Welcome to this week’s edition of the Property Edge Newsletter, your go-to source for the latest insights and updates in the property market. As property entrepreneurs, staying informed about the trends and changes in the housing landscape is crucial for making strategic decisions. This week, we delve into the Federal Budget and how it is seeking to address some of the problems in the residential property space as well as the latest RBA decision this week to leave rates on hold – what the Board had to say about that and what it all means for the Australian property market. Let’s explore how these developments could impact your property ventures.

One quick plug first …

We are excited to announce an upcoming livestream dedicated to exploring NDIS development and investment strategies. This session is perfectly timed to coincide with our feature on high-growth, sub-$750k suburbs, providing you with comprehensive insights into how these elements can integrate into a broader property strategy. Make sure to register early and prepare your questions for a deep dive into the lucrative world of NDIS property investments.

Click below and we will get you automatically registered.

Saturday 18th May 9:00am AEST

(Note: the session will run for about 2 hours).

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Housing Prices vs. Wages: The Growing Gap

Over the years, housing prices have surged much faster than wages, making it increasingly difficult for potential buyers unless they take on substantial debt or receive help from family. Experts warn this gap could continue to widen due to the following dynamics at play:

• Demand vs. Supply: The demand for homes has consistently outpaced the rate of new home construction.
• Interest Rates: Historically low interest rates until recent years allowed buyers to stretch their budgets.
• Wage Growth: Recent wage growth appears to be peaking at a lower level than the increase in home prices.
• Long-term Trends: Over the past 12 years, home prices in capital cities have increased by 93.5%, while wages have only risen by 34.7%.
• Borrowing Power: Lower interest rates increased borrowing power, enabling long-term property price increases.
• Population Growth: Higher population growth has driven demand, despite rising interest rates.
• Parental Support: Many buyers are relying on family wealth and support to afford deposits.

Workforce Changes:

• Dual Income Households: The rise of dual income households has increased overall household income, providing another boost to property prices.
• Affordability Challenges: Affordability is at its worst in many major capital cities, with larger deposits required and higher income proportions needed to service loans.

Policy Implications:

• Construction Shortfalls: There has been a decline in new home approvals, especially for houses, contributing to the supply shortage.

Without policy changes to increase housing supply or reduce investor demand, the affordability gap is likely to continue growing. The gap between wage growth and property prices is so wide that it will be challenging to close.

Market Outlook: Winter 2024

As winter approaches, experts are divided on whether the property market will sustain its momentum from the start of the year or revert to a traditionally quieter period.

Current Market Conditions:

• Interest Rates: The Reserve Bank of Australia (RBA) held the cash rate at 4.35%. Despite the rising consumer price index, rate cuts are now anticipated in 2025, which could moderate the market’s intensity.
• Record Prices: Domain’s latest House Price Report reveals record median house prices in several cities, including Sydney, Brisbane, Adelaide, and Perth.

Economic Insights:

• Interest Rate Influence: Lower interest rates earlier this year buoyed the market, but delays in rate cuts might cool the winter market. AMP’s Shane Oliver suggests that delayed cuts could make buyers more hesitant, impacting market activity.
• Auction Rates: Sydney’s auction clearance rates have declined from around 70% earlier this year to approximately 60%, compared to 81% at the start of winter 2023.

Expert Opinions:

• Shane Oliver, AMP: Expects rate cuts to start next year, potentially dampening the winter market.
• Gareth Aird, Commonwealth Bank: Predicts rate cuts in November, which could boost winter market activity.
• Matthew Hassan, Westpac: Highlights strong migration and a tight rental market as primary drivers of housing demand, unaffected by immediate rate cuts.

Market Dynamics:

• Supply and Demand: Low vacancy rates, strong population growth, and limited housing supply continue to support home prices.
• Buyer Sentiment: Despite potential delays in rate cuts, buyer sentiment remains strong due to low stock levels and competition, with properties often selling above expectations.

Conclusion: The property market’s trajectory remains uncertain as winter approaches. While some experts foresee a cooling period, others believe robust demand and anticipation of future rate cuts will sustain market activity. Buyers and sellers should stay informed and adjust their strategies accordingly.

No Quick Fix to Housing Crisis, RBA Warns

The Reserve Bank of Australia (RBA) has highlighted the complex challenges facing the housing market, indicating that rising property and rental prices are unlikely to see a quick resolution.

Key Issues:

• Construction Costs: High material and labour costs are deterring developers from starting new projects.
• Interest Rates: Higher interest rates are making it more expensive to fund new housing developments.
• Supply Constraints: Dwelling approvals per capita are at decade-lows, with many projects delayed or cancelled due to cost concerns.

Economic Insights:

• Inflation: The Consumer Price Index (CPI) rose by 1% in the March quarter, with annual inflation at 3.6%, still above the RBA’s 2-3% target range.
• Interest Rate Projections: Rate cuts, initially expected in late 2023, are now anticipated in 2025. This delay could continue to suppress new housing supply.
• Government Measures: Recent budget measures, including power bill rebates and increased rent assistance, aim to reduce inflation but might lead to increased consumer spending, potentially offsetting their intended impact.

Expert Opinions:

• Sarah Hunter, RBA Chief Economist: Expects rising house and rental prices to persist due to a “perfect storm” of challenges, including high construction costs and interest rates.
• Cameron Kusher, PropTrack: Believes interest rate cuts are unlikely this year, with projections now extending to mid-2025.
• Paul Bloxham, HSBC: Sceptical about the effectiveness of government measures in lowering overall inflation, suggesting that increased disposable income could boost consumer spending and support underlying inflation.

Market Dynamics:

• Supply-Demand Imbalance: Until new housing supply comes online, demand pressures will continue to drive up rents and home prices.
• Developer Response: Feedback indicates some developers are planning new supply in response to strong demand, supported by federal and state initiatives to streamline approvals and reduce costs.

Conclusion: The RBA’s outlook suggests that the housing crisis, characterised by high prices and rental costs, will persist in the short term. Structural changes in the market, combined with delayed interest rate cuts and high construction costs, mean that substantial improvements in housing affordability and supply are unlikely to occur quickly.

Addressing Australia’s Housing Crisis

The Albanese government recognises the severity of Australia’s housing problem, attributing it to “historic underinvestment” that has resulted in a significant supply shortage. In the 2024-25 budget, an entire chapter is dedicated to addressing the crisis, reflecting its importance.

Key Issues Highlighted in the Budget:

1. Housing Supply Deficit: Australia has fewer dwellings per 1,000 people than the OECD average. As of 2022, the country’s housing supply was 420 dwellings per 1,000 people, lagging behind comparable nations like Canada, the US, and the UK.

2. Impact on Affordability: The shortage of housing stock has made it increasingly difficult for people to buy or rent properties. The number of homes available for sale and rent has been declining, with the rental vacancy rate falling below 1.5%, indicating a highly imbalanced market.

3. Rising Costs and Affordability Pressures: Due to the slow response of housing supply to population growth and changing preferences, nominal dwelling prices and advertised rents have more than doubled since the mid-2000s. Consequently, the portion of household income needed to service a new loan has increased significantly.

4. Long-term Decline in Affordability: The price-to-income ratio has worsened over time. In early 2002, the median house price was 4.9 times the median gross disposable household income. By early 2024, it had increased to 8.6 times. The time required to save for a 20% deposit has also increased from less than seven years in 2002 to 11.4 years.

5. Decline in Social Housing Investment: Investment in social housing has declined over the past decades. Rates of public housing completions and the share of social housing stock have decreased, unable to keep pace with the sales and demolitions of existing social housing.

Government Initiatives to Address the Crisis:

Since the 2022 election, the government has committed nearly $26 billion to address the housing problem, with an additional $6.2 billion in new commitments in the 2024-25 budget. Key new measures include:

• Housing Support Program: An extra $1 billion to states and territories to build “enabling infrastructure” for new housing, expanding on the previously committed $500 million.
• Commonwealth Rent Assistance:$1.9 billion to increase maximum rates by 10% over five years to alleviate rental stress.
• TAFE Places:$88.8 million for 20,000 new fee-free TAFE places over three years, focusing on pre-apprenticeship programs relevant to the construction sector.
• Concessional Loans:An additional $1.9 billion in loans to support new social and affordable homes under the Housing Australia Future Fund and National Housing Accord.
• Build to Rent Developments: Allowing foreign investors to purchase established Build to Rent developments with a lower fee, provided they continue as Build to Rent properties.
• Social Housing and Homelessness:$423 million in additional funding over five years to boost support for social housing and homelessness services.

These measures aim to complement the government’s target of building 1.2 million new, well-located homes over five years starting from July 1, 2024, in an effort to address the critical supply shortage and improve housing affordability in Australia.

Thank you for joining us in this week’s Property Edge Newsletter. We hope these insights help you navigate the complexities of the property market and equip you with the knowledge to make informed decisions. As always, your success in the property business is our top priority. Stay tuned for more updates and expert analysis in our next edition. Until then, keep pushing the boundaries of property entrepreneurship and turning challenges into opportunities.

And in case you missed it ….

Join Us for Our Special Livestream:

We are excited to announce an upcoming livestream dedicated to exploring NDIS development and investment strategies. This session is perfectly timed to coincide with our feature on high-growth, sub-$750k suburbs, providing you with comprehensive insights into how these elements can integrate into a broader property strategy. Make sure to prepare your questions for a deep dive into the lucrative world of NDIS property investments.

Click below and get you automatically registered.

Saturday 18th May 9:00am AEST

(Note: the session will run for about 2 hours).