Cross-posted from David Collyer at Prosper
Victoria’s Valuer General’s ‘A Guide to Property Values 2012’ released July 5 begs for further analysis alongside my recent property price commentary.
Bryan Kavanagh and Dr Gavin Putland of the Land Values Research Group created the eponymous Kavanagh-Putland Index, dividing aggregate property sales prices by GDP to illustrate the level of economic activity dedicated to buying property.
Philip Soos has kindly prepared Victorian versions of the KPI, using the Valuer General data and Gross State Product.
Commercial
The 1988-91 commercial property bubble is clearly visible. So is its retreat – think 333 Collins Street which bust the State Bank of South Australia, State Bank of Victoria and two state governments.
The 2007 GFC hammered commercial property and it never recovered as buyers quite reasonably stood aside until they could see a return for the obvious risk. By 2012, the commercial KPI has almost fallen to the 1991 low, despite significant interest rate cuts.
Residential
At around 83% of total values, residential is the core of the property sector. Commercial and agricultural barely register beside this colossus.
Residential was lifted by the 1988-91 commercial bubble. Those old and grey enough to have been long and geared in the plodding years of stable prices (1991-96) that followed may now sagely nod their heads.
The long roar upward and onward that taught the Negative Gearers all they needed to know began in 1997. Residential prices began falling after the GFC, only to be reinflated by PM Rudd’s FHOG, interest rate cuts and intravenous stimulus. The decline from 2010 is a combination of retreating land prices and positive economic growth.
The RBA and Treasury are looking to construction as the next driver of economic growth as mining investment slows. I can not see this happening unless government embarks on a folly of the scale of the UK’s 105 billion pound ‘Help to Buy’ scheme.
Victoria’s Sales Flow
Real estate agents are “suffering”: residential sales as a proportion of Victoria’s housing stock fell to the lowest on record in 2012. In absolute terms, the peak of sales was 180,000 in 2001, most likely due to the GCT cut and FHOG.
