As part of the state budget, the NSW government has laid out its predictions for how and when the current housing boom will run out.
The NSW state government has revealed its expectations for the local housing market as it looks to reform stamp duty in favour of a new land tax.
According to the NSW state government, annual house price growth in the state is expected to peak around late 2021.
“As higher prices encourage more owners to sell, this will work to limit house price growth over time. In addition, higher prices are expected to price out more potential buyers, weighing on demand,” the budget papers said.
“Speculation has emerged around the potential for renewed macro-prudential tightening by regulators in response to growing house prices. However, the concentration of lending growth in owner-occupier loans (rather than investors) suggests the current market conditions are less likely to evoke a response from regulators.”
In the short term, the budget papers reveal that a significant macro-prudential tightening is assumed to be unlikely.
However, they do note that “higher interest rates anticipated for 2024 as the Reserve Bank of Australia tightens monetary policy will accentuate the weakness in demand for housing construction”.
The budget noted that activity in the residential construction sector remains strong, “fuelled by higher house prices, ongoing policy support and low interest rates”.
“That said, building approvals are now running well ahead of the change in population, which is depressed due to the lack of inward migration. This suggests a potential oversupply in the near term relative to the underlying demand for housing,” the papers continued.
The budget papers predict that demand for renovations will fall in 2020 once international travel resumes and the influence of the federal government’s HomeBuilder scheme fades.
The state government’s predictions are echoed by Westpac, who revised earlier its position in May and suggested that the Reserve Bank will move to slow growth in the first half of 2022.
The bank is now forecasting a slim 5 per cent growth in prices by 2022 before the market completely stalls in 2023.
Work with us, not against us: REINSW
With budget figures also confirming that property transactions have contributed over $9 billion to the state economy, the Real Estate Institute of New South Wales (REINSW) is calling for more co-operation between the state government and the real estate industry, given real estate’s status as the state’s biggest revenue source.
REINSW CEO Tim McKibbin said the NSW budget “could be back in the black within three years” on the back of the record stamp duty revenue collection.
He considers it a timely reminder that the government must work with — not against — real estate, declaring that “the real estate industry has rescued the NSW budget”.
“The industry that provides so much from a social, economic, employment and revenue standpoint deserves a more receptive ear from government, particularly in relation to some of the contemporary issues affecting consumers and the market,” the CEO commented.
He concluded: “We believe there is an opportunity for a better environment for engagement between consumers, the industry and government, as these latest stamp duty figures prove just how crucial the sector is to our state.”