The property market’s performance can be simplified by looking at the basic economic equation of demand and supply.

But underneath the surface, there are many more complex factors, both economic and otherwise, that intertwine to impact upon demand and supply and in turn, the performance of the market.

To gain an understanding of what is going to happen in the property market in the future one must understand how all these factors meld together to produce a particular result.

We have lots of experts to make that analysis for us these days, but investors should have at least a basic understanding, so here is a rundown of some of those factors:

Government Policy

There are so many government policies that can have an effect on both demand and supply for a property.

For instance, the housing affordability package measures that came into effect on July 1, 2017 in New South Wales, including stamp duty concessions for first home buyers,  will likely have the effect of increasing demand amongst this buyer type. On the flipside, other measures to deter foreign investors and investors will decrease demand from these buyers.

Meanwhile, there are also planned measures to increase supply under the affordability package, such as speeding up development approvals and accelerating the provision of infrastructure to support the construction of new homes.

Overall these measures are designed to reduce demand and increase supply, with the intended outcome of restricting price growth in NSW.

This is just one example of government policy impacting the market. There are many, many more around Australia, not just on a state government level, but also a federal level. The superannuation changes for first home buyers and downsizers, the changes to depreciation allowances and the measures to open up land for development in the recent Federal Budget are just a few.

Then there are the rules on lending being enforced by the Australian Prudential Regulation Authority (APRA), a statutory authority of the Australian Government. The intention is to restrict growth in investment credit, which has reduced demand from investors.

We are yet to see the final policies introduced after the banking royal commision, however, there are concerns they will further tighten lending requirements to property investors.

Rates

Following  APRA moves, many Australian banks have now increased interest rates for investors, which is designed to encourage investors to switch to principal and interest repayments.

While we don’t yet know the impact of this, it’s likely to reduce investor demand for property, which in turn will probably cool price growth.

This is also likely to be the impact of the introduction of the major bank levy as well as higher funding costs on NAB, ANZ, CBA, Westpac and Macquarie, as these banks are expected to pass on the costs to consumers via higher home loan rates.

As you can see, interest rates are another economic fundamental impacting upon the property market.

As I’ve mentioned in the past, interest rates impact upon property prices since they affect confidence and affordability and hence, demand.

When interest rates are higher, buyers are less likely to be active, with reduced demand restricting price growth, but when interest rates are lower, as they have been for a long time, buyers are more active, and with increased demand, there is price growth.

While the banks no longer seem to follow the Reserve Bank of Australia’s cash rate moves, when the central bank makes their decision they factor in a lot of different factors, including inflation, employment and economic growth, and they make a move to encourage borrowing or spending, to keep inflation in check or to balance the Australian dollar.

This demonstrates the interconnectivity and complexity of property economics.

Jobs

In a nutshell, people need to be earning money to be able to borrow and buy property and to have the confidence to do so.

That means if unemployment is high the property market can slow due to low demand, and if owners are forced owners to sell supply is increased which can restrict price growth.

On the flipside, if lots of people are employed, the market can be buoyed due to high demand for property.

Global affairs

Issues around the globe can impact the property market by creating uncertainty and subduing consumer confidence and hence, buyer demand. This includes political volatility, such as the reaction when Trump was elected, economic volatility such as the current trade wars between the USA and China, Britain’s upcoming exit from Europe, terrorism or even war.

Population growth

This is pretty straightforward – higher growth means there is greater demand for property, while lower growth means there is reduced demand, with the former pushing property prices up and the latter restricting price growth.

While these factors impact the performance of the property market as a whole, there are other factors that impact the performance of an individual property. Investors must consider both when buying and determining whether to keep a property in their portfolio.