It’s almost too good to believe. In recent months, the price of properties in Sydney has fallen by 20% – that makes prices low enough for eager buyers to jump in and pick up their dream homes.
In reality, house prices are likely dropping for the wrong reasons. Usually, it’s because people either don’t want to buy, or can’t.
It could be down to recent loss of employment or lack of available bank loans, but it could also be a much deeper issue.
Perhaps the Australian economy simply isn’t growing fast enough to maintain the property price increases. Perhaps Australian citizens are losing faith in the residential property system.
Those with a protectionist economic stance would argue that restrictions on migration lead to less demand for property in Australia. This doesn’t sound like such a bad thing, but that’s before you account for the multiple economic benefits that migration provides.
As a country, Japan has sought measures to bring migration to a halt. As a result, over the past 5 years their population has fallen by over 1 million people. In housing terms, this means that roughly 350,000 properties are no longer required. I bet you can guess what property prices look like there, too.
Put simply, the areas of Australia losing the most people due to migration patterns will have the most properties available. This shift will correspond with the drop in property prices in that area.
Although it seems like a quick win, it’s sadly just that – since the long-term implications of an area losing a large amount of people are severe, the economic impact will overshadow the short-term economic benefit.
Recent data makes it clear to see that property in Australia is a popular investment choice, with negative gearing providing investors with a strong tax advantage. Following the recent election, negative gearing has become a controversial topic, but to scrap the idea entirely ignores the fact that renting is a prominent aspect of the housing market.
With property investment being so popular, Australia has an incredibly competitive rental market – although investors are fond of tax breaks, they also need tenants, which means they’ll cut rent prices to make sure they’re making a return on their investment. With a property requiring such a high capital, it’s rare for investors to be able to afford properties remaining vacant for extended periods.
As a result, rent prices are also dropping, making it a good time to be a renter in Sydney. Conversely, however, the prospect of investing in housing is becoming much less attractive.
By increasing the supply of housing, the Australian government can ensure that house prices remain affordable. Immediately, there is no area in greater need of this than Sydney. Since 2006, Sydney has only received 60% of the housing approvals than Melbourne.
It’s this lack of housing that has earned Sydney the title of most unaffordable city in Australia.
With price drops occurring due to bad conditions, they’re only likely to fall even further if conditions continue to worsen. Not only will housing development assist the NSW economy, it will also serve to stabilise the price shift.
Sydney isn’t the only area that’s suffering. Property prices are also falling in Darwin, Adelaide, Brisbane and Perth. Steep property prices and a generally desperate economic outlook are giving them less reason to buy, with more and more turning to renting.
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