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Key Highlights

  • The Australian housing market is experiencing one of the most turbulent periods since the GFC. Due to the government’s fiscal and monetary policy interventions, Australian house prices have fluctuated and resulted in some transformational shifts in the housing market dynamics, including some key determinants of the housing market.
  • Black Swan Events (BSEs) are significantly negatively impactful events that affect all aspects of human life, including economic, health, and social well-being. Due to the enormous economic impact of BSEs, governments respond with fiscal and monetary policy interventions to thwart economic catastrophes during these events.
  • Through a quantitative analysis of secondary data and expert interviews, the research uncovers that “lending liquidity” is an essential driver of the Australian housing market. This is despite all well-established fundamental drivers of housing markets, including migration, population, GDP, and employment, performing negatively.
  • QE in combination with other fiscal policies, were solutions adopted by the Australian government to aid an ailing economy during the pandemic. Those solutions have both direct and indirect implications for the Australian housing market. Amidst frequent BSEs because of climate change, government fiscal and monetary interventions are anticipated to occur more often in the future. These policy interventions will continue to exert significant impacts on the housing market.

Authors

Peng Yew Wong (PhD), Kwabena Mintah (PhD), Woon-weng Wong (PhD) and Kingsley Tetteh Baako (PhD), RMIT University

Executive Summary

The Australian housing market has been experiencing one of the most turbulent periods since the Global Financial Crisis (GFC) of 2008. Since 2018, the Australian house price has fluctuated rapidly amid key events such as the Royal Banking Commission Enquiry, the COVID-19 pandemic and a series of government fiscal and monetary interventions.

 

At the date of this report, the house prices are back on a downtrend attributable to the Reserved Bank Australia (RBA)’s rate hike actions. The volatility stemmed from these mega events implicates the housing market dynamic significantly and studies on the emerging drivers of the Australian market have never been so important.

 

Through statistical modelling and stakeholder interviews this research assessed the impacts of various black swan events (BSEs) had on the Australian housing market, the government monetary policies implemented during these BSEs, the possible implications of these strategies in future economic developments. Additionally, drivers of the Australian housing market were explored.

 

QE has been an essential monetary policy deployed by central banks as part of their economic interventions during periods of crisis worldwide. RBA initiated QE monetary expansionary intervention during the COVID-19 pandemic.

 

Interestingly, QE was not implemented during the GFC, making it one of the most significant and unprecedented monetary policies in recent Australian history. The increased levels of liquidity and its impact on property markets require immediate attention to understand the implications and effects on market participants.

 

The research identified that BSEs are those events that are primarily unexpected, unplanned and have negative implications on various aspects of the economy. COVID-19 and GFC were both identified as the recent BSEs. Whereas GFC was mainly economic and financial, it was noted that the COVID-19 pandemic had a broader impact scarring human health and creating social vulnerability simultaneously.

 

In response to BSEs, governments worldwide deployed policies to varying extents to weather the negative impacts of the BSEs. The Australian government did the same during the COVID-19 pandemic. The Commonwealth and RBA embarked on a series of interventions including fiscal measures such as job seeker and jobkeeper, whilst RBA implemented expansionary monetary measures including cash rate reduction and QE.

 

QE has invariably increased the money supply to allow for better credit access for business and household consumption. This is supplemented by a continuous decline in the cash rate to reduce borrowing costs. The combined effect is household demand and business production to accelerate an ailing economy.

 

This research uncovered that lending liquidity, the total amount of loans advanced to borrowers for acquiring houses has emerged as a significant driver for the Australian housing market during this turbulent period. Attributable to the RBA’s QE intervention during COVID-19 that expanded the country’s money supplies.

 

Against all odds, the Australian housing market performed positively despite the underperformed traditional drivers such as GDP growth, population growth, migration, and employment rate during the COVID-19 pandemic. The enhanced lending liquidity stemming from QE has created a new dimension in the author’s ongoing housing market research.

 

Deeper investigations are needed to reassess the market determinants. This is especially true in the face of a turbulence Australian housing market, the ongoing housing affordability issue and the various housing market policies’ relevance and applicability.

Other resources

Media coverage

Article: How lending liquidity emerged as the latest driver for Australia’s housing market | The Australia & New Zealand Property Journal

 

Previous APREF Research

 

This research was funded by the Australian Property Research and Education Fund (APREF). Learn more about APREF here.