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Here's why the real estate industry could be set to change
The real estate industry is about to confront some serious competition from a new entrant to the market.
Purplebricks, a UK based real estate firm, have judged that the market for selling property in Australia is ripe for a new competitor to enter the market, having been framed more than a generation ago and characterised by high fees that cost property sellers dearly whenever they sell their house.
It is important to disclose that I was engaged by Purplebricks to look at some key facts on the Australian property market as they considered how they could disrupt and recast the industry but in doing this work, I was impressed with their business model.
In doing that work, it was clear to me that real estate agents have been making considerable profits from home sellers as the three decade boom in house prices has massively outpaced wages for the rest of the workforce.
Australian house prices are set to fall … and it’s all about supply and demand.
There is not much doubt about that, but the big questions are how substantial the falls will be and how long the price declines will last?
The supply of dwellings is increasing in line with an extraordinary construction boom. Australia is building dwellings at a record level. At the time, underlying demand for dwellings is falling as population growth has slowed to its weakest pace in close to a decade.
Let’s look at the dynamics.
Over the course of 2015, Australia’s population rose by 326,100 people. This is well down from the peak level of almost 460,000 in 2008, 422,000 in 2009 and even 400,000 in 2012. In terms of the new demand, 326,100 people will require around 142,000 new dwellings to live in based on the estimate by the Australian Bureau of Statistics of 2.3 people occupying each dwelling. In 2014, with population growth of 328,500, 143,000 extra dwellings were needed.