State of the market property report for April 2024

The Australian property market extended its growth streak in March, with housing prices nationally posting their 14th consecutive monthly increase.

The health of Australian housing prices could receive a further boost from a dovish turn from the Reserve Bank of Australia (RBA), as well as an aggressive push from some regional governments to tackle the housing supply crisis.

Home prices continue to rise in March

Australian housing prices continue to recover from the slump they endured from April 2022 to January 2023, when CoreLogic’s national Home Value Index (HVI) declined by -7.5%.

As of the end of March the national HVI had risen by 10.2 percent since the end of the slump, breaching new record levels in every month since November 2024.

In March, the HVI rose 0.6 percent, maintaining a growth rate on par with the increase in February and extending the current cycle of home price increases to its 14th consecutive month.

All of Australia’s capital cities posted gains in March with the exception of Darwin, which saw a -0.2 percent decline.

Dovish turn from RBA expected to boost prices

Analysts expect housing prices to receive a boost from an end to the hawkish cycle of rate hikes from the RBA in the wake of the Covid pandemic.

Property analyst John Lindeman of Lindeman Reports, said conditions are ripe for the RBA to start cutting interest rates by the start of the second half.

“The GDP figures for the December quarter showed that our economy is flatlining, so the RBA will be watching the next set of figures due for release on 5 June.

“If the economy is found to be contracting, it would only take a fall in inflation or a rise in employment to motivate the RBA to lower rates.”

Rob Flux, educator and developer from the Property Developer Network, said expectations of a shift from the RBA have already prompted Australia’s top financial institutions to reduce interest rates.

“We’re seeing the big four banks starting to drop their fixed interest rates - that’s a good sign that they’re expecting interest rates to drop in the not-too-distant future.

“Depending on the bank, they’re expecting the RBA to implement its first rate cuts between September and November.”

Flux said expectations of rate cuts are already having a positive impact on the housing market, even prior to concrete action from the RBA.

“We’re starting to see the market warm up - people are starting to get back into the market in anticipation of cuts.”

CrowdProperty CEO David Ingram cautioned that Australia will be watching inflation and jobs data in the US and Europe.

“It is widely expected that Australia could follow overseas economies,” Mr Ingram said.

“If inflation remains higher overseas we may be waiting longer for rates to be cut here.

“We are also seeing the banks drop the rate of fixed term deposits. This means investment into private credit is becoming more attractive, opening up new capital to non-bank lenders and ultimately developers.”

New opportunities potentially emerging for developers

While interest rate cuts will buoy housing prices across the country, Flux said the impacts and levels of opportunity this creates will vary from region to region, given differences in the regulatory positions of local governments.

According to Flux, NSW is leading Australia in efforts to tackle the housing supply crisis, which means its property market is best positioned to rise once rate cuts become a reality.

“NSW has the best plan, and we’re only months away from that plan becoming legislation,” he said.

“People are already stepping back into the NSW market again, to speculate on the opportunities that could be created by proposed density increases.”

Despite some inconsistencies in regulatory practices across Queensland, Flux sees opportunities in the state thanks to its relative affordability compared to other parts of Australia.

“From an affordability perspective, people are leaving Sydney and Melbourne in droves,” he said. “They can sell a small $2 million house here and buy a mansion in Brisbane.”

John Lindeman said the underlying fundamentals of the Australian property market will continue to drive price increases across the board. Higher rents will create strong opportunities for investors even in more affordable areas.

“The rate of housing completions is declining, and well below the number needed to house our rapidly growing population,” he said.

“This provides a new opportunity for investors, as escalating rents are generating cash flow neutral and even cash flow positive investment opportunities in lower-priced locations.”

Cost normalisation will help developers seize opportunities

Developers could find themselves better positioned to capitalise on upcoming opportunities in the Australian housing market, as construction costs trend towards normalisation.

National construction costs further stabilised in the first quarter of 2024, with Core Logic’s Cordell Construction Cost Index (CCCI) posting just a 0.8 percent rise. This increase was the same as the figure for Q4 2023 and brought the annual change in the CCCI down to 2.8 percent, for the smallest annual increase since March 2007 (2.7 percent).

Stabilisation of construction costs is good news for developers, given high material prices have been a key issue causing project delays during the post-Covid spate of inflation. Cost stabilisation will also help to pave the way for new projects, by providing greater confidence in feasibility studies for potential investors.

Analysis of NSW planning changes due to come into effect

The NSW Government’s upcoming Transport Oriented Development (TOD) planning reforms, slated to commence this month, aim to tackle the housing crisis by strategically distributing over 170,000 “well-located” homes across Sydney, the Illawarra, Hunter, and Central Coast regions. This initiative, spearheaded by the Transport Oriented Development State Environmental Planning Policy (TOD SEPP), aims to mark a significant step towards addressing the pressing need for affordable housing. By identifying 31 stations across 13 local government areas as focal points for new housing within 400 meters, the government wants to enhance urban density and accessibility.

An examination of these reforms reveals potential benefits for small and medium property developers. Firstly, the expansion of the TOD SEPP to include additional stations, such as Cardiff, Cockle Creek, Belmore, Lakemba, Punchbowl, and Woy Woy, presents potentially lucrative opportunities for developers to capitalise on emerging markets in high-demand areas. Moreover, the flexibility granted to councils to phase in the TOD SEPP on certain sites allows developers to participate in comprehensive master planning and detailed work, facilitating a more streamlined and efficient development process. Additionally, the government’s emphasis on collaboration with local councils and tailored housing plans offers developers the chance to engage in community-centric projects that align with the specific needs and preferences of residents.

Critics, however, raise concerns about the potential challenges associated with increased urban density and infrastructure demands. While the reforms aim to address the housing crisis, questions linger regarding the adequacy of infrastructure provisions to support the influx of new residents. Nevertheless, Minister Paul Scully’s assurance that infrastructure investments will accompany housing growth provides some reassurance to developers. Overall, the TOD planning reforms represent a significant opportunity for small and medium property developers to contribute to the alleviation of the housing crisis while tapping into emerging markets and engaging in community-driven projects tailored to local needs.