“Know when to hold ‘em”: the great housing poker game
Australia’s are holding on to their houses for much longer than has been the case through most of the last thirty years. The implications of this, in an era when interest rates are low and house prices are rising is not immediately clear, but includes potentially lower housing related economic activity. Recent analysis by the RBA suggests some housing turnover has been understated because of the increase in apartment building.
Like a hand of poker, Australian home owners and mortgagees have progressively reduced their turnover of dwellings since the early 2000s. Households are “holding ‘em, not folding ‘em” at almost unprecedented levels, especially when the conditions appear favourable for a bit more action at housing’s green baize table.
The chart below shows housing turnover (defined as a transfer of ownership) for the last thirty years.
Thinking historically, this chart allows us to observe that the current measured turnover level is similar to that witnessed in the early 1990s, when interest rates were climbing – unlike now. We can also observe spikes that arose when house prices had grown rapidly in the early 2000s – not different to now, except for the far lower turnover rate.
Which leaves us to consider, as the RBA has done, what exactly is different right now?
Without hitting on anything especially concrete, the RBA’s analysis suggests that the lower turnover may be because of:
- Demographic changes, most notably a smaller number of households becoming ‘empty nests’ than in prior decades;
- Less renters transitioning to being owner-occupiers;
- Declining borrowing capacities (you may care to examine the previous item in this edition of Statistics Count for more details on household indebtedness);
- Declining gross interstate migration, potentially driven by concerns about employment security.
There are implications for the entire economy from lower turnover rates. Government revenues are reduced by lower stamp duties and GST on property sales for instance. For those, like the forestry and wood products sectors, that rely upon alterations and additions activity, lower turnover is anticipated may lead to lower levels of remodeling activity.
That means there is also a drag on retail expenditure. As the RBA report puts it:
“For example, housing turnover is positively correlated with household retail spending, particularly on durable goods such as furniture, home appliances and electrical or electronic devices.”
There are measurement challenges with this turnover data. Not the least of these is at what point in time ‘off-the-shelf’ sales are measured. It is possible that there is some understatement of housing turnover as a result of this measurement issue.
But it is also possible that total lower turnover rates are a result of the dynamics of investing in apartments in a low interest rates environment, where prices are continuing to grow.
Whatever the reason, households are choosing to retain the cards in their hands, banking on what they’ve got, rather than drawing new cards in a housing market that seems increasingly like a game of economic poker.
The Link to the full article in the RBA Bulletin is http://www.rba.gov.au/publications/bulletin/2017/mar/3.html