OPINION - Future shock

At next month’s Australian Mortgage Conference 2011 I’ll be looking at some of the challenges the Australian community and the broader economy will face over the decade to 2020. This nation in general and the advisory industry quite specifically must deal with population and housing issues, with an increasingly globalising economy, with regulatory change, with changes in funding models and competition, and with the need for innovation and the development of best practice.

In the property market, I believe that 2011 will be the year of the ‘cross over’. It could well be a year of two halves: a first half that will be dominated by less-than-stellar property price growth and a second half where we could well see growth and the prospect of even better growth in the following year.

There are many factors that affect the demand for property in Australia, one of which is the level of immigration. During 2010 both the government and the opposition expressed a preference for a slower rate of population growth underpinned by a reduced level of overseas migration. As a consequence, the rate of population growth in this nation has been slowing off a high base since early 2010. This reduced rate of growth has in turn slowed the intake of skilled migrants and has eased pressure on the demand for housing.

The issue is that the current rate of population growth is falling due to a perceived need to ‘step away’ from the Big Australia concept. But this policy will also result in severe labour shortages. As a consequence I believe that at some stage over the next 12 months government policy with regard to migration must change. When that occurs there will be an acceleration in the demand for property and property prices must recover.

This leads me to my ‘year of two halves’ conclusion. In the first half of the year, the government will look to ease migration levels, which should have a negative impact on property price growth, mortgage demand and rental yields. Then in the latter part of the year, as the mining boom heats up and the country requires more skilled migrant labour, the government must respond by easing migration restrictions, which in turn should cause the property market to recover.

So, the outlook might well be bleak for the next six to eight months but if the government responds with a shift in migration policy then this would be followed six to 12 months later by recovery. Or at least that’s how I see the next 12-18 months panning out.

If we look further forward than the next year or so could well see other trends emerging. In the last 2010s baby boomers will start to retire. As such, we will start to see a mass of people looking to downsize or make a sea or tree change.

When the baby boomers retire, we should also start to see costs for housing extensions rise as there will simply not be enough Generation Y workers coming through to fill the gaps that will be created by the new retirees. As the number of workers drops, demand for these individuals’ services will rise, causing wage increases.

In the 2020s and 2030s, the baby boomers who retired this decade will start to die off. This should result in a flood of property coming on to the market. The time to make money out of property is in the 2010s, not in the 2020s when the boomers begin to depart this world and leave the property market awash with three-bedroom brick veneers in the suburbs.

By Bernard Salt, KPMG