The 10 people most likely to shape property prices

By Louis Christopher, head of SQM Research, for AFR weekend edition 3/11/18 (and part of the new SQM Research 2019 Housing Boom and Bust Report).

If you think the housing market just operates on a seven-year cycle, I have news for you. In my 18 years of professionally covering this sector, I have found that it has been the decisions of key people that have materially influenced the cycles and altered the direction of the market at various points in time.

So, who are these people? What power do they have? What will they decide to do in 2019?

The top ten most influential people in property:

10. Mark Steinert, Stockland CEO

9. Bill Shorten, Opposition Leader

8. Daniel Andrews, Premier of Victoria

7. Gladys Berejiklian, Premier of NSW

6. Donald Trump, US President

5. Scott Morrison, Prime Minister

4. Brian Hartzer Westpac Bank CEO

3. Matt Comyn, Commonwealth Bank Australia CEO

2. Wayne Byres, APRA Chairman

1. Dr Philip Lowe, Reserve Bank of Australia

Coming in at #9, Bill Shorten doesn't exercise much influence over economic policy but, if he wins the election next year, his power and influence will increase dramatically. Therefore, his threat to disallow negative gearing on established homes and reduce capital gains tax concessions is enough to get him into this list. Negative gearing repeals have been previously backed by Stockland CEO, Mark Steinert (#10), who has much to gain if Labor wins.

Will the country's largest residential property developer go into supply overdrive?

NSW and Victorian premiers make our list. Both Victorian premier Daniel Andrews (#8) and NSW premier Gladys Berejiklian (#7) took similar policy action over 2016 and 2017 to help first home buyers enter the market and to dissuade investors.

But with state budgets now being smashed due to the large falls in housing turnover, there is every chance in 2019 both premiers may reverse course and try to stimulate the market by enticing investors back in. This assumes they win their respective elections.

The person right now that has the most influence on international lending costs is US president Donald Trump (#6).

Trump's big spending and revenue policies in the world's largest economy have put upward pressure on US Bond yields and therefore interest rates globally. This in turn has forced some of Australia's banks to raise mortgage lending rates outside of the RBA because their funding costs derived in part from international funding have increased. If the US economy continues to boom in 2019, bank interest rates may increase again.

Prime Minister Scott Morrison (#5) has power over many economic variables, including immigration and the taxation laws.

While Morrison has so far had little time as PM to influence the housing market, as Federal Treasurer early this year and last, he did have an influence. Last year, Morrison signed off on cutting some of the negative gearing benefits. Arguably this was a double whammy for the investor market as it was also dealing with new lending restrictions set by APRA chairman Wayne Byres (#2).

When he was Minister for Immigration, Morrison had great influence over immigration levels and therefore population growth which helped put the Sydney and Melbourne housing markets into overdrive in 2015 and 2016.

The big banks' influence on mortgage lending, and therefore property demand, has increased significantly since they started to raise interest rates independently of the central bank. Matt Comyn from CBA (#3) and Brian Hartzer, Westpac CEO (#4) leads the list of influential bank CEOs. Overall, we see there is still a risk the banks will adopt further credit restrictions in 2019, such as additional cross checks on loan applicants' stated expenses.

The trigger to this current housing downturn can be placed back to the point in March 2017 when APRA announced that there was going to be a major crack down on interest only lending. At the time, interest only lending represented 40 per cent of all new loans written. APRA Chairman, Wayne Byrnes wanted that number to come down to 30 per cent. That effectively created an "embargo" on most investment lending which subsequently smashed housing demand.

Recently APRA has stated that it believes its actions have now improved lending standards in the banking sector so it is possible Wayne may have a quiet year in 2019. Then again, there is always the non-bank-financial sector to consider.

Dr Philip Lowe takes the No. 1 position because, as governor of the Reserve Bank of Australia (RBA), he is the most significant individual setting interest rates. I believe too he has had influence on APRA's clamp down on investor lending which commenced in 2015. Some may say Dr Lowe has been quiet on interest rates in 2018. Well, I say his lack of action is action.

Dr Lowe will have a large influence over dwelling prices in 2019. Would he cut rates to stop a potential housing crash, or lean on APRA to loosen lending once again? Would he introduce quantitative easing in a worse-case scenario or warn the Prime Minister of impending recession? Or will he do nothing and let market forces take their course?

Overall there are multiple scenarios that could play out next year and each of these 10 people will have their influence on events. Let's hope their decisions are the right ones.

Louis Christopher is head of SQM Research. This is an extract from the SQM Research 2019 Housing Boom and Bust Report released on 15 November.