This is another topic with which Freedom News readers will be very familiar, as it is a subject that confirms the logic of investment property as a sound investment idea in providing for a financially comfortable retirement. We will quote extracts from an article that appeared in The Australian Financial Review on Thursday 11 March, 2010.

“The Reserve Bank of Australia has warned that house prices and rents could surge as the resources boom intensifies the stain on the economy’s capacity and exacerbates the housing shortage”.

“RBA assistant governor Phillip Lowe said yesterday more needed to be done to tackle planning shortcomings and looming skill shortages that will hamper the supply of new houses”.

“A lack of planning, materials and skilled labour is threatening the supply of housing” (picture caption).

“We face the significant challenge of increasing the supply of housing at a time when business investment is also very high”.

“Mr Lowe said if there was a failure to increase the supply of homes by building smaller houses or investing more in housing construction, ‘further adjustment in housing prices and rent is likely to occur to balance supply and demand’”.

The article continues and highlights the dramatic fall in mortgages granted to first home buyers and owner occupiers in the wake of recent interest rate increases.
The key issue is that the supply of housing is being constrained on one hand by the slow planning process and the significant costs associated with new release and land developments, and on the other, by the strict approach taken by banks to lending. The absolute dominance of the Big Four banks and the absence of smaller competitors means that the banks’ word is law, and at the moment, the word is, “Credit granting is severely restricted”.

There are two issues of comfort here for investors who look to gain from the current situation. Firstly, the housing shortage is not going to go away anytime soon. If anything, the undersupply will get worse and worse, as immigrants arrive in great numbers to fill the skills hole in our growing economy. What this means is strong growth in property values, and strong growth in rentals, thus proving McCarthy Group’s formula.

Secondly, if you have equity in your family home to use as a deposit on an investment property, not only do you not need any fresh cash, but the banks will be far more open to granting you credit as the 80 or 90 per cent of the amount required can then be secured against the value of the new property. (Other conditions, however, will still need to be met, eg. an income that supports that level of borrowing, a good credit record etc).

The bottom line is that the RBA itself is confirming everything we have been saying at McCarthy Group: there is a strong and growing imbalance between the supply of housing and demand. This is bad news for some, but great news for property investors.

If you would like to learn more and discuss how McCarthy Group can assist you, click here.

Rollins, R. 2010, ’RBA warns of housing shortage’, The Australian Financial Review, Thursday 11 March 2010, p1