Latest NewsThe Next BoomSaturday, 22 October 2016

Numbers alone do not drive housing markets but the high levels of migrant intake will be responsible for Sydney's next boom.

Migrants have historically been high housing achievers in Sydney, underpinning both our home-ownership rate and the prices paid for houses.

It's reflected in the higher mortgage payments for recent migrants.

If you're looking for a specific date on when we can expect the next property boom – or, indeed, whether or not we're in the early stages of one already – you won't find the answer here.

It's simply impossible to predict. Yet, an economist from the Fairfax-owned Australian Property Monitors, Matthew Bell, doesn't envisage any return to negative growth for at least the next few years.

And another expert, a director of Property Planning Australia, Mark Armstrong, says the real impact of the current upturn will be contingent on investors returning in a big way.

He expects the next boom to peak in 2011. But mum-and-dad investors are not driven by economics alone, so the ability to forecast property-buying behaviour can be difficult unless the herd stampedes in one direction.

What we can be sure of, Bell says, is that high migration levels, as part of high population growth, will only have an upwards effect on house prices in Sydney, particularly when there's simply not enough supply coming on line.

"With investors only just returning to the market in significant numbers in the second half of 2009, construction of new dwellings is lagging behind estimated demand for new properties by a long way," he says.

"Other factors restricting supply at the moment include difficulty for developers to get finance for new developments and the expense associated with new properties and developments due to regulation and taxation.

"With the [higher] birth rate, there is obviously a longer time lag before that extra population needs to be housed in new dwellings but as business migrants enter Australia's cities, the need for available housing is much more immediate."

So, back to those recent migrants. The average monthly housing-loan repayment for recent migrants was $1095, compared with $974 for long-standing migrants and $890 for those born here, according to the 2001 Census.

And that was before the last big housing boom of 2002-03, which Professor Graeme Hugo from the University of Adelaide says was undoubtedly partly fuelled by non-resident buyers purchasing investment properties for rental.

The jump in migration levels enabled Australia to surpass 22 million residents this month, with the 400,000 population spike of the past 12 months aided also by the highest birth numbers for many years and the lowest-ever death rate.

These annual shifts in the level and composition of the population set off powerful changes in household formation and housing consumption, which then will ripple through the residential market.

With the benefit of hindsight, the dramatic demographic changes sooner or later become apparent in house prices, from the medium to the megamillion-dollar homes.

And the recent migrants have the wherewithall, since they are well represented in the nation's high-income earners, with 6 per cent earning more than $1500 a week, compared with 4 per cent of Australian-born people.

Some 22 per cent of Australians were born overseas, according to the 2006 Census.

Sydney currently settles about 32 per cent of migrants, down on the 36 per cent of four years ago, a drop presumably in part due to rising inaffordability.

However, Australia's net migration is rising, as in 2007-08 it was 278,000, up from just 100,000 five years ago.

Estate agents don't need to be reminded that during the 1980s, the net gain from overseas migration jumped rapidly from 49,000 in 1983-84 to a 157,000 peak in 1988-89, which coincided with the biggest property boom in living memory.

The 2006 Census indicated a 72.4 per cent home-ownership status among Australian-born residents.

For migrants who had arrived between 2002 and 2006, the home-ownership rate was 30 per cent.

But the likely direction in ownership intention no doubt comes from the home-ownership rate of 76 per cent for overseas-born Australians with pre-2002 arrivals.

Migrants from Europe, mostly Italian and Greek, achieved very high levels of home ownership, in excess of 86 per cent after 10 years of settlement, according to earlier ABS data.

As the sharpest property spruikers know, property booms never last but neither do property busts.

And so anyone can enjoy the next positive property cycle so long as they are in it for the long-term price appreciation.

But the greatest capital growth will always be where there is the highest demand for desirable property and the supply is scarce.

Sydney has consistently outperformed the rest of Australia because we have almost run out of land within the basin.

So Sydney's price booms tend to extend ever westward from on or close to the harbour or water's edge.

APM's Bell believes the affluent suburbs that have fallen the fastest will be the fastest to rise in the current rebound.

What of the impact of the boost to the first-home buyer grant?

That's what kicked off the most recent boom: the sub-$500,000 first-home buyer market.

The end of the boost on September 30 seems to have sapped much of the frenzy, and quite possibly the frothy premium, that came from the rush to buy.