Increasing Supply to Tackle Growing Property Values

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Reproduced with permission.

The Reserve Bank of Australia has met yesterday and interestingly has reiterated our views that we shared in my blog yesterday that the regulatory crackdown instituted by APRA is only a stop gap measure which is unlikely to have long-lasting effects on slowing down the investment market and growth of property prices.

The Governor of the RBA, Phillip Lowe, announced yesterday that boosting supply in the property market is the only way to break the trend of property values growing at a pace faster than incomes. Basic economics shows that prices are driven by the principles of supply and demand and this is our prevailing view.

Victorian and New South Wales State Government are also putting in measures to cool the housing market under control. To this end, the State Government of Victoria’s Minister for Planning has announced changes to reform development policy. These changes allow for greater development, by increasing the height limit of dwellings, number of storeys which can be built, and allowing more dwellings to be built on one lot.

While it is easy to see how these measures may ease the lack of supply in sought after suburbs, they have been met with resistance by locals and councils alike. The author has received a letter from the City of Boroondara outlining the detrimental effects these changes will have on neighbourhood character, streetscapes, residential amenities, population density and ultimately (although not specifically mentioned), property value. The council even goes so far as to urge owners and occupants to email the Minister with their concerns.

This highlights the tensions and competing interests in the Melbourne and Sydney property market. Particularly between first home buyers who are struggling to get their foot in the door, and on the other side of the fence (pun intended), property owners who want to protect the value of their assets. It is this struggle between competing interests which makes the solution of ‘increasing supply’ deceptively complex.

All the best with your Property Planning!

David Johnston is the founder of Property Planning Australia and the author of ‘How to succeed with property to create your ideal lifestyle’ and ‘Property for life – using property to plan your financial future’.

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