Housing is very affordable

Christopher Joye

Coolabah Capital

Today in the AFR I argue that contrary to popular myth, there is no housing affordability crisis (click on that link to read the full column). Quite the opposite, in fact: housing has not been this affordable in a very long time. Indeed, Aussie house prices are surging precisely because residential property has suddenly become much cheaper than it used to be. Brief excerpt only:

Our purchasing power has improved dramatically because of several key influences. First, the federal government’s unprecedented fiscal stimulus prevented a large number of Australians from losing their jobs while contributing to a substantial increase in overall household incomes.

Second, the RBA’s record monetary policy stimulus, which slashed its overnight cash rate to a never-before-seen 0.1 per cent, bailed-out droves of borrowers by driving down variable-rate loan costs. (The banks’ very generous repayment holidays also helped.)

Third, the RBA’s novel term funding facility furnished lenders with access to $180 billion of 3-year money at a price of just 0.1 per cent, which in turn allowed banks to offer current and prospective home owners the cheapest fixed-rate mortgages in history...

When purchasing power changes, asset prices have to adjust in lock-step. This is the same logic equity junkies have been rolling-out to rationalise uber-expensive price/earnings multiples: it’s the discount rate, stupid...

The second big myth about the local housing boom is that this is a uniquely Australian affair.

I regularly come across the claim that Aussies are unusually obsessed about residential real estate despite the evidence that our circa 66 per cent home ownership rate is lower than that observed in China, Norway, Mexico, Spain, Greece, Portugal, Brazil, Italy, Belgium, Finland, Ireland, the Netherlands, Israel, and Canada. And it is only slightly higher than the ownership rates in the US, France, Sweden, New Zealand, the UK, Japan, and Denmark.

Folks are also fond of alleging that this entirely predictable housing boom (which we projected in the midst of the March 2020 crisis) is idiosyncratic to the sunburnt country. The truth is that even stronger price action is playing-out globally as ultra-aggressive monetary policy around the world transmits into cheaper money and more affordable homes.

According to CoreLogic, Australian dwelling values have increased by only 6.2 per cent over the year to March 2021. Yet in New Zealand prices have leapt by more than 16 per cent over the same period. Along similar lines, US house prices are up 11 per cent in the year to February while UK house prices have appreciated 7.5 per cent over the 12 months to January...

One curiosity of our contrarian position on Aussie housing during the COVID-19 crisis was that it apparently prompted nontrivial action. I have been surprised how many random strangers have approached me relaying that they bought a house last year, or early this year, on the back of the analysis rendered by this column. I have also noticed that there has been a striking spike in the number of home owners amongst my 26 person executive team over the past 12 months (I am surprised they listened)!

We continue to confidently forecast total house price growth of 20 per cent to 30 per cent over the next few years from the recent peak in April 2020 purely as a function of the change in affordability...

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Christopher Joye
Portfolio Manager & Chief Investment Officer
Coolabah Capital

Chris co-founded Coolabah in 2011, which today runs over $8 billion with a team of 26 executives focussed on generating credit alpha from mispricings across fixed-income markets. In 2019, Chris was selected as one of FE fundinfo’s Top 10 “Alpha...

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