13 Mar What Are the Fears About an Australian Property Crash Founded On?
There is increasing speculation in the media about the state of the Australian property market and the likelihood of an imminent crash in prices. However, the conversation seems to be largely concerned with the effects of demand, without ever addressing even more pressing supply side issues that have forced prices up.
While it’s true that Australia has a housing shortage, this is in large part the result of a crisis in construction capacity, and anyone who is investing in property for the long term needs to understand this, and what it will mean for the market over time.
Constraints impacting on building new property
While both the federal and state governments talk regularly about increasing housing stock, it’s not happening at anywhere near the rate it needs to alleviate the housing crisis.
This is largely because the country doesn’t have the workforce, and therefore the capacity, to fulfil these ambitious house building targets. This is combined with a fall in productivity in the construction industry, which effectively means that even more labour is required to build less.
This also means that multiple construction projects have to compete for the same workers, slowing down completion rates, while the expected growth in the building workforce due to skilled migration into Australia is not materialising at the rate expected.
These factors combined are underlying causes as to why supply is currently unable to meet demand across the country, despite the constant setting of targets by authorities.
Likewise, stimulus packages aren’t achieving what they set out to do, as they don’t materially address supply problems. In fact, the shortage of labour means these sorts of measures typically make build times longer and slow down completion rates, further impacting on vacancy rates and rents. Essentially, it can be argued that greater demand has in fact worsened the situation, as supply falls even further behind.
The right time for strategic investment
Media and industry speculation about a property crash might tempt some potential investors to wait for this to happen, in the hope of picking up a bargain. However, the inability of the construction industry to meet demand and ongoing supply constraints means a significant fall in prices is unlikely for the foreseeable future.
The upshot is that this presents an ideal opportunity for strategic investors. But what does strategy mean in this context? Essentially, it means making investments based on sound fundamentals, such as buying in the right locations and purchasing high quality assets.
Furthermore, the constraints in building will take some time to shift, even if governments are able to implement effective policies in this space. And slow change in this context means that now is the right time for long-term investment. Strategic investors should be taking into consideration the time it will take for productivity to improve, for more workers to enter the industry, and the available housing stock to increase. Until this happens, prices are likely to remain stable and rents stay high.
This presents the ideal scenario for investors who are interested in growing a property portfolio over the long term.
Power of Property will help you see the bigger picture about the property crash
At Power of Property, we specialise in strategic property investment and supporting both experienced and first-time investors to better understand how the market operates so they can make the right sort of investments.
We focus on using research, data and market insights, gained from our long experience in the industry, to help investors build their portfolios, and can provide access to a wide range of professional financial and property services to support your investment journey.
Call Power of Property on 0407 785 560 or use the online booking form to arrange a free, no obligation strategy session with Michael Lawton and Danielle Charlton in order to learn more about how you can best position yourself in the current Australian property market, and how to build a portfolio that will continue to serve you well into the future.