Does the Prime Minister have to change before property prices boom again?

By Alex May

Here's one for the crystal ball gazers - when will languishing property prices pick up again?

Property forecasters Residex have a theory: this will happen when there is a change in Federal Government.

Residex chief executive John Edwards has compiled a graph that goes back to the Curtin Labor Government in 1940 correlating slowing house price growth with a change in Government.

``This is just a hypothesis, but when a housing market is at the end of a cycle, and mums and dads aren't making any money in property, they actually turn back their spending, which makes the economy slow down,'' he says.
``I believe that mums and dads feel wealthy when property is booming but if they feel their castle is diminishing in value, then those feelings change and they don’t feel as warm and fuzzy about the Prime Minister.''

KPMG partner and demographer Bernard Salt who also forecasts property, says Edwards's theory is an ``exciting observation''.
``His graph is too consistently correct for us to ignore,'' he says. “You can see that as housing slows, it doesn’t go up again until the government changes.”

Even the 1993 election, which the Liberals failed to win despite housing prices slowing significantly, adds further weight to Edwards’s theory, according to Salt.

The housing price growth flatlines after the 1993 election, which Labor won by default when the Liberals unsuccessfully attempted to introduce the GST.

Edwards says the 1993 “aberration” shows that if Australia doesn’t change government when the housing growth cycle slows, then growth stays flat until the next change in government reinvigorates confidence and stimulates a new cycle.
But not all property forecasters are as taken with Edwards's theory.

BIS Shrapnel director Robert Mellor says forecasters need to look a ``fundamentals'' such as supply and demand and economic factors to come up with valid future forecasts.

And Australian Property Monitors' Louis Christopher says there are only four factors that consistently influence property prices: interest rates, employment growth, population growth and changes in tax laws.

Macquarie Bank's head of property research Rod Cornish is not quite as dismissive, saying governments in Australia typically change at the tail end of a recession or soon after anyway.

Still, the forecasters seem to be predicting a similar future for residential property prices as Edwards.
Mellor says there will be moderate price declines throughout 2006 and 2007, when higher interest rates impact on demand. Christopher agrees that higher interest rates will cause further price falls in the short term.
Cornish says the next housing cycle will be a lot slower and more ``modest'' than those in the past, with little or no movement in property prices in the short term.

Edwards says housing prices will start to creep slowly upwards this year but won't move to the double digit growth we have seen in past housing booms until later this decade, once there has been a change of federal government.

Salt - who uses demographics and household formation data to make property forecasts - says the market will be flat for the next two years.
"I think Sydney is the canary for the Australian property market and we will see it flicker with interest in 2007 and move to bigger things in 2008 with a get-set-for-a-big-ride in 2010," he says.

The next federal election is expected in 2007.