Something very unusual happened in February – buying a house in Sydney actually got cheaper.
Although prices did not fall off a cliff – there was only a 0.1% drop – it is a sign that the tide may be turning in favor of buyers.
This is with the exception of the market outside the cities.
While the popular markets of Sydney, Melbourne and Canberra have softened or stagnated, home values in the Australian region have risen.
Housing in the regions is now on average 25% more expensive than a year ago, and even more so in sought-after places like Tasmania and the central coast of NSW.
Should we be surprised that the two major parties consider the housing policy in the regions as a potential lever for voting?
The Coalition and Labor Party last week announced similar loan guarantee policies for people working their way up the property ladder, with 10,000 regional homebuyers given the option to buy with a down payment. by 5%.
But would that do anything to make housing in the regions more affordable?
Or could it even make the problem worse?
No rooms at the hostel
While many factors influence the housing market, the fundamental law of supply and demand plays a major role.
Unsurprisingly, the Property Council of Australia – the group representing property developers – says the main way to improve affordability is to increase supply.
CEO Ken Morrison welcomed the major party pledges, but said they are both fairly targeted and broader solutions to supply shortages are essential.
“Otherwise we will be trapped by a growing population, [and] decreasing number of new homes coming up,” he said.
This would be true across Australia, but as regional markets are smaller than capital cities they are particularly vulnerable to large spikes in demand, such as the internal migration seen throughout the pandemic.
With so many factors at play, broader improvements in affordability will likely require longer-term changes.
Shortages cause construction delays
The Coalition’s program is targeted at newly built housing, hoping to encourage more construction in the regions.
But two of the essentials for the construction industry, materials and labor, are hard to come by right now.
Brian Seidler of the NSW Master Builders’ Association said across the state that there are many vacant blocks for which development applications have been approved but construction has yet to begin.
He said one of the main reasons was rising costs and pointed to the price of timber, which has risen 40% in the last year alone.
He also said the “unprecedented absenteeism” of workers due to the high number of COVID cases was inevitably delaying projects.
If costs have increased, then a project may be considered financially unviable.
“The number one issue at the moment is: how can I terminate my contract as a builder?” Mr Seidler said.
So any attempt to boost new housing construction will face headwinds for some time to come.
Neither the Coalition scheme nor the Labor scheme is designed to put downward pressure on prices themselves.
They are simply meant to provide a safety net for people to take out a massive mortgage of up to 95% of the value of the property.
Housing policy expert Professor Wendy Stone of Swinburne University said this could have the negative effect of an overall price increase.
Professor Stone said the evidence was “really mixed” on the impact of existing loan guarantees.
“A program like this doesn’t provide them with really stable, less risky housing pathways.”
She pointed to the possibility of rising interest rates as a potential pitfall, where even people who have part of a loan secured could still struggle to pay off a heavy mortgage.
No easy answers
As recently as the last election, the conversation about housing affordability involved a debate about whether the government should try to slow or stop the growth in house prices.
Labor tried to do that with their policies on negative gearing and capital gains tax, but we all know what happened there.
It seems neither side wants to do anything to upset the existing owners, who make up the majority of the population.
But Professor Stone urges politicians not to shy away from tough debates.