It’s a trend that has ramifications for the property industry, the broader economy and all those keenly wondering where prices are heading next – Australians are buying and selling fewer properties.

FULL REPORT: Housing turnover and house prices: A fractured relationship?

Why Australians are trading fewer houses

For the first time in years, Australian house prices are falling and vendors are increasingly reluctant to sell. Behavioural economics tells us that people fear the loss of money more than an equivalent gain. When a homeowner realises their home is worth less than it was just a few months ago, they are less inclined to realise this loss of money by selling.

It’s known as loss aversion, and the behaviour is being reflected in falling auction clearance rates. Sellers are slow to adjust their price expectations as prices fall, resulting in properties being passed in or withdrawn and clearance rates falling.

With property prices declining, it’s not unusual that housing turnover is low, because turnover has historically been closely related with house-price growth.

Price, however, is just one factor at play here.

It’s clear stamp duty is also weighing on housing turnover. Stamp duty affects housing turnover as the cost of moving discourages people from relocating closer to a better job or into a more suitably sized house. Despite house prices increasing dramatically in recent decades, stamp duty thresholds and rates have not changed much, if at all, in most states and territories. As a result, stamp duty on a median-priced property has increased substantially when compared to income growth (see graph).

We can also look to the apartment construction boom in Sydney, Melbourne and Brisbane as contributing to lower housing turnover, at least on paper. Most new apartments are sold off the plan before construction. This means there is generally a gap of up to three years between the buyer signing the contract and getting the keys. Many apartment sales have not been recorded in the turnover statistics because settlement hasn’t occurred.

Additionally, movements interstate and within state, which is also a driver of turnover, have declined since the mid-2000s.

What it means for the market and economy

The number of properties bought and sold affects those in the property industry, including real estate agents, mortgage brokers, lawyers and removalists. Low housing turnover also affects the broader economy, because it means fewer people renovating and decorating when buying and selling properties. This is bad news for tradespeople, hardware stores and retailers of whitegoods, homewares and furniture.

State governments also closely watch housing turnover. Stamp duty, a key source of state government tax revenue that helps pays for schools, roads and hospitals, is highly dependent on properties changing hands. While stamp duty is an important revenue source, it is an inefficient tax that harms the economy. Most economists agree that replacing stamp duty with a broader property tax would boost Australia’s economy as well as provide governments with a steadier revenue stream.

What does it mean for house prices?

The widely held view is that investors withdrawing from bricks and mortar, banks tightening lending and new housing hitting the market will all serve to push property prices lower in coming months.

Property watchers would also expect falling housing turnover to play a hand in prices declining in the near term. The silver lining for owners looking to sell is that our analysis suggests the relationship between housing turnover and prices is changing, particularly in Melbourne and Sydney, so the outlook for prices may not be as bleak as some suggest. Read our full report for more details.

Trent Wiltshire is an economist at Domain Group.

Domain Group

October 15, 2018