ANZ Property Outlook - Jan 2008 - Residential Property

In risk-adjusted terms, residential property has delivered vastly superior returns to all other broad asset classes. Affordability conditions for new home-buyers and renters will deteriorate further unless appropriate policy action is taken.

A dramatic tightening of the housing market will force already soaring house prices and rents sharply higher.

By 2010 we project a record housing shortage of nearly 200,000 homes which risks becoming an intractable imbalance as renters and first-homebuyers become collateral damage in the Reserve Bank’s ongoing war on inflation.

Safe as houses… Much has been written about reduced yields on investor housing and house price ‘bubbles’ in recent years. However, as an asset class, housing has continued to deliver remarkably strong and relatively stable investment returns.

In raw terms, since 1984, residential property has enjoyed an extraordinary compound annual total return of 13.4%, only slightly below that of equities (13.8%) and far above both commercial property (10.3%) and bonds (9.4%).

But in risk-adjusted terms1, residential property has delivered vastly superior returns to all other broad asset classes.

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