There are 3 key drivers of property prices.
(i) Supply - the rate of construction and the properties listed for sale on the market;
(ii) Interest rates - the cost of borrowing; and
(iii) Population growth - immigration, natural population growth (births minus deaths), and interstate migration.
Or, as depicted in his infographic:
Source: Tim Boyle, Finalytics
People often state that the unemployment rate is critical, but this argument isn't backed up by any hard statistics.
In fact the last couple of times the unemployment rate spiked housing prices soared the following year, as pointed out by Stuart Wemyss of ProSolution, Game of Mates author Dr. Cameron Murray, and others:
There's also an enormous fiscal stimulus washing through, comfortably dwarfing anything we've seen in recent decades.
Boyle's 3 drivers today
In that context, here's what's happening with Boyle's 3 key drivers today.
Supply is extremely tight at the moment.
Dwelling construction is plunging towards 70-year lows and vendors aren't listing either.
Lending rates, meanwhile, are at the lowest level in modern history.
This effectively allows borrowers to take on bigger mortgages, as I showed in my recent post on lending trends.
ANZ have just noted the same thing:
The big unknown factor at this stage is population growth.
My base case expectation or scenario is that within the next few months the powerful interests such as the Property Council, Australia's universities, the airlines, Tourism Australia, and big business at the top end of town will have forced the government's hand to reopen the borders, albeit with a period of enforced quarantine.
As for the thesis that things will be totally different after COVID-19...well as a gallant but struggling home-schooler I reckon that's total garbage!
People can't wait to get back and out to spend, socialise, travel, go to work, and holiday again.
It's just the way we're designed, we're pack animals.
And moreover, Australia will likely be seen as one of the safest and most desirable countries on earth in which to live.
PETE WARGENT is the co-founder of AllenWargent property buyers (London, Sydney) and a best-selling author and blogger.