Competing Pressures

There are very mixed messages within the community and the economy at present.

We have housing under supply which is placing upward pressure on house prices and also rents making affordability harder which is further exacerbated by higher interest rates. The higher interest rates, aimed at assisting to contain inflation – a very important factor to get under control. Inflation is the single most destructive force on both wealth and purchasing power outside extreme events such as war. The bizarre position however for prospective purchasers of a house or unit is that, in all states, their likely purchasing power is reduced given higher interest rates but in most states, house prices and rents look to be steadily marching higher or holding ground at the moment.

The impact of the increase in interest rates for borrowers is negative, for savers it is positive but for all of us, inflation at its current level is not positive at all. It is placing upward pressure on the cost of living, compounding annually, eroding purchasing power and reducing discretionary income as it outpaces growth in earnings. This affects businesses across Australia on the high street and in the suburbs in particular – retail, sport and fitness, recreation and hospitality, all are beneficiaries of Australians’ discretionary income. My observation is that the reduction in this discretionary income is being felt by consumers and they are accordingly reducing their spending. The commercial property impact is a slowing in the level of activity around retail leasing in particular accompanied by an increase in supply. The only benefit here is the opportunity for those active in the market to secure quality tenancies that otherwise would be very scarce and that the reduction in discretionary spending assists in getting inflation under control.

There is however some cause for optimism, an article in The Australian by Matt Bell on 31st July 2024 noted that “Deloitte’s biannual CFO Sentiment survey of more than 80 ASX-listed CFO’s shows net optimism about financial prospects of their companies has surged by 29 percentage points to 56 percent over the past six months – the first meaningful increase in optimism in three years”. This perhaps reflects thoughts from the “big end of town” but it is across a spread of business operating in differing geographic locations and differing market segments within Australia so is worthy of consideration. Equally, we have not yet had any interest rate decreases, should inflation begin to align with the RBA target band then in time we can hope for decreases in interest rates to follow and more positive market conditions to materialise for those dependent upon the consumer’s discretionary spend. There is a risk rates may have to go up before they go down. For hardworking small, medium and large business owners across Australia and in particular, across Tasmania, I hope that better trading conditions materialise in the near future driven by the previously reliably resilient Australian consumer. Ideally, they buy locally when they do.

For the housing market – increased supply requires more skilled labour, easier financing and streamlined planning and strategic infrastructure implementation along with options not common within the Australian market such as build to rent. There is much work to be done on this front by government at all levels to facilitate construction and development across the market but it can be done and should be done. Prior blogs cover some of the issues that exist from my observations if they are of interest.

If you would like to discuss anything further contained within this blog, or any other property matter I would be happy to do so on 0408 569 366.

Please note the above information contained within this blog reflects my personal observations only, the information is not intended as financial advice and should not be relied upon as such.

Humphreys Real Estate

30 Brisbane Street

Launceston TAS 7250

0408 569 366

[email protected]