This is a question many Australians are asking themselves.
Before we consider the future of Australia's housing prices, let’s take a step back and consider where house prices were over 30 years ago.
*Prices from July 2002
Over the past 30 years, we have observed various cycles of growth and declines across the national index. Each of these upswings and downturns have been influenced by various factors such as taxation policy, monetary policy decisions, economic shocks, fiscal stimulus, and broader economic conditions.
Based on today's prices, it is completely understandable to ask the question:
Will Australian property prices continue to rise?
Let’s look at the reasons supporting sustained property price growth in Australia.
1. Generational Wealth Transfer
According to the Productivity Commission, Australia is set to witness an unprecedented transfer of wealth in the coming decades as a substantial amount of wealth gradually passes from the older baby boomers to their heirs, primarily Generation X and Millennials.
Baby Boomers have been the most prosperous generation in Australia's history, benefiting from unprecedented economic growth, stable employment, and significant increases in property values. As a result, they have accumulated substantial wealth, much of it tied up in the family home, with many owning their homes outright as they were bought years ago and the mortgage has long been paid off. This wealth transfer could provide a financial boost to younger generations, enabling them to enter the property market, upgrade their existing homes, or buy investment properties.
It is estimated that A$3.5 trillion will change hands by 2050, marking one of the most significant intergenerational wealth transfers in the country’s history. Australians inherit about A$120 billion annually, a figure projected to quadruple to nearly A$500 billion per year within 25 years. This wealth transfer, largely tied up in property and superannuation, will have profound implications for Australia's property market.
2. The Housing Shortage Will Continue
Properties for Sale
As of May 2024, the total number of advertised properties stood at approximately 138,500, marking an 18.2% decrease compared to the previous five-year average for the same period. This reflects a substantial drop in the availability of properties for sale, with little indication of improvement in this trend.
Dwelling Approvals
On the construction front, dwelling approvals have remained relatively low, averaging 12,947 over the past six months. This figure is 24.4% lower than the decade average.
The government acknowledged the pressing need for more housing, leading to the National Cabinet's decision in August 2023 to embark on the construction of 1.2 million homes over the next five years, equating to 240,000 homes annually. However, only 170,000 homes were completed in the year up to March 2023, indicating a nearly 40% shortfall compared to the target. Notably, Australia has never built 250,000 homes within a year, and the construction process is taking even longer than before. According to forecasts from Master Builders, we are projected to fall short by 112,675 homes.
Considering the current estimated annual growth of over 600,000 people (inclusive of natural increase and net overseas migration), these new residents are projected to surpass the 1.2 million homes target, assuming an average household size (AHS) of 2.49.
The challenge of building an additional 1.2 million homes over the next five years will remain difficult until we can find ways to construct them faster and at a lower cost. This will lead to a continued shortage of housing across Australia, which will continue to worsen as the population grows.
Rental Market
The housing shortage impacts not only house prices but also the rental market. According to CoreLogic, rental prices have surged by 8.5% over the last 12 months.
Australia is also currently at the worst levels of rental affordability on record.
Plus, there are no immediate signs of slowing rental growth in the near future.
As rents continue to rise, renters may convert to buyers because it will become too expensive to rent, therefore placing even higher demand on property prices.
3. Population growth will continue to drive demand
Australia's population is expected to reach 30.9 million in the next 10 years, with an increase of 4.3 million, including 1.6 million from net overseas migration. Australia has a well-known problem of not having enough houses for the current population.
A primary factor behind the increase in property prices is the demand for housing outstripping its supply. If we don't take appropriate steps to address the housing shortage, the demand for housing will likely continue to rise, putting pressure on property prices to rise even further. To put this in perspective, Australia is predicted to experience above-average population growth. Historical trends show that with a growing population, there is a natural increase in property prices due to higher demand.
4. Confidence is returning to the market
Property buyers are starting to become more confident in the property market, with a significant contributor being the likelihood that interest rates have peaked.
Consumer confidence strongly influences property market trends. When people feel optimistic about the economy and their finances, they're more likely to engage in property transactions. Conversely, low confidence can lead to hesitation. In 2024, with inflation potentially under control and interest rates stabilising, along with a growing economy and rising property values, consumer confidence may rise, boosting activity in the real estate market. Let's not forget, even during times of low consumer sentiment, property prices consistently surged.
The value of home lending rose 3.1% through March, led by a 4.4% lift in first home buyer financing and a 3.8% rise in investor finance. With $27.6 billion of new housing finance committed, the March result was the strongest monthly figure since August 2022 ($27.7 billion). Another sign consumer confident is returning to the market.
Some economists are forecasting that Australian property prices could surge by 20% from now until 2027. Additionally, five out of the eight capital cities are anticipated to see median house prices surpassing 1 million dollars.
5. Infrastructure Spending Will Continue
Australian state governments have heavily invested in infrastructure, sparking a nationwide boom. The federal government's Infrastructure Market Capacity report indicates a $15 billion growth in the pipeline over the past year. Beyond its economic benefits, infrastructure also impacts property prices. Projects stimulate job growth and business activity, contributing to broader economic expansion. They can also enhance local areas' appeal, attracting buyers and renters, thereby influencing property prices.
Infrastructure projects vary in their effects. Major transport projects, like the Melbourne Metro Tunnel in Victoria, can significantly boost property values around stations. Similarly, expansions of health facilities, such as the Barwon Women’s and Children’s Hospital in Geelong, attract workers and supporting businesses, affecting nearby property markets positively. However, projects like electricity grid upgrades might not directly impact property prices.
Across states, projects vary in impact. In New South Wales, while the WestConnex motorway promises connectivity, its direct effect on property prices remains uncertain. On the other hand, Western Sydney Airport and associated rail links are expected to drive growth in surrounding suburbs over time. In Queensland, the Cross River Rail project could benefit underserviced suburbs like Woolloongabba and Dutton Park, while developments associated with the Brisbane Olympics may have limited impact.
Let's take a look at each states major infrastructure projects.
Victoria: With an $85 billion investment in infrastructure over four years, Victoria's standout project is the Melbourne Metro Tunnel, set to open in September 2024, expected to boost property prices around stations like Arden. While motorways like the West Gate Tunnel and the North East Link may not impact local house prices, health facility expansions, such as the Barwon Women’s and Children’s Hospital, could draw in renters and homebuyers.
New South Wales: With plans to invest over $110 billion in infrastructure, major projects like the WestConnex motorway aim to improve connectivity, though their direct impact on property prices remains uncertain. Conversely, initiatives like the rail link to Badgerys Creek are expected to benefit suburbs along the route. Additionally, expansions of healthcare facilities in regional areas like Albury and Shoalhaven are worth monitoring.
South Australia: With a $19 billion infrastructure budget, projects include motorways like the North-South Corridor and health facility expansions. While road projects may not directly impact property prices, suburbs near healthcare facilities, such as Flinders Medical Centre, could see increased demand.
Queensland: With a $38 billion investment, the Cross River Rail project is expected to boost prices in underserviced suburbs like Woolloongabba and Dutton Park. While projects associated with the Brisbane Olympics in 2032 may create construction jobs, their impact on property prices is likely limited. However, initiatives like the Brisbane Metro Transit and the Queen’s Wharf development could stimulate above-market movement in certain areas.
Western Australia: With a $34 billion infrastructure investment, Metronet's expansion, including new rail lines and stations, stands out. Notable hospital projects like the Women and Babies Hospital in Murdoch could also influence property markets positively.
In summary, infrastructure projects can significantly influence property markets, with their impact varying based on project type, location, and broader economic conditions.
So.....Will Australian property prices continue to rise?
It seems that several key factors that have propelled house prices to record highs in recent years will persist, driving prices upward in the future. The primary challenge for prospective homebuyers remains their ability to secure credit, compounded by a constrained housing supply. However, as interest rates decrease and access to credit becomes more accessible, housing demand is poised to escalate. Combined with population forecasts surpassing housing supply, the data suggests that Australian property prices will continue to rise.
If you would like to know more about how we can help you build a property portfolio give us a call on 0423 344 286 or email us at hello@mindsetproperty.com.au, or simply connect with our Director Peter Theodorou.
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Note: This is general advice and does not take into consideration your objectives, situations or needs. Please consider if this advice is suitable for you and your circumstances and speak to a professional before making any financial decisions.
Source
Core Logic - Monthly Housing Pack – May 2024
Core Logic - The long game… 30 years of housing values
PropTrak Home Price Index
2023 Population Statement
Productivity Commission
Economics firm makes huge call on Aussie home prices, tipping sharp increases over the next three years
Interest Rate Predictions & Forecast Australia | RateCity
PropTrack Rental Affordability Report – 2024
Why it's unlikely that 1.2 million new homes will be built in the next five years
State-by-state: where property prices will be driven by infrastructure projects
Latest property price forecasts for 2024 revealed. What’s ahead in our housing markets in the next year or two?
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