Home values across Australia continued to rise in August, albeit at an easing pace following 18 months of consecutive increases.
Dwelling prices are likely to remain resilient in the short term, with demand continuing to outpace supply and financial feasibility constraints making key developments unprofitable.
Housing prices around Australia posted their 19th straight month of increase in the month of August, with CoreLogic’s National Home Value Index rising 0.5 percent.
The pace of home value growth is clearly slowing. The quarterly increase in national home values has more than halved to 1.3 percent, from 2.7 percent for the same three month period last year.
Price movements across Australia’s capital cities were highly varied. Perth led monthly gains with a 2.0 percent increase, while Adelaide posted a robust rise of 1.4 percent and Brisbane was up 1.1 percent.
By sharp contrast Sydney home prices only edged higher 0.3 percent, while four capital cities saw dwelling values decline in August, including Canberra (0.4 percent), Melbourne (0.2 percent), Darwin (0.2 percent) and Hobart (0.1 percent).
Despite the easing pace of nationwide growth in home prices and stretched affordability across major cities, the underlying fundamentals of the Australian housing market should continue to support prices, with demand still ahead of available supply.
To address Australia's housing affordability crisis and meet the goal of 1.2 million new homes in five years, state and territory governments are adjusting regulations to foster accelerated growth in supply.
Rob Flux, developer and educator at the Property Developer Network, says the big south-eastern states are setting the pace for these adjustments.
“State governments around the country are starting to make changes to legislation to help overcome the housing crisis,” Flux said. “The roadmap is being laid out as we speak, and NSW is leading the charge.”
Victoria is also making bold moves, with the removal of red tape in the form of neighbourhood character policies, and changes to the VCAT process that currently make it easier for community members to challenge developers.
Despite these pivotal measures from governments around the country, their efforts to expand home supply could remain severely hampered by high development costs.
A recent report commissioned by the NSW Productivity and Equality Commission found that financial feasibility is a critical challenge for residential developers in the state.
According to the report produced by the Centre for International Economics (CIE), sales prices for many residential development projects in Sydney still fall short of the costs and risks incurred by developers to bring them to fruition.
The indicative cost of delivering a new unit in a typical mid-rise apartment block in Sydney stood at $905,000 in 2023, a 36 percent increase compared to $666,000 in 2018.
The estimated sales price for such units sits at around $885,000, which renders such projects completely unprofitable.
Flux points out that taxes and construction expenses are the core reasons behind these high development costs. While taxes are easy enough to mitigate, it will prove difficult to address the problem of high construction costs given market conditions.
“With taxes, they can address about 40 percent of the cost of development,” Flux said.
“It will be harder to reduce construction costs because there remains a shortage of builders and trades in the industry.”
While interest rates are currently on hold, industry commentators expect the Reserve Bank of Australia (RBA) will eventually need to make cuts to avert a recession. Two of the big four banks are currently predicting drops in November, while the others have them pegged for the first or second quarter of next year.
At that point in time, Flux anticipates improvements to financing costs will bring a flood of people from the rental market into the property market, creating a sharp boost in demand.
For this reason, developers should prepare themselves in advance for a potential sharp rise in demand by the middle of next year.
“The opportunity lies in the disparity between supply and the inevitable rise in demand,” Flux said.
“If we seize opportunities now, by the time we complete our projects interest rates will have come down so people can afford them.”
CrowdProperty CEO David Ingram said that while rate reductions are going to help with the feasibility of loan applications, small-to medium (SME) developers should also be encouraged by the potential for increased availability of capital to fund construction projects, and an appetite to fund build-to-rent type products.
“At CrowdProperty we are seeing increasing applications from developers looking to build more affordable rental products where rents are largely backed by government schemes like specialist disability accommodation,” Ingram said.
“It’s perhaps a sad reflection of the market that even traditional conservative institutions recognise the demand for affordable housing is not going away, which, from their perspective, ultimately de-risks their investment. The positive is that we expect to see more capital available to help with building more affordable homes”.
Ingram said there were good signs for SME developers in Australia in the next couple of years.
“Demand for smaller, more affordable places to live in existing communities — achieved through planning changes to permit higher density housing — at a time when falling rates should make it easier for new home buyers to return to the market — are good signs for small scale developers,” Ingram said.
“However, the key to truly helping SME developers to unlock a higher output of medium density 'missing middle' homes, where people actually want to live, will come from lowering the cost of capital for developers to borrow, and bringing construction costs down.”
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Opinions or views expressed represent the thoughts of individuals and not those of CrowdProperty or Quay.
The Australian housing market could continue to see constrained price growth for another six months after the Reserve Bank of Australia (RBA) ruled out interest rate cuts in the near-term.
While demand pressures could be on track to moderate, rents are set to remain high as building approvals continue to disappoint.
National home values rose 0.5 percent in July, for the 18th consecutive monthly increase according to figures from CoreLogic.
Australia's national Home Value Index (HVI) has gained 13.5 percent over the past year-and-a-half, more than compensating for the 7.5 percent price decline between May 2022 and January 2023. The HVI has continually charted new highs since November last year.
Home price performance around the country remains uneven, with a trio of capital cities posting value declines in August. These include Melbourne, with a 0.9 percent fall; Hobart, with a 0.8 percent decline, and Darwin, where home prices edged lower 0.3 percent.
The recent trend of unit prices rising faster than house prices across most capitals has the potential to reshape the property market landscape. This shift is largely driven by stretched housing affordability and reduced borrowing capacity, which are pushing more buyers towards the relatively more affordable unit segment. As a result, units are becoming an increasingly attractive option not only for first-home buyers but also for investors seeking better value and rental yields.
According to Lisa Digby, head of operations for CrowdProperty Australia, the recent trend of unit prices outpacing house prices, coupled with a slowdown in construction cost growth, signals a potential resurgence in the attractiveness of multi-residential projects for developers.
"We're starting to see a shift in market dynamics where unit values are climbing faster than house values from market reports," Digby said.
"This, alongside slowing of construction cost growth, the lowest levels in over two decades, will create more favourable conditions for SME developers looking at multi-residential developments."
On 6 August, the RBA opted to keep its official cash target at 4.35 percent, marking the sixth consecutive meeting the figure has remained steady.
RBA governor Michele Bullock said the monetary authority wouldn’t cut rates in the "near-term," while implying it could be at least another six months before a cut arrives.
John Lindeman, CEO of Property Power Partners points out that Australian housing prices can only post a tepid performance while the RBA keeps its target rate unchanged.
"While rates remain on hold, we can expect little further price growth in the dearer cities such as Sydney, Canberra and Melbourne," Lindeman said.
"Price growth in Brisbane, Perth and Adelaide is also likely to moderate."
It's inevitable the RBA will need to ease up interest rates sooner or later as inflation eases and recession concerns become more acute, he said.
At that point, the Australian housing market is poised to again see robust price growth, particularly from an influx of first-time homeowners currently barred from entry by borrowing costs.
"When interest rates are lowered, the growing number of aspiring first home buyers currently priced out of the market will pour into the market as buyers," Lindeman said.
A note from the Commonwealth Bank argues that demand on the Australian housing market is on track to moderate due demographic and lifestyle shifts.
While population growth is still above its pre-Covid pace, there are nonetheless signs of a slowdown, which means demand pressure isn't as acute as previously.
The behaviour of Australian households is also helping to ease demand pressure on the homebuying market. The monthly labour force survey indicates that more Australians are now living in sharehouses to save on expenses amidst mounting cost-of-living pressures.
On the supply side, data for residential building approvals remains concerning, which means housing prices could stay elevated despite a moderation of demand.
Lindeman points out that these factors could also increase rental prices for Australian tenants. Commonwealth Bank data indicates that rents are now growing at their fastest clip since 2008, rising at around nine percent in annualised terms.
"While rental demand is escalating, the rate of building completions is slowing down," Lindeman said.
"ABS data reveals that the number of new units and townhouse completions fell by 25 percent in the last month and by a huge 17 percent over the past 12 months.
"The immediate effect of this is that the rental shortage will increase, and asking rents are likely to escalate."
Despite views on escalating rental demand and the pressures of a limited housing supply, it's important to note that recent data from CoreLogic reveals that the Australian rental market experienced its slowest growth in four years, with national rents rising by a modest 0.1 percent in July. This cooling trend — particularly noticeable in major cities like Sydney and Brisbane where rents have even begun to decline — suggests the surge in rental prices might be easing in some regions.
However, CoreLogic also warns that low housing supply will likely keep upward pressure on rents, though at a potentially slower pace, indicating that while there may be temporary relief for renters, the broader challenges of affordability and housing availability persist.
This could exacerbate the trend towards share housing, which could in turn lead to opportunities for co-living developments on the build-to-rent market.
Queensland’s local councils have highlighted the need for greater support from state and federal government to transform plans to increase home supply into a viable reality.
Councils in the Sunshine State have already made zoning amendments that will expedite the creation of nearly 600,000 new homes, in a move that could dramatically ease the shortfall of housing supply.
Alison Smith, chief executive officer of the Local Government Association of Queensland (LGAQ) points out that these ambitions could prove fruitless unless government at higher levels helps to address a range of bottlenecks preventing development.
“Councils can zone for and approve as much housing as they like, but if it’s not commercially feasible to build, those approvals won’t deliver desperately needed new homes,” Smith said in an official statement.
“More homes can’t be built without more infrastructure – and there’s currently a $2.2 billion projected infrastructure funding gap over the next four years.”
Smith called for a raft of measures to address barriers to home supply growth, including the funding of infrastructure, activation of existing approvals, ensuring that affordable housing is locked in as affordable, reducing State fee financial barriers, and setting up a reliable pipeline for the future.
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Opinions or views expressed represent the thoughts of individuals and not those of CrowdProperty or Quay.
Australian home values continued to rise in June, despite uncertainty surrounding the Reserve Bank of Australia's (RBA) future rates decisions.
Persistent supply-demand imbalances are keeping home values afloat, while rising rental levels could be the key to identifying regions where prices are set to boom on the back of investor demand.
CoreLogic's National Home Value Index posted a 0.7 percent rise in June, bringing growth to 8.0 percent for the 2023/24 financial year.
The increase marks a sharp reversal compared to the preceding financial year, when CoreLogic's national index posted a decline of -2.0 percent, amidst breakneck inflation and hawkish monetary policy.
The Australian housing market has since returned to fine health, posting month-on-month growth of 0.5-0.8 percent since February.
Tim Lawless, CoreLogic's research director, said the recovery had arrived despite strong headwinds created by high inflation and the RBA's recent monetary policy adjustments.
According to Lawless, the fundamentals of the Australian property market favour price gains due to supply-demand imbalances.
"The housing market resilience comes back to tight supply levels which are keeping upwards pressure on values."
While hopes abounded at the start of the year that the RBA was on course to cut interest rates by the second half, analysts have since shed their optimism, with some even forecasting another hike before 2025.
At its last board meeting on 18 June, the RBA announced it would refrain from making any adjustments and keep the cash rate target at 4.35 percent.
The target rate has remained steady for seven months, remaining at its highest level in over a decade.
In a statement following the meeting, the RBA expressed concerns over ongoing high inflation, which remains considerably above the target range of 2 - 3 percent.
Over the year to April, the monthly consumer price index increased 3.6 percent in headline terms, as well as 4.1 percent excluding volatile items and seasonal factors. These prints are little changed compared to the end of 2023.
The board said it "expects it will be some time yet before inflation is sustainably in the target range."
John Lindeman, CEO of Property Power Partners said the RBA is stuck between a rock and a hard place with regard to interest rate adjustments.
"The RBA and the government would like interest rates to come down, but the RBA has a mandate to control inflation and can't act while inflation persists," he said.
The recent housing completions data from the Australian Bureau of Statistics has revealed a significant shortfall in new home supply, which is raising concerns for SME property developers. In the first quarter of 2024, only 41,329 homes were completed, a notable decline from the 45,643 homes finished in the previous quarter. This 9.5 percent drop represents the second-lowest quarter of housing completions in the last decade.
According to Property Council group executive policy and advocacy Matthew Kandelaars, this shortfall poses a substantial challenge to the national housing target of 1.2 million new homes by 2029, which requires an average of 60,000 homes to be built each quarter over the next five years.
"Today's figures reveal the extent of the challenge and just how much we need to lift our game to hit our targets," Kandelaars said.
For small SME property developers, this data underscores the urgent need for increased support and resources in medium density housing approvals, finance, and delivery.
CrowdProperty head of operations, Lisa Digby said “there is a lack of multi-dwelling supply in the pipeline and medium density infill projects are a significant part of solving the housing shortage."
"Current government policies focusing on apartment developments, while important, can still face significant planning delays and have feasibility challenges causing delays in construction. Infill housing like duplexes and townhouse developments can be funded today by specialist lenders like CrowdProperty which has funds to deploy now."
Kandelaars said governments across the country need to utilise every possible measure to assist the industry in delivering the supply of new homes.
"It's time to properly address our housing crisis with determination and speed that matches the urgent need to provide more housing for Australians," he said.
Without significant intervention and a concerted effort to boost housing supply, the industry may fall short by approximately 370,000 homes, managing only around 830,000 new homes over the next five years. To meet these ambitious targets, there must be a collaborative approach involving federal funding, state resources, and a proactive attitude towards development.
Rob Flux, owner of Property Development Network, Australia's largest development education community, said he was seeing evidence of people preparing to get back into the development market with increased demand for housing and governments trying to unlock supply.
"The next six months may still remain challenging, but after that I see the sector becoming a lot more attractive," Flux said.
However, on the need for increased infill and medium density housing, he said the larger builders were pulling away from those developments.
"Speaking to quantity surveyors in our community, they see it as a two-tier building economy," he said.
"The larger builders are moving into infrastructure projects and away from the smaller multi-residential housing developments, so there's a gap between the small end of the scale with new homes and duplexes and the larger apartment developments."
Lindeman says much of Australia is set to see continued gains in rental levels, due to the surge of immigration designed to address a shortage of skilled workers.
"Because most of the new arrivals will rent for some years, asking rents are escalating in our mainland state capital cities," Lindeman said.
Given thicker rental yields whet the appetites of investors, Lindeman considers them to be one of the keys for identifying which parts of Australia are likely to see investment-driven demand booms.
"In some cities such as Perth, Adelaide and Brisbane, rental yields have been attractively high for investors for some years," he said.
"We have witnessed housing price booms in the lower priced suburbs of Adelaide, where they have nearly tripled in the last three years, as well as Perth, where they have doubled in the last two years.
"Investors are now turning their eye to south-east Queensland, where prices in the lower priced locations are also booming."
Conversely, those parts of Australia where rental yields are low are less likely to post price gains driven by investment demand.
"Investor demand is not evenly spread," Lindeman said.
"Many are avoiding and even selling out of Victoria – due to its higher taxes and economic troubles, as well as New South Wales, because prices are too high and rental yields too low.
"There is also little investor potential in the NT, ACT or Tasmania, because yields are too low, and there's low or no population growth to generate demand."
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Opinions or views expressed represent the thoughts of individuals and not those of CrowdProperty or Quay.
