The property market is a misnomer.
The housing market is made up of a number of different markets depending on the location, type and price.
Like the economy, the housing market can be travelling at a couple of different ‘speeds’ – some sectors struggling, some doing OK and some ‘booming’.
The Property Market is the macro, big picture overview, it is a generalization, ignoring the myriad of factors that go into determining the health and potential of a particular segment of the market.
Property is unique as it serves a dual purpose- a place to live, providing shelter and also the potential to appreciate as a real asset and become a store of wealth for the future.
Spending on housing is non discretionary – in other words, it’s a must, a necessity. We have basic needs in life, food clothing and shelter. While the need to allocate income to these three essentials is non discretionary, the type, brand or location is.
So, while the property cycle maps price movements around the trend, the trajectory remains upward over the long term. Unlike many commodities, housing is an essential and the economy’s underlying demand is based on population projections and the demographic trends that divides the population into household groupings.
While simplistic supply and demand theory would say that if prices are too high for accommodation in one area, then consumers should simply switch their focus and move to another area and all will even out, is just that, simplistic!
Just like perfect competition requires perfect knowledge to operate according to the textbook theory, a perfectly operating price mechanism requires, perfect mobility and that is not realistic for any number of reasons.
Moving from one location is not easy or simple – job access, transport options, children being established in schools and sporting and friendship groups limits mobility, as does the cost of moving!
Primary drivers of housing demand are population and jobs growth – the most populous states and robust economies will typically have the highest demand for housing.
Demand and supply vary from place to place and from time to time. Demographic changes along with lifestyle preferences will also impact on the demand for housing and the type of housing that is supplied.