Facts and fiction of the property market

The click-bait style headlines aside, the articles posted about the Australian property market in particular are largely ill-informed, alarmist and so broad and general in their statements as to be nonsensical.

I will sometimes respond to an article by making a comment, as do many other readers. It seems that everyone has an opinion; if not a self-appointed expert.

The subject of property seems to be such an emotionally charged topic. I find it odd. I also find it odd that so many people have such a strong opinion on a topic that they clearly know very little about, given the comment that they have made.

When it comes to property, all opinions are not equal. In fact, unless your position has been given considerable thought, is backed up with some sort of data, and shows a reference to understanding even in basic terms how the market works, your opinion has no value.

Below are some of the more common statements made about the property market that are more fictitious than factual.

“The property market crashed in the USA, it will happen here in Australia”

The person that believes this statement thinks that “the USA property market crash” is a reason why the Australian property market will also crash. It isn’t a reason. There is no logic to join the two statements.

The legal and financial framework in which US housing operates is so vastly different to Australia, drawing a comparison on even a basic level does not make the slightest bit of sense.

Unfortunately, it’s not just the layperson that says this; people in the property industry also make similar claims. These are usually Americans, who don’t understand Australian property either.

“Negative gearing is the reason why property prices are so high”

Property prices are a result of supply and demand. These are the ONLY two variables.

Supply and demand are almost entirely controlled by government (local, state and federal), and banks.

Local government influences supply by way of planning permits. State governments influence supply by way of planning policy, and influence demand by way of immigration policy. Federal government can really only influence demand by way of controlling who can buy property (non-citizens, corporate ownership, SMSF borrowing rules), tax policies, and government subsidies.

Banks influence demand through interest rates and underwriting guidelines for borrowers, but also to developers.

So, given the complex mix of variables, and statement that negative gearing is the problem, or even heavily influences the price of housing is both simplistic and unsubstantiated.

“Melbourne (or Sydney) is being outpriced for first home buyers”

No, it’s not. Look at the property prices in Melton. You can purchase a new house and land package for under $300,000. Perhaps first home buyers wishing to live in Hawthorn or St Kilda or West Melbourne can’t afford to buy in that location, but the reason property prices are comparably high is because a lot of other people want to live in the same location you do.

The solution for first home buyers is really, really easy. Put yourself in the position of maximising your income. Save hard for a deposit by sacrificing unnecessary expenses. And then buy in a location you can afford. As you progress through life, upgrade as you can and as you wish.

“Australian property is in a bubble”

I live in Ballarat. There is no property growth in Ballarat that suggests a bubble. Property values have pretty much been flat for a number of years. The same with virtually all of regional Victoria. And regional NSW. And I would suggest most of regional Australia.

There appear to have been pockets of Sydney and Melbourne that have experienced strong property value growth. Are they unsustainable? Maybe. Maybe not. But let’s be clear – Australian residential property is not in a bubble.

Whilst I generally have little emotion about property, it is frustrating to hear policies be suggested and discussed that would impact on every property owner irrespective of the location of the property. It is very city-centric thinking, and as a result short-sighted and insular. Good policies are seldom the result with such restricted thinking.

Do you have any more to add? I’d love to hear them in the comments below.

Troy McErvale is the founder and managing director of Freedom Home Loans and My Personal Lender, a combined mortgage broker and mortgage management business in Australia started in 2001. Since 2010, the company has offered an expanded service to include mortgages for foreign owners of US property, as well as US property consulting services to high net worth clients.