27 Feb Is the Sydney market oversupplied?
In today’s show John Edwards from On The House says that Governments could be creating oversupply and in fact there is evidence that the Sydney market is already oversupplied. John also speaks out about negative gearing.
Read the transcript here:
Kevin: In a report from Onthehouse.com.au is a sign that we should have seen coming, and that is just how unaffordable Sydney property prices are right now.
Consulting analyst for Onthehouse John Edwards joins me. John, this probably wouldn’t have been a big surprise for you, but it certainly looks as if it’s out of the reach of first-home buyers in the Sydney market.
John: Yes. It wasn’t a surprise because I’ve been watching it, but the bottom line for people is that housing in Sydney, particularly houses, have now just passed $900,000 for the median value of a house. When you look at how much money people have left after tax after they’ve met their mortgage repayments, they have about $780 a week. That’s not going to do very much if you have to educate your kids, and buy clothes, and have a holiday. Even with a 0.5% reduction in interest rates, that’s still going to be under $800 a week for people to spend.
Housing in Sydney is out of reach of the first-home buyer.
Kevin: One of the big dangers for first-home buyers, too, is that they’re lured into the market with low interest rates that we have now, and then obviously, at some stage, they are going to go up. If it’s unaffordable now, it’s almost going to break the bank.
John: I think there’s a bigger problem than that, frankly, and I issued a warning on this today. When I look at all of the markets across Australia, what I note is that population growth is falling. If we look at New South Wales, we can see that the growth to the five-year median, the number of people that are now coming is 4,000 less than what it has been on average over the last five years per quarter.
What governments are doing is trying to stimulate the economy by boosting housing market activity. But in boosting the housing market activity, what they’re going to do, given the falling population, is create oversupply. Wouldn’t you know it, New South Wales has already got an oversupply, and by my calculations there are about 10,000 dwellings that are surplus to need based on what’s currently happening.
We’re looking down the barrel of some issues here unless people are very careful about what they’re doing.
Kevin: In your report, you looked around at other states and cities around Australia. Which would you say is probably the standout for being one of the best performers going forward this year?
John: Going forward, I had all my money on Brisbane, because everything in Queensland was doing really well and was looking like as if government had it sorted. They knew what they needed to do to maintain employment. It was all looking pretty good, and when I look at the trends, the growth that was going on in Queensland was pointing to increased rates of growth in the housing market.
The unit market, like in New South Wales, is over-supplied – probably no surprise with that. The over-supply there is not as bad as New South Wales, but we’re still looking in the thousands. That was the market that I thought was going to do well, and that’s where I would have had my money, but now I’m not sure, because I’m not sure what the new government is going to be able to do.
I haven’t been able to see anything that points to exactly what their policies are, how they’re going to stimulate the economy, and how they’re going generate growth and jobs. We have to recognize that as the resource projects come to an end, and the crude oil prices fall, that this is going to have an impact on gas exploration and the gas industry.
Kevin: I guess only time will tell on that front, too. One other thing I’d like to touch base with you on, John, is a report that I saw you’ve released about the hype around negative gearing and whether or not it’s necessary. What were your findings there?
John: In essence, negative gearing should stay. It would be wrong to remove negative gearing because it would be a distortion. There is no other asset sector in Australia that you can’t negatively gear on.
The problem we’ve got is that basically the government – via the Tax Office – isn’t enforcing the legislation that it has. I think the majority of people don’t realize is that what you can’t do is borrow money on the basis that you just have no intention of ever gaining a profit other than through capital gains from the ownership of that asset.
You have to be able to show that at some point in time you are going to be throwing off taxable income. I don’t think people totally understand that, and because of that, it’s actually getting out of hand. It’s time for government to actually let everybody know – through the Tax Office – what the rules are. Then we wouldn’t have a problem.
Kevin: There’s a great report you can get that was written by John that deals with this. That’s just at Onthehouse, John?
John: Yes it is, but the easiest thing to do is go to Residex.com.au. On there, you’ll be able to get a copy of that report when you buy other products.
Kevin: We all know that name, because that’s the company you founded. John Edwards has been my guest, and we talked about a number of things there.
John, thank you so much for your time.
John: My pleasure.