The Great Aussie Dream Pushing Up Prices

By Leigh Martinuzzi 

Here is an interesting statistic. Most Australian properties are owned by ‘homeowners’ accounting for 70% of ownership across Australia, the remaining 30% are owned by investors. There are many reasons why prices have risen so sharply in the last 12 to 24 months including, greater credit availability, lower interest rates, greater household saving, population trends, and our steaming economy. However, perhaps there is a more powerful factor at play! Homeownership! Maybe it is our interest in homeownership, a desire to buy and live in our own home, that is really pushing up and keeping steady Australia’s housing market over the longer term.

If owner-occupiers own most of Australia’s property, then without them, the property markets wouldn’t survive. It is said there is an estimated 10.7 million dwellings at a total value of $96 Trillion dollars across Australia with total debt against property at $2 Trillion. The Australian Bureau of Statistics (ABS) estimate 55.6% of household wealth is held in housing assets. And in Australia in 2008 house prices were equivalent to seven years of average yearly earnings which I expect is much higher now considering the recent price hikes. The longer we stay invested in the property market, the greater our wealth grows. And as prices continue to rise I fear those that don’t own property may be left out.

In the not-too-distant future, the RBA will at some point raise the cash rate however it is unlikely to be a massive rise. A rate rise will restrict new borrowers from entering the market and it will mean current property owners will have increased mortgage repayments. It is likely that banks will raise their floor rate too, which will put more strain on mortgages. Yet, interest rates still remain at a historically low level and are unlikely to climb to the heights we’ve seen in the years past.

Some property owners will be put under mortgage stress however a few things will help alleviate this stress. One is that we are likely to see wages start to rise which will allow us to sustain increased repayments. Two, thanks to COVID, Australian households are wealthier than they’ve ever been. Household savings is a ratio of household income saved to net disposable income which increased to 19.8% in the September quarter of 2021. And thirdly, with the significant rise in property prices over the last 12 months, household wealth has increased by just over 20% in one year. Most property owners will be comfortable with possible interest rate increases.

It is a great Australian dream to own property and it is easy to understand why when you see the amount of wealth it can create for families. This is the reason why homeowners own most of the Australian property market and also why they are fundamental to the ongoing price stability and increases. Property creates wealth and the more equity we have the more we are willing to pay for our next home. Investors also will pay a premium as they too don’t want to miss out on potential gains as well as new owners who certainly don’t want to miss out on all the action. Perhaps it’s the great Australian dream that is the dominant force driving Australia’s property markets.