State of the market property report for January 2024

Australian housing prices ended the year on a positive note, with a slight rise in December helping to extend the market’s recovery from the slump in 2022.

Analysts forecast further growth in 2024, but are divided on future monetary policy adjustments and their influence on housing prices.

National home values rise over 8 per cent in 2023

CoreLogic’s National Home Value Index (HVI) posted a gain of 0.4 per cent in December, bringing the full-year increase for 2023 to 8.1 per cent in total.

The rise in Australian housing prices last year marks a sharp contrast with 2022, when hawkish monetary policy dragged the HVI down 4.9 per cent.

2023’s home price gains are still well short of the 24.5 per cent surge posted in 2021, when the launch of stimulus policies by the Australian government drove a boom in the housing market.

Tim Lawless, CoreLogic’s research director, highlighted an increasing divergence in the performance of Australia’s regional property markets last year.

The combined capital cities index rose 9.3 per cent in 2023, more than double the 4.4 per cent rise posted by the combined regional index.

While Perth posted a leap of 15.2 per cent in 2023, regional Victoria saw a decline of -1.6 per cent.

Smaller capital cities also saw modest decreases, with Hobart’s home prices falling 0.8 per cent and Darwin’s 0.1 per cent.

“Such diversity across the capital cities can be broadly attributed to factors relating to demand and supply,” Lawless said.

“In Perth, Adelaide and Brisbane, housing affordability challenges haven’t been as pressing relative to the larger cities, where advertised supply levels have remained persistently and substantially below average.”

Housing Australia fund opens first round

The government’s Housing Australia initiative has initiated the first funding round to facilitate the development of 40,000 social and affordable homes through the Housing Australia Future Fund. The Housing Australia Future Fund Facility (HAFFF) aims to deliver 30,000 homes over five years, with the National Housing Accord Facility (NHAF) targeting 10,000 affordable homes. Designed to attract institutional investment, including from superannuation funds, the programmes aim to expedite the establishment of a viable asset class in Australia.

Eligible entities, including not-for-profit housing providers and governments, can apply for financing, which includes availability payments, concessional loans, and capital grants. Applications close on March 22, 2024, for the first funding round.

Alan Wang, property developer manager, CrowdProperty, said the announcement of the first funding round raises many questions for the SME developer community.

“There’s a potential opportunity for developers to have the government as an exit strategy, but this very much depends on the government’s taste for owning more housing assets,” Wang said.

“It would be difficult for SME developers to pre-sell to government.”

“What’s more, if these programmes are designed to attract institutional capital, can marketplace lenders like CrowdProperty — which already harnesses diverse sources of capital from retail, wholesale, and institutional investors — apply for government funding to reduce the overall cost of capital and bring more affordable housing projects into viable range for construction and investment?

“There could also be opportunities to partner with community housing and not-for-profit housing to help blend capital and bring more of the market to bear on solving the housing crisis.

“This is where marketplace platforms like CrowdProperty, that have expertise in SME and small-scale construction lending, can support by facilitating the government’s investment in housing, like we’ve done in the UK when partnering with the British Business Bank.”

NSW paves the way for higher-density developments

The biggest development in Australia’s property market at the end of 2023 was the announcement of plans by the NSW government to permit higher-density development in councils around the state.

NSW planning minister Paul Scully said the proposed changes to planning rules would automatically increase density in areas currently zoned as R2 (low-density residential) and R3 (medium-density residential).

Rob Flux, developer and educator from the Property Development Network, said the changes could expand high-density developments by undermining the authority of local councils.

“This could blunt council’s ability to block applications, allowing developers to significantly increase supply,” Flux said.

“The details of the announcement are still awaiting legislative clarification, but once in place they will have a major impact, especially on the Sydney market.”

Analysts expect further growth in 2024

Analysts are moderately optimistic in their outlook for the performance of the Australian housing market in 2024.

The Australian Financial Review’s 2024 forecast survey of national home prices found that respondents generally expect to see gains of around four per cent this year.

As with most other asset classes, the performance of Australia’s property market in 2024 will depend heavily upon monetary policy decisions made by the Reserve Bank of Australia (RBA).

Analysts remain ambivalent on the outlook for the RBA’s interest rate adjustments in 2024, particularly given uncertainty around the future direction of inflation.

According to Finder’s RBA Cash Rate Survey, 40 per cent of the participating experts don’t expect the RBA to cut interest rates until at least December, which could put pressure on housing prices throughout 2024.

One in three experts are more optimistic, however, forecasting interest rate cuts by at least August this year, which could help to extend gains made in 2023.