The housing correction we had to have

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By Leith van Onselen

Yesterday, I gave an interview to The New Daily commenting on SQM Research’s latest report on Labor’s negative gearing policy (analysed yesterday). Below are the quotes:

The housing correction we had to have?

The report’s finding that prices will fall and rental yields will rise is correct, but it won’t be as severe as predicted, MacroBusiness co-founder Leith van Onselen said.

“Prices will fall, that’s a no-brainer. But I don’t agree with the magnitude of this report. It says under Labor’s policy we’ll have, at middle range, 6 per cent falls. But if there is no change, prices will rise an average of 11 per cent, so that’s a 17 per cent difference nationally.”

The fact that may investors have already left the market will mean less of a hit, probably about 5 per cent, Mr Van Onselen argued.

“Labor will play this down, [Mr] Bowen will argue it wont affect house prices, but it is an affordability measure. Nobody should beat around the bush – do you want affordable housing or not? It’s a simple question.

“In 1990 Paul Keating said it was the recession we had to have, and this is the housing correction we had to have. We made house prices so out of whack that we ripped off a whole generation,” he said.

My view early last year was that Labor’s policy would probably push house prices down 10% (other things equal). However, because investor demand has already tanked, 5% seems more likely now. However, the falls would obviously be bigger in Sydney and Melbourne, where the investor share is greater. At The Australian its’ already considerably played out:

Ray White, which sold $3 billion worth of property last month, has seen investors fall to 20 per cent of its buyers from 35 per cent during the peak years of 2011-13.

“Investors are the first to pull out of the market,” Mr White said. “They are buying for purely financial reasons.

“People are worried about a change of government, so they are worried about policy changes that will affect the market. They are worried the market will get worse.”

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About the author
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.