The great Australian dream is to own our own home.
One of the major issues facing Australians is "housing affordability", especially for first home buyers.
In the middle of the decade (2014-2015), one in every 7 tax-payers owned a rental property. First home buyers found themselves competing with investors who were utilising Australia's negative gearing laws and foreign investors who were attracted to the Australian Real Estate market.
Foreigners are permitted to purchase new properties (apartments and houses) but generally not permitted to buy established dwellings. The intention is for foreign investment in new and 'off-the-plan' sales to keep the Australian housing construction industry (jobs and the economy) strong and a consistent flow of Australian housing and apartment stocks to come onto the market.
However, even the rules surrounding the buying of 'established dwellings' contains loopholes in relation to the families of international students enrolled in Australian institutions being permitted to purchase established homes for the duration of their children's study in Australia.
Foreign and local investor demand increases prices and their demand for housing puts upward pressure on the price of houses in Australia.
Negative Gearing has been around since 1922 – it is where a property investor is allowed to claim losses on their 'investment' against their taxable income, thus making investing attractive. It started as a way to encourage housing development.
In 2015, it was determined by a government committee that housing affordability was out of the reach of many if not most Australians, especially first home buyers. A new definition for 'housing affordability' needed to be created to facilitate better housing policy decisions.
In May 2016, it was announced that 3 out of 4 major Australian banks would no longer lend to foreigners.
This had the potential to cause major issues in our housing market.
On the other hand, a drop in foreign investors in the Australian housing market had the potential to make housing more affordable for Australians, especially first home buyers.
In January 2020, Euan Black noted:
Black maintains the rapid gains came after a significant market correction had temporarily offered first-home buyers a glimmer of hope.
Over a 21-month period, national property prices had fallen 8.4 per cent.
The country's median dwelling price was seven times higher than the median income in early 2018 and according to CoreLogic, "such a fall was great news for first-home buyers struggling to save a deposit."
And property journalist, Samantha Landy, pointed out that "upsizers, downsizers and first home buyers tend to stay in their local area [because] they build up networks over time, whether it be family, friends, schooling, even down to the local doctor and shopping centre."
(S. Landy. Staying Local. The Herald-Sun. 21 March 2020)
Tighter bank lending triggered the price falls. Australia's financial regulator, APRA, introduced policies aimed at reducing investor activity in 2017, and the banking royal commission forced lenders to act more scrupulously.
The pace of price declines began to ease towards the end of 2018 and into the early months of 2019.
And then the Reserve Bank and APRA kicked the market into overdrive.
First, the RBA dropped interest rates in June for the first time since September 2016. And then APRA lowered the hypothetical interest rate that banks must use to determine a borrower's creditworthiness.
Modelling by BIS Oxford Economics at the time found the average buyer's borrowing capacity jumped 11 per cent after APRA's changes, enabling buyers to bid up prices.
And another RBA rate cut in October added fuel to the fire.
Warren Hogan, independent economist and industry professor at UTS Business School, told The New Daily in November that the RBA had tossed away all the good work the recent correction had achieved by cutting rates in October.
"This rate of recovery that we've seen over the past few months will see us go back to the peaks of the market in Sydney and Melbourne before the middle of next year," he said.
What's more, lower rates not only inflate asset prices, they reduce the interest first-home buyers earn on their savings accounts.
This makes it even harder to save a deposit, at a time when annual wages growth has fallen to just 2.2 per cent.
The only way to really help first-home buyers is to reduce the overall demand for housing by scrapping negative gearing and capital gains tax discounts.
But the government has shown little appetite for such changes. And neither, perhaps, have voters.
"The Covid-19 pandemic presents a situation unlike any we have experienced before. Around the world, financial markets, businesses and the social rhythms of daily life have been turned upside down...
Millions of people use realestate.com.au when buying and selling property...
We are releasing new features to adapt to today's market conditions.
Our new "Digital Inspections' feature will be available on 26 March allowing open-for-inspections to continue without missing a beat - and without the need to leave your home if desired."
(Full Page Advertisement -- realestate.com.au - 21 March 2020)
Analysts were expecting double-digit annual growth before the onset of COVID-19.
22nd March 2020 - Australian Prime Minister, Scott Morrison, announces new measures and restrictions to protect the Australian community from the spread of corona virus (COVID-19) during the global pandemic.
A 'temporary' ban on in-room and on-site auctions forced real estate agents across the country to move online.
It was predicted that the Australian property market could take a "major hit" as property sellers considered withdrawing homes from sale during the corona virus lockdowns.
"Would-be sellers are rethinking plans to list their homes, while those with properties on the market face the possibility of cancelled auctions..."
(S. Landy. J. Smiles. Vendor's virus chills. Herald-Sun. 22 March 2020)
However, Australia's largest online property listing business, realestate.com.au, adapted quickly to the changed circumstances by offering digital online home inspections.
On 29th March, Landy observed that Australian property auction markets had also adapted swiftly with "purpose built streaming and bidding platforms, as well as video-conferencing apps..."
As agents, sellers and buyers adapted to online only auctions it was hoped that the small proportion of auctions that actually went ahead from those originally scheduled in the first week of the new lockdown measures, would increase over the coming weeks - provided lockdown measures did not become even more extreme.
Less than one week later, Euan Black reported the following:
Auction markets continue to struggle after recording worst result since 2008
Almost one in two homes (45 per cent) were withdrawn from sale this week as the corona virus continued to weigh on activity.
The majority of sales were conducted privately as vendors shunned the world of online auctions - and fewer than half of the sales captured by CoreLogic were successful.
The preliminary clearance rate across the capital cities subsequently came in at 48 per cent, according to the property analytics firm.
But that number will likely be revised down in the coming days as more results and withdrawals are accounted for.
...some economists now believe the virus could trigger a large enough rise in unemployment to slash prices by up to 20 per cent.
While property prices may drop by up to 20%, the ability for potential buyers, especially first home buyers, to enter the property market has been severely eroded (or completely sabotaged) due to the vast loss of incomes and/or loss of jobs for many Australians in the months or perhaps years ahead, owing to the Covid-19 global pandemic.
We are currently in totally unknown territory regarding the Aussie dream of owning a home.