Do Aussie property values double every 7 years?

According to Martin North’s Digital Finance Analytics surveys, the majority of Australians still believe that property values rise on average every seven years.

In the above video, Martin North sets the record straight, busting this myth using a number of examples.

For Aussie property to double in value every seven years, values would need to grow on average by about 10% per annum. This has not happened over the past 40 years, as illustrated in the next chart:

According to CoreLogic, property values have grown on average by 6.0% per annum at the 5-City level since 1980. This means that prices have doubled every 12 years on average.

Nor should these types of growth rates be anticipated in the future.

Australian mortgage rates plummeted from 17% in 1990 to a record low 3.65% currently, which is a key reason why property values have risen so much.

However, with the RBA cash rate now at a rock bottom 0.25%, and with no room to drop, Australian property values will no longer benefit from the strong tailwinds of falling mortgage rates. This means that prices will have to rely on rising household incomes to push them higher, which are also likely to be constrained going forward.

Hence, expect minimal real growth in Australian property prices in the future, even after the COVID-19 pandemic passes.

As an aside, I’d also like to remind readers of the free Property Calculator launched this year by our partners at Nucleus Wealth. This allows you to look at growth scenarios for residential property.

Unconventional Economist
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Comments

    • Charles MartinMEMBER

      hahaha, yeah, I’ve had so many people tell me this it must be right. I’m surprised people still question it.

    • It is really funny how it is accepted logic that: “Migration will become the cornerstone of the recovery”

      I mean, that is crazy right? why does more warm bodies = economic recovery. What export industries do we need those workers for?

  1. Bought our house earlier this year for the same price that the previous owner got it for in 2004. Perth but.

    • So how much is Perth really down ??
      And it dropped first
      It feels like Melb is going to follow perth

      • pfh007.comMEMBER

        If Melbourne keeps building and can achieve a vacancy rate of above 5% for over half a decade it is possible. Ultimately, it is very hard to gild the property lily if there are loads of vacancies and rents are soft and falling.

        But unlikely as Melbourne is desperate to become the biggest city in Australia and that means they will do whatever it takes to attract new contestants from the middle classes of the developing world,

      • Diogenes the CynicMEMBER

        Perth is down between 20-30% since 2014. It peaked 2007 then dipped after GFC and rose up back to a similar peak in 2014. Adjusting for inflation I’d call that more like 40-50% since 2007. Apartments are worse than this, good inner city homes better than the average.

        • Is it a happening place to live, good restaurants etc or is rhe economy very depressed ?…
          Because if you are telling me those numbers half the city must be in negative equity

          Phf Melb will catch Perth
          The population thing is a myth
          Population will decrease in Melb metro

          • Diogenes the CynicMEMBER

            BCN Perth isn’t London or Hong Kong. That said I went to the football with 25k other fans and a music concert last week, life here is mostly virus worry free. mining is doing well so if you in that line or servicing it (my line) then it’s a good place to live. Weather is fantastic, it is a big state so even with COvid lots of intrastate places to visit and housing is better value than eastern states. It’s quieter than living in Sydney but there is much less traffic and no toll roads.

          • pfh007.comMEMBER

            “.. The population thing is a myth..”

            Hmmm.

            Well if you don’t believe the statistics on immigration or population growth over the last 20 years showing rapid growth in Melbourne and Sydney and not much in Perth then you will have no trouble believing anything you like about Melbourne house prices.

      • guess it depends on the area. There have been few news reports on rents going up and the state FHB grants being extended because of the high level of uptake in Perth. The mining industry cant hire FIFO so a lot of workers have already moved to perth with an estimated additional 8k coming in.Then you add in the reported high volume of residents and families coming back to WA simply because of its covid free status. Until a vaccine is found or the whole of australia is open with free transit between states i expect Perth property to do quite well. At least no drops until then.
        The other thing im seeing a lot of is infill. In my area average to small blocks are being bought up for about 500-600k bulldozed an as down the road on two blocks put 3 units on each block each unit is a pokey 3×2 dog box with closet sized bedrooms are being put up. One complex is not even finished each of the 3 dog boxes listed at 500k . One is already under offer.
        Across the road from those two blocks is a medium sized block that was finished 6 months ago. The final unit sold about 3 weeks ago. it is a 2 story complex with a total of 6 units of 2×2. Each unit was advertised at 500k . I would guess the block itself with the old house before demolition probably sold for about 640k.

        • innocent bystander

          yep.
          out in the Perth Hills places are selling in 1 week for more than 5% of the asking.
          and 10% more than last year.
          this is in the 400-600k range – not sure about the more expensive but have seen some sell quickly

    • Anecdote : I bought a block of land at Ocean beach , Denmark , WA in 2004 for $55K . By 2005 it was worth $350K.

      In 2017 it was valued at $200K , now its back to $250K. There’s been increased interest in that region since COVID.

      • Of course, unlike a building a plot of land provides no yield, except for costs, so it is a straight out capital gain equation. $55k to $250k in 16 years? Can someone annualise that please?

        • There’s always going to be places that pop. Just like there are places that drop. If you can reliably pick the former, you’ll do well no matter the market. Have to sift out the luck from the skill of course, which is basically impossible in a sample of one.

          • If I’d bought a house in South Hedland in 2004 with the same $55K , by 2015 it would have been worth close to a million. Probably back down to $80K again by now !

  2. Why wouldn’t property rise in Melb/Syd if migration is ramped up again post-COVID? Not a fan of large migration, just saying that it is a plausible future reality.

    • happy valleyMEMBER

      Absolutely. North and co should forget the 5-city dwelling stunted growth myth. Only Sydney and Melbourne count and they have been vibrancy central and will soon return to be (and bigger sh.tholes in to the bargain). At least Scotty from Marketing, Gladys Gladwrap and Manchurian Dan agree on one thing … vibrancy matters … for re-launching Sydney and Melbourne property prices to the moon.

      • These migrants still need jobs though. The idea that they all have lots of money is nonsense.

          • Jumping jack flash

            No need. The debt only needs to be rolled over.
            We are all banks now.

            At the time of downsizing, you sell the property and with the sufficiently large pile of someone else’s debt that the bank has given out which that someone else is conveniently eligible for and begins to service it (but probably never repay it in full), you can repay the balance of your loan plus the interest and pocket the capital gain.

            It all depends on the debt growth.

        • Indian and Chinese migrants can get families to pool their money together to afford it. Asian families are happy to have three sets of parents and kids in the one house.

          • I would certainly agree that money pooling goes on to fund a deposit on a home abroad – not sure about funding 4yrs plus of living expenses, plus visa cost, flights, study etc. I would imagine the plan is always to work (and even send money home if poss).

            As for the parents, grandparents, it actually takes years from the time you get PR to get them over and they need to have a fair wedge on them to get admitted (I think $50k per person).

      • Sydney a hole? Yet people here on the weekend were seriously advocating Bangkok as a place to live.

    • “ It is estimated in real terms, and I also construct an index in nominal terms.”

      You’ve neglected to tell us what the nominal increase was

    • Beware the revert to mean.

      I resemble that comment!

      Anecdote from me: bought a house in chic rural town for $900k in 2012, previous owner had bought it 10 years before for $850k.

  3. According to that first graph, it looks like the late 80’s were the big turning point when Negative Gearing came back after it was curtailed a few years earlier, and the market hasn’t really looked back since.

    • Sure NG is factor but it’s not the main one as housing has followed similar patterns in other Anglophone countries where NG doesn’t exist. The chief culprit is loose monetary policy.

      • Jumping jack flash

        This.

        And every time we hit the point where the debt growth was excruciatingly low, they lowered interest rates to lower the eligibility criteria for larger piles of debt.
        They didn’t go nearly hard enough to keep the place from slowly crashing over the past 10 years, though.

        And now we’re at 0, more or less. So what now?
        NIRP or UBI. Pretty much the only two solutions to avert the collapse.
        Banks want NIRP but will it lower the criteria enough? Will they resume lending. RBA doesn’t seem to think so, and they’re probably right.
        But will a UBI be set high enough to simulate a 2% interest rate cut, or a 3%+ wage increase?

        Our masters have got to stop pussyfooting around and go for it. If we’re going to kick the can, then kick the thing!

  4. I looked at a nice place in Canberra on the weekend. Asking price was $850K. It was built in 1971, sold for $162K in 1993 and $185K in 1997. So that place has gone up by a factor of 5 since 1993, or doubled about every 12 years.. If it had doubled every seven years since 1993 it would be worth about $2.5M now.

    It’s fcuking discouraging to think that a nice but nothing special place in the burbs in Canberra costs that kinda coin. Oh well.

    • RE prices are very discouraging. I keep swinging between tentative hope and not quite despair. At least with this double lockdown in Vic I now know that living a very quiet life in a small country town would make me very happy. There are a few places in rural Vic in areas that might be livable long-term that are starting to look like they might approach affordable (and I haven’t calculated gov incentives), but it comes down to finance, which I doubt I’d get atm. So that means having all the money upfront, which is a bit of a stretch, though less than it was as my investments are finally going in the right direction. What I want to do is build something new so that running and maintenance costs are reduced over the next 40 years as I don’t anticipate earning much. Argh, patience, cunning and luck, rain down on me please.

  5. Jumping jack flash

    It all depends on the debt growth. With enough debt growth property prices could double every year.
    7 years seems plausible, but with our lacklustre debt growth over the past 10 years I’d say not generally. Maybe in certain pockets where the debt has concentrated.

    Certainly not after 2017. If you bought in 2017 or after, unless the RBA pulls out the proverbial rabbit to get that debt growing again, then good luck.

    I suspect 2017 was the point at which we hit the limit of the effect of lowering interest rates allowed people to be eligible for the correct amounts of debt to simulate real economic growth.

    • But debt growth still has a link to wages, so when wages stop growing the banks need to loosen lending criteria, but even then there remains an indelible link to wages.

      • Jumping jack flash

        Correct!
        And that’s the big problem we have now we’ve reached the zero interest rate bound, and one of the reasons for 800 billion of government stimulus (which is not quite enough), and our quasi-UBI which is a bit of a joke, but I predict that it will be extended or rejigged.

        Banks will need to trust their own system and lower the eligibility criteria for the correct amounts of debt. There is no risk in doing so according to their risk metrics.

        • “Banks will need to trust their own system and lower the eligibility criteria for the correct amounts of debt. There is no risk in doing so according to their risk metrics.”

          The problem with this theory is that there is a huge actual risk of doing this. If the debt bandwagon ever stops, which it eventually will (even if it is not this time) the whole house of cards (including the banks) comes crashing down.

          The longer crazy house prices go on the bigger the crash when the house of cards eventually falls. The most sensible thing to do (although very difficult to achieve) would be to bring it down now, but spread the down over the next 15 years.

          • Jumping jack flash

            Of course.
            Execute the the Japan Scenario.
            Except not 15 years, more like 30, possibly more.

          • Disagree – Crash hard and quick, lots of pain for a shorter period of time rather than a grinding away. Deal with the consequences, re-calibrate and re-build something more meaningful. Lots of folks out there who would love to build a business but are too scared because of housing debt to back themselves. I see it in corporate every day, people afraid of rocking the boat because they “need” their job to pay for the monster debt bills.

            Less unproductive debt means more productive and ambitious people.

          • Well said, Gareth. Under the current system we are a herd of debt serfs, hoping to make it to retirement without coming to grief in the meanwhile. The only aim for most is get the mortgage paid off by retirement and enjoy a comfortable life thereafter. Risking taking is dead.