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Reproduced with permission.
Welcome to the first in a series of articles that explains what causes property prices to increase and decrease.
For those of you that have studied economics, if there was only one thing that you remembered it should be that price is a function of demand and supply. In other words, the price of an item is based on the demand for it and how much there is of it.
Property is no different. If there is high demand for property and supply is stable, property prices should increase. Conversely, if there is an oversupply of property, prices should fall.
The purpose of this series of articles is to detail which demand and supply factors are of the greatest importance to property prices. If you can understand this, you will have a greater opportunity of making money when timing the purchase or sale of your next property.
Demand for Property
The main factors that drive the demand for property include:
- Availability of finance
- Interest rates
- Consumer confidence
- Growth in population and household formation
- Unemployment and underemployment
- Government intervention e.g. First Home Owners Grant (FHOG), Capital Gains Tax (CGT)
- Foreign investment
- Rent vs mortgage payments
- Proximity to public transport, shops, prestigious schools, medical facilities, recreation facilities
- Prestige of the area
- Availability of services (especially in semi-rural areas)
- Town planning regulations
Supply of Property
The main factors that determine the supply of new property include:
- Cost and availability of finance
- Level of business and consumer confidence
- State of the economy
- Cost of construction
- Government intervention e.g. National Rental Affordability Scheme (NRAS), release of land
- Foreign investment
- Number and quality of existing stock
- Existing supply and demand for housing
- Expected demand for housing
- Yields on alternative investments
Please join me over the next few months as I explain these factors that influence property prices so that you can make better informed and educated property investment decisions.
Happy House Hunting!
Written by Peter Koulizos, university property lecturer, author and buyers advocate.