Is there an end in sight to Australia's 20 year property Boom?                             

 (August 2007) 

As Australian’s enjoy their countries longest ever period of continuous economic growth, there seems to be no reason Australia's age of prosperity will end anytime soon. As Australia's  new economic golden age begins, what will be the prospects for property over the next 5, 10 and 20 years? 

Consider this.  Over the past 20 years to 2006, Sydney house values have increased in value by over 430%.   Melbourne has increased over 330%.  Brisbane 450%.  Perth an amazing 620%. And even Adelaide has shown growth of 274%  (Source: BIS-Shrapnel: Quarterly median House Prices) 

The question investors are asking is can Australia's property prices continue to increase, or is the 20 year boom in property prices over?

 Can an investor buying today expect to see the same growth over the next 10 and 20 years as has been seen for the past 20 years?  The answer, when you look at the facts is an undoubted Yes.  

Location, Location, Location.  It's the oldest property saying of them all, but nevertheless, a reasonable guide sorting reality from positive thinking when it comes to understanding future expectations in the property market, based on previous trends.  

Australia's 's stunning 20 years of property growth shows no signs of letting up. However, certain areas are likely to greatly outperform others. 

Several things highlight that the smart money has every confidence that the property boom shall continue. 

The first point is Australia's's massive resources boom, driven by the rapid economic expansion of and .  All indications are that they shall continue for many years to come. 

For those that fear that Australia's transformation is running out of steam is the fact that it is only one third of the way towards putting its 1.2 billion people into the middle class. 

Recently, Australia's Treasury commented that 's rise was only just starting to gather pace. 

As a resource rich country with a stable legal and political system, and an educated work force, remains in the box seat to continue to deliver the resources needed to fuel and 's boom. 

With many analysts commentating that the entire global boom began in , as the countries mines provide the raw materials for Chinese factories to crank out goods for American consumers. Aussie coal powers Japanese, Korean, and Chinese factories, too. The enabling agent in all of this is credit, which stimulates consumer demand to begin with.

But in the physical scheme of things, is the grand departure stage for the world’s manufactured goods. (Oil is another key element.) 

There has been  rapidly rising wealth in Australia, increasing immigration, a rising population, a shortage of land, reasonable interest rates, rising rental returns, and a stable property market for the past couple of years. 

A new study shows that home ownership rates in for the typical family has actually improved over the past 10 years. (despite the doubling of property prices in that time) 

The scene then is set for the next great Australian property boom. 

Over the past 10 years, both Sydney and Melbourne houses have increased by 138%, and Brisbane has increased by 152%.  Perth, again, has been a standout performer at 218%.   

Since 1996 Australia's home ownership rate actually rose from 78.3% to 79.6% last year, according to data taken from the last Census, making it one of the highest rates of home ownership in the world.

 New South Wales, Victoria, and Queensland all reported back-to-back increases, despite some people predicting the end of the Sydney property market due to Sydney property becoming “unaffordable”. 

With an increase around the country of the home ownership rate, indications are that they must be  now MORE affordable than at any time since the early 1990’s, and that is even with several interest rate increases over the past few years.

And Australia’s Reserve Bank announced in March this year (2007) that they found more than half of all home borrowers were actually “ahead in their mortgage payments” in 2005.  If prices have doubled, and interest rates have gone up, how is it possible that home ownership rates are actually rising for young families, not falling? 

One explanation is that the doubling of property prices over the past 10 years has coincided with the rise of dual income households over the same time. 

And the Reserve Bank of estimates that only 5.5% of home borrowers in are actually “deep in debt.” 

(The Reserve Bank used 50% of after-tax income as its measure, and identified mostly low income households in the debt danger zone.) 

But those who cry “no-one can afford houses” and demand incentives from the Government, seem to miss the point: anything the Government introduces to make houses more “affordable” (such as Grants, cuts in stamp duty, lowering of property taxes etc) actually increases demand, and thus pushes prices even higher!

That’s because when you increase people’s ability to pay demand increases as more people can now afford to buy. 

The only real way prices could stabilise in would be if huge high rise towers were allowed in every suburb, creating plenty of new supply.

 But that sure isn’t going to happen until people are willing to live in shoe boxes, forgo the great Aussie dream of a home, and even allow towers in the suburbs to be built. Not in the next 10 years, that’s for sure.  

Another indication of further rising prices is the rental vacancy rates. Current vacancy rates for investment property have reached record lows in most cities, falling below the 2% level. 

As rents will inevitably rise because of this impending shortage of rental accommodation, investors will pour back into the market. 

As prices start to rise again, after a slow few years particularly in Melbourne and Sydney, home owners will also strat to rush back. 

However, we started this article off mentioning LOCATION, LOCATION, LOCATION. 

And as the economy prospers, it is highly likely it will be people at the upper end of the price range, wealthy new migrants, and nternational buyers who will all compete for the best spots in , pushing prices in prime locations even higher. There seems to be unflagging demand for housing and apartments in scarce supply in the most highly sought after inner city locations around ’s coast. 

Outer areas may well suffer from reduced affordability, and property in those areas may well NOT perform to such levels.  

But with the resources boom set to continue for many years, the economy kicking into overdrive, rental vacancy rates at all time lows,  more than 50% of people ahead in their repayments, and  the number of Australian households  increasing dramatically to 1.24 million over the past 10 years far exceeding the  building of new dwellings, (as young people leave home, couples separate and the level of immigration stays high) it is a wake up call to those doomsayers who have been predicting the death of the Australian property market for the past 10 years, and for those waiting on the sidelines “watching” the market. 

After all, if prices double again over the next decade, as seems highly likely, and you have put down a 20% down-payment, your return on your investment is 500%. Not too shabby at all. 

Not many investments can claim those sorts of returns with limited risk, and that alone will mean many more people will pour into the property market. 

It’s so hard for many to accept these points because of the very human habit of looking at things only from our own perspective, not a world-wide or even wide perspective. How many people in Sydney follow the Perth market for example?  

Very few, so they missed the last three years of house price growth in Perth which has far exceeded anything seen in Sydney for years.(up 144% in 5 years) 

It seems clear that Australian property prices in prime areas will continue rising, and we are far from seeing the end of the upturn, and in fact could easily be beginning the next Golden Age of property.

Of course over the NEXT 20 years, there will be cycles and downturns, and not all cities will perform to the same level, but in fact, you do only need one property cycle to achieve residential property wealth.

Who is willing to bet against that happening?