Housing prices in Australia returned to growth in March, following a protracted period of decline on the back of hawkish policy by the Reserve Bank of Australia (RBA). The housing market could receive further support from a long-awaited pause in rate hikes by the RBA in April.

The election of a new Labor government in New South Wales (NSW) may have an impact on the property market of Australia’s most populous state, given ambitious plans by Premier Chris Minn to increase affordable housing

Australian home price resume growth in March

March saw home prices post their first month-on-month increase since April 2022, according to the latest data released by CoreLogic^.

CoreLogic’s national Home Value Index (HVI) for March rose 0.6% compared to the previous month, as compared to a decline of 0.1% in February.

Tim Lawless, CoreLogic’s Research Director, imputed the rise to a range of factors including low levels of advertised stock and an increase in demand from the post-Covid resumption of inbound migration.

“Although interest rates are high and there is an expectation the economy will slow through the
year, it’s clear other factors are now placing upwards pressure on home prices,” Lawless said.

“Advertised supply has been below average since September last year, with capital city listing numbers ending March almost 20% below the previous five-year average.”

Sydney and Melbourne led gains in home prices in March, with on-month gains of 1.4% and 0.6% respectively. Home prices in Perth rose 0.5% compared to February, while in Brisbane they edged higher 0.1%.

CrowdProperty property director Daniel He said if the trend continues it may be a sign that the market has bottomed out and we’ll see upwards trends.

“We’re not expecting double the digit growth of the pre-pandemic years, more likely a steady single rate uplift which could buffer tight margins in small-scale developers’ feasibility studies created by rising construction costs,” Daniel said.

Inbound migration is also likely to create pressure for the rental markets of Australia’s major cities. CoreLogic’s national rental index rose 2.5% in the March quarter, accelerating from 2.0% in the December quarter. The annual growth trend remains above double digits, at 10.1% for the year to March.

Reserve Bank of Australia pauses rate hikes

Australian housing prices could receive a boost from the RBA’s decision to put rate hikes on hold in April.

In a statement released on 4 April, RBA Governor Philip Lowe said the Board would leave the cash rate target unchanged at 3.6% this month. The move marks the first pause since May last year, with interest rates since seeing a cumulative increase of 3.5 percentage points.

Lowe said the RBA had adopted a wait-and-see attitude towards rate changes, given that monetary policy often operates with a time lag and the “full effect of this substantial increase in interest rates is yet to be felt.”

The hiking cycle may not yet be over, however, with the Board saying it “expects that some further tightening of monetary policy may well be needed to ensure that inflation returns to target.”

The RBA forecasts that annual headline inflation will fall to 6.75% for the June quarter. While that would mark a drop of over one percentage point compared to a CPI increase of 7.8% for the December 2022 quarter, it’s still well away from the standard target inflation rate of 2 to 3% for most modern central banks.

New Labor government in NSW brings ambitious housing plan

The Labor party’s victory in last month’s New South Wales election could have the potential to shake up the housing market of Australia’s most populous state. The new Minn government brings with it ambitious plans to address housing supply challenges via the densification of key transit hubs.

Premier Chris Minn assumes office just as the greater Sydney area faces a worsening shortage of affordable housing in the wake of the Covid pandemic. These stresses on the property market — and rental markets in particular, are set to worsen if inbound migration accelerates following the lifting of overseas travel restrictions.

Sue Holliday, Chair of the Hume Community Housing Association and Director General of Planning in NSW from 1997 to 2003, said that the problems of the Sydney property market urgently need to be addressed.

“There is a crisis right now in the housing market,” Holliday said. “The scarcity of social and affordable housing is a major issue for Sydney, as well as for the regions”

In January, the NSW Labor party released a comprehensive housing plan that outlines a slew of measures to address problems on the market for homes.

Chief amongst these measures will be increasing density along new metro lines, with a heavy focus on affordable housing close to stations. Labor said it would set the mandatory requirement that 30% of all homes built on surplus government land be set aside for social and affordable housing.

According to Holliday, the plan could go a long way towards helping to solve Sydney’s home scarcity woes, particularly given the 30% requirement for social housing and the focus on development near new infrastructure.

“This is part of a strategy to achieve more affordable homes in Sydney, and it’s good that they’re focusing on areas where they’ve invested heavily in transport infrastructure,” she said.

Despite the promise of the plan, however, Holliday said actual implementation could face challenges, including securing approvals on schedule and opposition from existing residents.

“The difficulty is going to be getting the planning policies right so that it can all happen as quickly as possible. Otherwise nimbyism will stand in the way of developments in many locations.”

Holliday also points out that in order for affordable housing to be economically feasible, land for the initiative will need to be procured from government authorities at practically no cost.

This could prove challenging given the high cost of land in areas around transit hubs, as well as the requirement of Treasury that transfers of government land must generate a return.

“To have 30% affordable and social housing means that basically you’ve got to have land for free. The returns just don’t stack up if you have to pay for land, and especially if you have to pay for land in expensive areas.”

Alan Wang, Property Developer Manager at CrowdProperty, also foresees major hurdles to actual implementation of Labor’s new housing policy.

“Density around transport nodes has been the theme for the government over the last 15 years, and is actually just good urban planning,” Wang said.

“In reality, however, it’s very hard to do, especially in existing suburbs. It will take a very well-coordinated government to deliver policy and planning changes.”

If the plan gets off the ground, however, Holliday sees it creating major opportunities for small-scale developers, given that the private sector will play a key role in the creation of new housing supply.

“Because government land agencies don’t build themselves, there will be opportunities for small and medium-scale developers and builders to purchase parcels of land for projects in collaboration with the community housing sector.

“If you combine the ambition from the state Labor government and then you add in the money that might come into NSW from the Housing Australia Future Fund, potentially there is a lot of money available for affordable housing over the next five years.”

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^https://www.corelogic.com.au/news-research/news/2023/corelogic-home-value-index-national-home-values-up-0.6-in-march,-breaking-a-10-month-streak-of-falls