Steve Hart: House price growth drops

House price inflation will drop to 2 per cent a year according to analysts at ANZ. Photo / Warren Buckland

House price inflation will drop to 2 per cent a year according to analysts at ANZ, a figure that's in stark contrast to Quotable Value's national average of 6.6 per cent last year.

Though demand for housing continues to outstrip supply, the obvious conclusion of demand-led price rises isn't a given — due in part, says ANZ, to tighter lending and LVR restrictions, affordability constraints (due to low wage growth) and possibly a more restrictive government policy.

The bank's chief economist, Sharon Zollner, writes: "We continue to see price growth remaining modest. We project annual house price growth to slow to 2 per cent over the next few years.

The recent bounce will confirm to the Reserve Bank that it was right to take a cautious approach in rolling back LVR restrictions; we think further easing in these measures is unlikely in the near term."

Right now we are seeing competing forces, and whichever is strongest will dictate the future trends in real estate prices and turnover.

On the upside are low interest rates, which are unlikely to change, strong demand for housing as a result of population growth and skill shortages in the construction sector.

On the downside are banks' reluctance to lend like money like it is going out of fashion (as was the case until mid 2017), Government proposals to ban non-resident buyers, tax changes for real estate investors and affordability constraints.

Though a bank may have loaned someone $1 million to buy home a year ago, they may not be so inclined to do that today. We could see scenarios where buyers are frustrated, leaving some sellers with unpalatable options.

Property Council
John Dakin is the Property Council's new president. He has more than 25 years' experience in the property industry, including property and corporate transactions, valuation, research, asset management and investment management.