All the ingredients that created big growth ;
1. LVR's increasing through the introduction of LMI. In the late 80's, LVR's were at 80%. So if you had a 50K deposit, that represented 20% - meaning the bank would give you 200K. That = 250K budget.
When 90% + LMI deals started in the early 90's , your 50K = 10% deposit, which = 500K budget. When 95% + LMI deals became commonplace by mid-late 90's your 50K = 5% deposit, which = $1 Mil budget.
2. Deregulation from the late 80's and into the early 90's = massive drops in rates, increased competition, and banks were allowed to lend much higher ratio's against the capital they were required to hold.
3. Securitisation from the early 90's = plentiful supply of easily available money, coupled with bank product innovation. i.e equity /cash out restrictions being lifted. servicing calcs going fro 3.5 x income to 7-8 x income, + addbacks, neg gearing etc...
4. Decades of incompetent Govt planning ( local, state and federal, and all parties)
5. Favorable tax environment for investors
Essentially, across 7 or 8 years from the early - late 90's, we went from having Situation A - 4 banks who would lend you 3.5 x income and required 20% deposits, and who had limited funds available, to Situation B - dozens of banks ( local and foreign) non bank lenders , mutuals and building societies and credit unions who would lend you any amount you wanted, with little or no deposit required. Coupled with falling rates, a tax system that rewards speculation, aggressive migration and hopelessly incompetent Governments, we had the mother of all booms between 92-2005.
Or put more simply, borrowing capacity doubled and then re-doubled across a 10-15 year period because of points 1,2 and 3 above , created by an oversupply of cheap global money , while point 4 created an undersupply of stock and point 5 created the tax environment to make it all gel together.
Once 1,2 and 3 had been exhausted by the mid noughties, growth slowed dramatically - everywhere. Some places did better than others, but we went from 12% compounding growth to less than half of that, in every capital city after 2004/5 .
And we have only seen two mini booms since. Once after the GFC, when rates were cut aggressively... and the last 9-12 months , when you guessed it, rates hit historical lows.
Both are examples of why borrowing capacity ( interest rates) is now the largest driver of growth. All growth in the last 25 years has coincided with periods of freely available, ultra cheap money. All of it. No exceptions. Without that key ingredient, growth has been much less impressive
So the real question is whether interest rates will keep falling - in which case the evidences suggests further growth, or whether the rate cycle is at its lowest and will start moving back to "normal " settings - in which case growth will be at much lower levels than people might want to believe.
The RBA has a very difficult problem. A high dollar is forcing them to keep rates artificially low- which is creating uncomfortably high prices. They want the dollar down , but if they lower rates any further they will simply drive more property speculation and risk inflation blowing out. You have heard Glen Stevens warn people about investing in Sydney in particular.... and he had the same message after the min boom following the GFC. The RBA is ultra conservative so when they start jawboning these conservatively worded warnings - I think it bodes well to listen up...
I suspect the RBA are praying the US dollar recovers and the Aussie falls to mid 80 cents so they can get rates up 2% or so to take the steam out of the property market , but I also think they realise that's not going to happen any time soon, so they are starting to try and talk down property in an effort to slow it down. Dont be surprised if they consider some form on macro policy intervention such as that which NZ introduced- i.e capping LVR's . They have always maintained they are against it, but their dilemma is very real.... if they cant get rates up because of a stubbornly high dollar, they face a serious housing bubble forming at some point. Macro intervention may be their only solution.
All things considered - it's very hard to make a case for another 10 years of boom times... its much more likely to be 10 years of slow and steady . The good news is that the incompetence of every layer of Govt for decades ensures that undersupply remains a genuine safety net that will provide some insurance against a collapse of any sort. Only a serious recession/unemployment rate will lead to big price falls.
