57.520 --> 0:13:57.959
<v Speaker 3>agree with that.

0:13:58.280 --> 0:14:01.839
<v Speaker 1>Thank you so much for joining us, Tim, appreciate it.

0:14:01.360 --> 0:14:04.040
<v Speaker 2>Such a great conversation, and I think that gives us

0:14:04.080 --> 0:14:07.400
<v Speaker 2>a lot of context going into this election campaign that

0:14:07.440 --> 0:14:09.240
<v Speaker 2>we are very much about to enter.

0:14:09.440 --> 0:14:11.680
<v Speaker 1>We know it's going to be a huge issue that

0:14:11.920 --> 0:14:13.880
<v Speaker 1>you know, all major parties and minor parties are going

0:14:13.920 --> 0:14:16.080
<v Speaker 1>to be talking about a lot. So whatever we can

0:14:16.120 --> 0:14:17.600
<v Speaker 1>do to try and make sense of it is a

0:14:17.600 --> 0:14:18.160
<v Speaker 1>good conversation.

0:14:18.360 --> 0:14:20.040
<v Speaker 2>You have no doubt there will be a lot of

0:14:20.080 --> 0:14:23.680
<v Speaker 2>policies being announced in the next couple of weeks about housing. Sam,

0:14:23.720 --> 0:14:26.120
<v Speaker 2>thank you for the interview, Thanks Billy, and thank you

0:14:26.160 --> 0:14:29.160
<v Speaker 2>so much for listening to this episode of The Daily OS.

0:14:29.520 --> 0:14:33.280
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0:15:24.800 --> 0:15:27.080
<v Speaker 1>My name is Lily Maddon and I'm a proud Arunda

0:15:27.320 --> 0:15:29.880
<v Speaker 1>Bungelung Chalcuttin woman from Gadighl Country.

0:15:30.720 --> 0:15:33.880
<v Speaker 2>The Daily oz acknowledges that this podcast is recorded on

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<v Speaker 2>the lands of the Gadighl people and pays respect to

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<v Speaker 3>We pay our respects to the first peoples of these countries,

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<v Speaker 3>both past and present,