Welcome to this week’s edition of the Property Edge Newsletter, your go-to source for the latest updates and insights in the Australian property market. As we navigate through 2024, the real estate landscape continues to evolve, bringing new opportunities and challenges for property entrepreneurs like you. In this week’s newsletter, we delve into the key developments shaping the market, including predictions for record house prices, the NSW government’s ambitious housing plans, and the latest data on residential property values. Let’s explore how these trends could impact your property investments and strategies.

Record House Prices Predicted Across Australian Cities for 2024 and 2025

Real estate prices across most of Australia are forecasted to rise significantly in the next financial year, driven by strong gains in Perth, Adelaide, Brisbane, and Sydney, according to new reports from Domain.

National Overview:

• Combined Capitals: House prices are expected to increase by 4 to 7 percent, while unit prices are anticipated to grow by 3 to 5 percent.
• Sydney: The median house price is forecasted to surpass $1.7 million by the end of the 2025 financial year, with growth between 6 to 8 percent.
• Perth: Expected to reach a median house price of over $800,000, with an 8 to 10 percent increase.
• Adelaide and Brisbane: Both cities are predicted to approach or exceed a median house price of $1 million by the end of 2025.
• Gold Coast: House prices are expected to rise by 3 to 6 percent.
• Sunshine Coast: Predicted to see a 2 to 5 percent increase in house prices.

Market Dynamics:

• Drivers of Growth: Population growth, construction challenges, and borrowing power are key factors pushing prices higher. The chronic undersupply of housing, particularly in social and affordable housing, continues to exert pressure on prices.
• Two-Speed Market: While most cities are experiencing growth, Melbourne and Canberra are anticipated to see the slowest increase, if not flatline. Melbourne’s median price may hover around $1.03 million, potentially rising to $1.05 million, marking the slowest and most inconsistent recovery in the city’s history.

Expert Insights:

• Domain’s chief of economics and research, Dr. Nicola Powell, notes that the forecasted growth rate is modest compared to previous strong upswings, with Perth and Adelaide being notable exceptions. “Adelaide has been like a steam train – you can’t stop it,” she said. “And Perth just hasn’t slowed down.”
• AMP Capital chief economist Dr. Shane Oliver expects moderate growth nationwide, except for Melbourne and Canberra. Changes to land tax in Melbourne have led investors to seek opportunities elsewhere, creating more supply and stabilizing prices.
• HSBC chief economist Paul Bloxham highlights that smaller capitals like Perth are catching up to larger cities, reflecting stronger price growth in traditionally more affordable areas.

Unit Prices:

• Apartments are also set to become more expensive, with units in Sydney, Brisbane, Adelaide, Perth, the Gold Coast, and the Sunshine Coast expected to hit new record prices. Regional units are slated for an overall price increase of 3 to 5 percent, indicating a trend towards more affordable property types.

Will Reducing Migration Solve Australia’s Housing Crisis? Experts Weigh In

There’s a growing debate around whether reducing migration could solve Australia’s housing crisis. According to experts, the issue is far more complex than just controlling migration numbers.

Key Points:

• Household Composition: Over 50% of Australian households are occupied by one or two persons. This trend of moving away from multi-generational living to smaller households contributes significantly to the housing shortage.
• Government Targets: Even if the government reaches its target of building 1.2 million homes over five years, Australia could still face a housing shortage.
• Skilled Migrants: Experts argue that Australia needs skilled migrants in the construction industry to build the necessary houses, rather than reducing migration.

Expert Insights:

• Dr. Michael Fotheringham: The managing director at the Australian Housing and Urban Research Institute believes that blaming migrants is overly simplistic. The main issue is the under-utilisation of houses due to fewer people per household, not just the number of migrants.
• Housing Utilisation: The shift towards single-person and two-person households has decreased the average number of people per household, despite the size of houses remaining the same.
• Skilled Migration: Instead of viewing migrants as adding to the housing demand, Fotheringham suggests focusing on skilled migration to help build homes. Australia already has 620,000 migrant workers who are underutilised.

Market Dynamics:

• Temporary Migrants: Most migrants are temporary and do not compete in the private home ownership market. Instead, they rely on rentals or university accommodations.
• Housing Preferences: Migrants and local Australians often look for different types of housing, with migrants preferring proximity to community facilities and locals prioritising locations near beaches, schools, and shopping complexes.

Economic Impact:

• Underutilised Skills: According to a report by Settlement Services International, allowing skilled migrants to work in roles matching their qualifications could add $70 billion to the economy over the next 10 years.
• Construction Needs: The higher cost of materials and workforce shortages make the government’s housing target challenging. A more productive construction industry could boost housing supply and economic output.

Holistic Solutions:

• Open Existing Homes: Experts suggest opening up empty rooms for rent and building ‘granny flats’ as immediate solutions to increase housing availability and affordability.
• Granny Flats: Introducing 655,792 self-contained two-bedroom units in existing dwellings could significantly ease the housing shortage in major cities.

Housing Crisis Outlook:

• Persistent Crisis: The State of the Housing System 2024 report indicates that even with the projected 1.2 million new homes, Australia will still face a housing shortfall, further deteriorating housing affordability over the next six years.

NSW Government’s Plan to Build 30,000 New Homes on Government-Owned Land

In Tuesday’s state budget, NSW Treasurer Daniel Mookhey announced an ambitious plan to “build 30,000 new homes on government-owned land” to make home ownership more achievable.

Key Announcements:

• Home Construction Goals: The government plans to build 30,000 new homes, with 21,000 on surplus government land.
• Targeted Needs: These homes will cater to renters, key workers, individuals escaping domestic violence, and will be located in both metropolitan and regional NSW, close to public transport and desirable neighbourhoods.

Challenges Ahead:

• Labour and Material Shortages: Independent economist Tarric Brooker pointed out the acute shortage of labour and building materials, questioning the feasibility of meeting these construction goals.
• Funding Development: The government plans to spend taxpayer money to buy homes off-the-plan to fund development, but there are concerns about the sustainability of this approach.

Population Growth and Housing Demand:

• NSW Population Change: Virtually all of NSW’s population growth comes from net overseas migration. This extreme population growth has significantly driven up Sydney rents.
• Sydney Rent Increases: Sydney rents have skyrocketed due to the high demand driven by population growth.
• Future Projections: The 2024 federal budget projects NSW’s population will increase by 494,000 over the next four years, predominantly from net overseas migration.

Urban Development Concerns:

• High-Rise City: If the current trend continues, Sydney is likely to transform into a high-rise apartment city, raising concerns about the future living environment for Sydneysiders.

Debate on Immigration:

• Balancing Act: There is a growing debate on whether lowering net overseas migration to align with the nation’s capacity to build housing and infrastructure might be a more sustainable approach to managing the housing crisis

The Resilience of the Australian Housing Market

The Australian housing market has demonstrated remarkable resilience over the past five years, navigating a global pandemic, multiple interest rate hikes, and high inflation. Recent data offers insights into the current state of the property market and its trajectory for the remainder of 2024.

1. Total Value of Residential Dwellings:

• The total value of residential dwellings in Australia surged by $209.4 billion this quarter, reaching $10.7 trillion.
• This represents a 2% quarterly increase and a 9% year-on-year rise.
• National home values have rebounded from the 2022/23 downturn caused by interest rate pressures, reaching new record highs.
• PropTrack’s Home Price Index: Indicates a 6.68% annual increase in home values, with capital cities leading the growth.
• Households own $10.29 trillion of the total residential value.
• The average price of residential dwellings climbed by $14,300, hitting $959,300 this quarter.

2. Increase in Residential Dwellings:

• The number of residential dwellings rose by 52,700, totalling 11,176,100 this quarter, a 0.5% increase during the March quarter, equating to one property per 2.4 people.
• Over the past year, more than 170,000 homes were added, but the current figure falls short of the government’s pledge of 250,000 new homes annually by 80,000.

3. Decline in New Building Approvals:

• New building approvals dropped by 0.3% month-on-month but grew by 3.5% compared to last year.
• Since January 2020, the average number of completed properties per 12-month period has fallen to around 170,000 due to an 11% decrease in approvals over the 12-month rolling period.
• Private sector house approvals fell by 1.6% in April but increased by 9% year-on-year, while apartment approvals declined by 1.1% month-on-month and 8.5% from last year.

4. Demand for New Tradies:

• There is an immediate need for 90,000 new tradies, with an additional half a million required over the next five years to meet the target of 1.2 million new homes by 2029.
• Jobs and Skills Australia notes a shortage of tradespeople in all occupations except roof tilers in Victoria. This skilled labour shortage, coupled with soaring construction material prices, is hampering the construction of new homes.

5. Rise in New Housing Loans:

• New lending for total housing increased by 4.8% in April to $29.4 billion, following a 3.8% rise in March, 24.6% higher than a year ago.
• April saw an uptick in both the value and number of new loan commitments, with owner-occupier loans rising by 6% month-on-month and 24% year-on-year. For investors, the monthly change was 7%, and 44% compared to April last year.

What These Figures Tell Us: These five key metrics provide a snapshot of the Australian property market’s current status and its potential future direction. The market’s resilience amid economic challenges, the steady increase in property values, the rising number of residential dwellings, the pressing demand for skilled labour, and the surge in new housing loans show that although the market is continuing to grow, there are headwinds hampering this growth

That wraps up this week’s Property Edge Newsletter. As always, staying informed is key to making strategic decisions in the ever-changing property market. We hope you found these insights valuable and that they help you navigate your property ventures with greater confidence. Keep an eye out for next week’s edition, where we’ll continue to bring you the latest news and trends in the industry. If you have any questions or need further advice, feel free to reach out to our team. Happy investing, and see you next week!

Best regards,

The Property Lovers Team

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