Steady housing demand to stabilise prices: CBA

The cost of houses and apartments remains high by international and historical standards, and that brings problems.

The CBA report warns that high prices may drive people away from cities.

The cost of houses and apartments remains high by international and historical standards, despite recent price falls, according to a major Commonwealth Bank report.

The bank’s head of global markets research, Stephen Halmarick, said in the report that demand for housing would remain solid over the medium term, driven by population growth, low interest rates, the recent correction in prices and favourable tax treatment for housing investment.

Major policy changes and a new focus were required to ensure that not only was aggregate demand met, but that supply matched demand.

Mr Halmarick said the build-to-rent market was likely to be one way of ensuring a better supply of housing for changing society and attitudes towards renting.

The bank’s report looks beyond economic impacts, noting that with the average price of a house in Australia at $722,000 — and just under $1.03 million in Sydney — and the average apartment valued at $568,000, many people are priced out of home ownership.

The report notes there is an active rental market providing choice in terms of types of housing to rent. House prices are down 8 per cent in the year to June, with Sydney down 9.9 per cent.

“There is genuine concern, however, that the price of housing, especially in the major cities, will drive people away from these cities and have a negative impact on the supply of essential labour,” the report said. People living on the outskirts of major cities already faced long commutes and the report ­argued for a boost in the supply of affordable housing.

The build-to-rent market and policies to provide improved public and private transport infrastructure could play a significant role, but the report also noted rising homelessness, which should be addressed by banks, developers, builders and policymakers.

In the shorter term, Mr Halmarick said the Reserve Bank would ease monetary policy by a further 25 basis points late this year, taking the cash rate to 0.75 per cent.

The impact on property prices could be “significant” and the bank expected house prices to stabilise over the second half of this year and by 2020.

“We would expect nationwide dwelling price growth in the range of 3-5 per cent over 2020,” the report says.

The report argues that existing arrangements for negative gearing and capital gains tax put upward pressure on prices.