With national home values rising at the fastest pace we’ve seen since my early days in real estate in in the early 1980’s, it’s no wonder APRA has tapped the brakes a little to “ensure the financial system remains safe”.
In today’s heated housing market, APRA wants to ensure borrowers don’t take on more debt than they can comfortably afford over the long term. So, in their first intervention since 2017, APRA has told the banks to raise the minimum interest rate buffer used to assess new loan applications from 2.5% to 3% above the product rate.
That means if you apply for a loan with a 2.5% interest rate, the bank will assess your ability to repay the loan at an interest rate of 5.5%, thereby reducing your borrowing capacity by about 5%.
This is a prudent first measure to ensure homeowners can keep paying their loans when interest rates inevitably go up. While that’s probably a number of years away, it’s better to act early to ensure the price gains of today are not lost when the market possibly corrects as rates go up.
There have been few silver linings in the wake of COVID-19 lockdowns, border closures and social distancing rules. The roaring property market has been a surprise outcome, and within that are several sub-trends that I think will result in a better long term lifestyle for many Australians.
One of them is a shift back to a more localised way of living, which is a topic we discuss in our new annual McGrath Report.
We have returned to a way of life enjoyed by generations past, where we know our neighbours’ names, our children play together in the streets, and local businesses have an important role in our community.
Research by sociologists has found that wellbeing is positively influenced by community belonging
and togetherness during disaster. They expect relationships to be strengthened due to community identification and feelings of unity in response to the pandemic.
Working from home is now an entrenched way of life, giving more of us the opportunity to spend
quality time in our communities, getting to know our fellow locals better.
This change in the way we work is expanding the horizon for Australian city residents. As social demographer Bernard Salt puts it, “The city centre is no longer the pivot around which urban life revolves.”.
COVID-19 is inspiring a shift to middle and outer ring suburban living as more people search for greater open space, more connected communities and housing affordability. The desire to live close to the city to reduce the work commute is no longer relevant, so lifestyle has moved up as the No. 1 priority.
Mr Salt describes these relocators as ‘VESPAs’ or Virus Escapees Seeking Provincial Australia. These inner city residents are buying larger, more affordable homes away from the CBD, while others are leaving the big cities for a regional seachange or treechange and a closer connection to nature.
Both trends have a common denominator – a lifestyle shift away from the urban hustle and bustle to local village living and a slower pace of life.
People are increasingly shopping locally, driven by a strong desire to support local business owners and producers, even if it means spending more than they would at large retailers.
The growing focus on staying local is highlighting the benefits of the 20-minute neighbourhood standard of urban planning. This ideal scenario gives residents access to shops, services, schools, public transport and employment within a 20-minute walk.
Residents of such neighbourhoods not only enjoy convenience but also better health because they
are walking more often and generally spending more time outdoors.
Finding joy in green spaces is a popular pastime these days. When gyms were shut and local sport was banned, people turned to parks, bike trails and walking paths to exercise their bodies and minds.
What’s more, green spaces have a positive influence on housing prices, particularly apartments. CoreLogic Research Director, Tim Lawless describes a “statistically significant positive relationship between unit prices and proximity to green areas”.
During lockdowns, many homeowners are renovating to refresh their living environments, thereby raising the value of their properties whilst also lifting the look of local streets.
The pandemic is shining a spotlight on the importance of building connections within local communities, changing the way Australians live, play and work. That focus is unlikely to shift once
COVID-19 restrictions end, giving many a work/life balance they could only dream of before.
To read more about the return of the neighbourhood, download the McGrath Report 2022.