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  • 21 Sep 2020
  • 5 min read
  • By James Hawes

Why the property market is tied to the health of Queensland's economy |

Property, Trends, Market Trends

Like most Australians, Queenslanders are fixated on the housing market - both to garner an understanding of how viable a future move is as well as how much their property is worth. There's another advantage to being across the housing market, however: understanding its impact on the broader economy.

Fluctuations in property affect residential construction, employment, consumer confidence and consumption and, ultimately, Gross Domestic Product (GDP). But exactly how does housing have such a profound impact on the economy?

To answer, we must acknowledge housing and the economy don't operate independently of one another. The property market exists very much within the broader economy. As such, circumstances that influence one tend to influence both.

Demand, construction and employment

The most basic economic principle of supply and demand applies to housing, despite its illiquidity. Supply is generally determined by construction (or vacant dwellings), while demand is affected by a multitude of factors including income, interest rates, discounts and grants, and taxation policy.

When demand is high, construction often follows, which positively impacts the economy. In conjunction, a booming construction sector leads to increased employment which, of course, also bolsters the economy. According to the Australian Bureau of Statistics (ABS), the residential construction industry indirectly contributed to a significant 5.8 per cent of Australia's total employment in the 2016-17 financial year.

Equity and consumer sentiment

The established market has a significant overall effect on the economy and represents approximately 70 per cent of all housing sales. Naturally, when properties increase in value, the economy benefits. While increased housing prices may be a challenge for first home buyers, it instils confidence in existing homeowners.

The Reserve Bank Australia (RBA) estimated a 10 per cent rise in net household wealth increases consumption by roughly 0.75 per cent in the short term and 1.5 per cent in the long term. The highest monetary spend reported was on vehicles and household furnishings, positively influencing the growth of GDP and our economy. "Part of the effect on spending on furnishings is likely to come from the fact that periods of rising housing prices are often associated with higher housing turnover, and turnover generates extra spending," said RBA Governor Philip Lowe.

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RELATED ARTICLE: As the second-largest small business employer in Queensland, over 46,000 people in the real estate sector have faced financial hardship due to significant decreases in sales commissions and property management fees as a result of reductions in the amount of rent collected. Faced with these circumstances, real estate licence and registration renewal fees must be suspended for 12 months minimum. Click here for more.

Exactly how much does the housing market impact the economy?

Well, according to the Housing Industry Association (HIA), the economy is considerably impacted. "The aggregate residential industry's direct contribution to the Australian economy is over $150 billion per annum with over one million employees in building and construction, tens of thousands of small businesses, and over 200,000 sub-contractors reliant on the industry for their livelihood," stated the HIA.

Based on this figure, residential housing contributes to roughly 10 per cent of Australia's GDP (approximately $1.4 trillion). However, the HIA has argued that the national economy is far more reliant on housing than just a 10 per cent share.

"Housing's combined contribution to GDP generally averages 23 to 24 per cent in recent years," said the HIA. Residential investment, comprising construction, renovations, manufactured dwellings and brokers' fees, amounts to almost six per cent. Consumption spending on housing services equates to between 18 and 19 per cent, said the Association.

With nearly a quarter of the national economy tied to housing, it is hard to argue against the importance of our property market. A booming property sector can work wonders for Australia's broader economic standing. In fact, the HIA found that even a 1.0 per cent increase in demand for new residential housing investment stands to raise GDP by an estimated $88 million per annum.

Save housing, save the economy.

What this all means is policy supporting a healthy housing market helps sustain the economy. Keynesian initiatives like the First Home Owners Grant and the HomeBuilder scheme have positive effects on both housing and the broader economy. Other actions, such as the REIQ's suggested extension of the First Home Owners Grant, the abolition of stamp duty, and a waiver on license renewal fees to not only support Queensland's economy throughout the pandemic but also encourage it to thrive. For more information on measures that the REIQ is proposing to support Queensland's post-pandemic economic growth, see our election wish list here.

Important disclaimer: This article is provided for general information only, and the author is not engaged to render professional financial advice or services through this article. Readers should satisfy themselves as to the correctness, relevance, and applicability of any of the above content, and should not act on any of it in respect of any specific purchase, investment, or other financial activity without first obtaining their own independent professional financial advice.



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