Sydney’s price boom isn’t about interest rates: Terry Ryder

Do the economists and journalists who attribute Sydney’s busy market to low interest rates ever wonder why other cities aren’t pumping?

Are record low interest rates a secret known only to Sydney residents?

It brings to mind a talk I witnessed two to three years ago by Craig James from CommSec. He commented that economists with skinny knowledge used China as their fallback explanation of everything, when all else failed. Exports are rising? It’s China. The dollar’s high? China. WA’s booming? China. Real estate is strong? China.

He was only half joking.

And currently it’s no joke that economists who understand nothing about residential real estate will use interest rates as their catch-all rationale for elevated activity in Sydney’s market.

The Australian this week was the latest media outlet to fall into the trap with its headline “Rate cut driving home price surge: analysts”.

The article was written by a journalist whose knowledge of real estate markets could be written on the back of a postage stamp in crayon. The headline writer knew even less. And the analysts quoted in the article knew the least of all.

It’s just too easy, almost flippant, to dismiss Sydney’s heightened activity as a factor of low interest rates.

As an explanation, it’s plain wrong.

We’ve had low, low interest rates for a long time now. Yet in the past 12 months, dwelling values have fallen (marginally) in three of our capital cities. Three others have grown less than 3% in annual terms. Another has managed a 5% rise in values. Only Sydney is writing boom numbers.

Why are record low interest rates not stimulating markets around the nation? Why do we not have conditions replicating those from 2001 to 2003, when every capital city delivered double-digit growth for at least two consecutive years?

For the benefit of the uneducated, including the economists, let me translate. It’s nothing to do with interest rates.

A clue to the rise of Sydney markets was contained in the events of last weekend. No, not the auction results. I refer to the election results.

The NSW government last weekend became the first incumbent in years to survive an election with a clear majority. Every other state or federal government has been mercilessly dumped, including Queensland Premier Campbell Newman who managed to squander the greatest landslide majority in the history of politics, or (in the case of the South Australian government) ended up with a hung parliament.

The NSW government was returned because it was judged to be a competent administrator of the state’s finances and fortunes.

The NSW economy – and the Sydney property market – started to turn around when the current Liberal administration won office four years ago.

It defeated the ALP government which, after 16 years in power had become arrogant, complacent, corrupt and downright incompetent. It was undoubtedly the worst government I’ve seen anywhere. Under that appalling regime with its revolving door premiership, nothing was being generated in NSW other than negative headlines. No infrastructure was being built and the economy had stagnated.

Four years ago Adelaide had more infrastructure under development than did Sydney.

With the change in government in 2011, NSW came off life support. It began to recover and then to thrive. Today it has the number one economy in the nation, according to CommSec’s State of the States report. Sydney is alive with massive infrastructure projects, with more in the planning pipeline.

Nothing drives residential property markets like infrastructure spending. The North-West Rail Link, the South-West Rail Link, the NorthConnex Motorway, the M4 upgrade, various major hospital expansions – plus early moves for the Badgerys Creek airport, the WestConnex motorway, the M9 Orbital, the light rail project and others – are front and centre in the revitalisation of Sydney’s economy and property markets.

Many tens of billions of dollars in investment is percolating through the Sydney economy, creating business activity and jobs at a rate not seen in NSW for a decade.

Before all this happened, Sydney was the great under-achiever of Australian real estate. Even with the growth of the past two years, Sydney still has one of the lowest 10-year growth averages among the state and territory capital cities.

Essentially, Sydney has been playing catch-up with long-term growth leaders like Perth, Darwin and Melbourne – and that’s been a significant catalyst to Sydney’s growth.

But, if you heed the nation’s chattering economists, none of that matters. It’s all about interest rates.

This article originally appeared on Property Observer.