Major issue with ScoMo’s handout
The Government's proposed new homebuyers grant will result in established properties being abandoned and ultimately drive down housing prices, according to a leading economist.
Property hunters will reportedly be offered a $25,000 cash incentive to build a new home under the looming stimulus plan to support jobs in the construction industry.
But AMP Capital chief economist Shane Oliver said this will likely lead to buyers deserting homes already built in a market severely weakened by consumer demand.
The significantly lower rate of immigration as a result of the coronavirus pandemic is viewed by property experts as a major factor for forecasted falls in prices, with the number of people entering the country tipped to fall by about 200,000 in the next 12 months to about 35,000.
"Traditionally homebuyer grants have been positive for house prices and there's no doubt this will help some developers promoting buildings to be sold by boosting demand for properties," Dr Oliver told news.com.au.
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"But it will also detract demand from established housing, so on balance it could actually be a bit of a negative on property prices.
"It switches demand from established homes to new homes and over time it will lead to an increase in supply of new property, which will put upwards pressure on vacancy rates which have already gone up as a result of the coronavirus shock."
If immigration numbers stay low, Dr Oliver said, there could be a flow of new properties coming on to the market, leading to higher vacancy rates and ultimately an oversupply.
"Normally underlying demand for dwellings is about 200,000 a year and if we go down to 120,000, that's a huge hit," he said.
The fears of scaled back demand isn't supported by search activity for property online, according to REA Group director of economic research Cameron Kusher.
He said the number of consumers looking for housing on realestate.com.au has never been as high.
"Last month was actually a record month for enquiries for our new home section," he told news.com.au.
"So people are looking at the property market but one of the challenges at the moment is there is not a lot of properties listed for sale.
"I don't think people will desert the established market."
The property stimulus yet to be announced by the Government is tipped to include a cash incentive for Australians to embark on renovations.
Mr Kusher said this will encourage potential buyers to knock down existing properties to rebuild or build a new home behind an older dwelling on a larger block.
MIGRATION MAJOR RISK TO PRICES
The impact of immigration is an underappreciated factor on housing prices in Australia, according to Mr Kusher.
He says a large portion of the country's economic expenditure is based on more and more people arriving each year.
"It has been one of the key reasons why Australia hasn't had a recession for 30 years because we keep getting additional demand from people migrating from overseas," Mr Kusher said.
MELBOURNE AND SYDNEY PRICES TO FALL
Grim forecasts at the height of the coronavirus lockdown predicted property prices to fall between 20 to 30 per cent over the next year.
But those projections have largely been trimmed after the Government's JobSeeker and JobKeeper packages provided income support combined with the banks allowing struggling Australians to defer mortgages.
Dr Oliver said the expiration of these mechanisms will ultimately lead to higher unemployment and will weigh on housing prices.
He is currently predicting the Sydney and Melbourne markets to fall about 10 per cent over the next 12 months, Canberra to be largely unchanged and the other capital cities to lose about 5 per cent in value.
Originally published as Major issue with ScoMo's handout