Now more than ever, Australia needs significant investment in infrastructure to support our growing and aging population. But ongoing tight credit supply has placed the funding for congestion-busting infrastructure, health care and education infrastructure in jeopardy.
The biggest revenue source for infrastructure funding is state government property taxes, with stamp duty being the biggest. In a nut shell, a reduction in property transaction volumes means less revenue for infrastructure investment.
The most recent ABS data for property transaction volumes paints an ugly picture of yet another unintended consequence from the (self-inflicted) tightest credit supply in Australian history.
The figures for the December 2018 quarter are diabolical.
Don’t take our word for it – check out the trends for every capital city and the rest of their respective states for yourself in the charts at the end of this article. Look especially close at the December quarter – it’s staggering!
It’s not as simple as fobbing off the significant decline in property transactions to the downturn in Sydney and Melbourne. The data shows steep declines in every single capital city, including Australia’s property hotspot, Hobart.
Even in regional Victoria, regional Tasmania and regional New South Wales where local buyer sentiment is strong and getting stronger (observed first-hand by Propertyology’s buyer’s agents), transaction volumes reduced significantly in the December quarter.
The common denominator is buyers have found it difficult to obtain credit. And the single biggest cause of that is APRA’s ludicrous policy for banks to use a 7.25 per cent loan assessment rate in a climate where most home loan interest rates have a three (3) in front of them. It’s stupidity on steroids!
Some representatives of the finance sector have recently decried that it wasn’t credit policy, instead that buyer demand had fallen off. Those of us at the coalface dealing direct with the public each day – buyer’s agents and mortgage brokers – know that’s complete rubbish!
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The volume of property transactions in the December quarter was the lowest on record in Melbourne, Darwin, regional Victoria, regional Queensland and regional South Australia. It was the second lowest on record for Sydney and Hobart. And it’s the lowest in more than eight years for Adelaide, Perth, Canberra and Brisbane.
State government treasurers will be concerned!
|Location||Avg Dwelling Price||Avg Stamp Duty||Annual Reduction in State Gov Revenue (est)|
|Sydney||$ 790,000||$ 31,000||$ 992 million|
|Rest of NSW||$ 500,000||$ 18,000||$ 32 million|
|Melbourne||$ 630,000||$ 34,000||$ 950 million|
|Rest of VIC||$ 350,000||$ 17,000||$ 85 million|
|Brisbane||$ 490,000||$ 13,000||$ 104 million|
|Rest of QLD||$ 400,000||$ 9,000||$ 144 million|
|Adelaide||$ 430,000||$ 21,000||$ 84 million|
|Rest of S.Aust||$ 300,000||$ 13,000||$ 10 million|
|Perth||$ 440,000||$ 15,000||$ 120 million|
|Rest of W.Aust||$ 350,000||$ 11,000||$ 0|
|Hobart||$ 460,000||$ 16,000||$ 25 million|
|Rest of TAS||$ 330,000||$ 11,000||$ 17 million|
|Darwin||$ 400,000||$ 16,000||$ 25 million|
|Canberra||$ 600,000||$ 17,000||$ 20 million|
Blind Freddy can see that the out of touch regulatory tightening of credit is causing widespread harm to our national economy.
Over the last few years, I have intentionally expressed my concern with what I’ve always considered to be unnecessary, across-the-board tightening of credit supply. In addition to making it significantly harder (if not impossible) for hundreds of thousands of responsible Australians to buy property, my broader concern has always been the knock-on effect to our national and state economies.
Healthy property markets equate to healthy economies.
No other industry sector has bigger tentacles than the property sector. From construction jobs, to jobs within various real estate services, and money spent in retail by property buyers at hardware stores and furniture outlets.
Putting the brakes on credit guarantees a significant reduction in property transactions and acts as an enormous wet blanket on the entire country.
Whether an existing home owner that’s upgrading or downsizing, a first home buyer, or an everyday Aussie property investor, the health of the property sector also has a big influence on consumer sentiment.
After a decade of post-GFC hard work, the federal budget is finally about to return to surplus, our unemployment rate has just dipped below 5 per cent for the first time in eight years, there are early signs of overdue wage growth, and there’s a big pipeline of new infrastructure.
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This credit tightening puts all of that at risk. It’s self-inflicted harm.
Someone needs to (quickly) get Australia’s banking chiefs and APRA in to a room and give them all a kick in the backside. It’s in the best interests of 25 million Australians for the return of sensible credit policy to immediately occur.
If the stark property transaction volumes from the December quarter continue, a whopping $2.6 billion will be wiped off the annual budgets of state and territory governments.
Propertyology has crunched the numbers based on projected annual stamp duty revenues for an ‘average year’ – we all know that boom years are the exception, not the norm. New South Wales and Victoria will each be out of pocket by $1 billion. That’s equivalent to a world class hospital that doesn’t get built or five new train stations that get left on the drawing board.
This totally self-inflicted damage is the result of a horribly executed policy. Four years of persistent attacks on the property sector, and Labor’s proposed negative gearing and CGT changes hanging over the nation’s head, was always going to have unintended consequences. The biggest consequence may well be consecutive quarters of declining GDP and a national recession by Christmas time.
Propertyology is Australia’s premier property market analyst and award-winning buyer’s agency. Every capital city, every non-capital city, we analyse fundamentals in every market, every day. We use this valuable research to help everyday Aussies to invest in strategically-chosen locations (literally) all over Australia. Like to know more? Contact us here.