Australia’s Property Market Defies Predictions: A Tale of Booming Prices and the Ensuing Housing Crisis

Times Viewed: 3

The Australian property market is witnessing a significant and surprising turnaround, defying earlier predictions of steep declines for the year. Property prices have started climbing higher thanks to an unexpected surge in demand over the past two months, resulting in the highest auction clearance rates in over a year.

As Sally Tindall, Research Director for RateCity, commented, “Economists are shredding their previous price forecasts. There’s been a significant turnaround.” If these rises are sustained, home values are projected to end up about 4% higher in 2023, rebuffing forecasts of falls of 10% or more (RealtyPlus).

This surge comes on the back of a robust population growth and speculation that the Reserve Bank of Australia (RBA) might have only one more interest rate hike in the pipeline. The RBA had already introduced 11 hikes since last May. Yet, property prices are still accelerating, in stark contrast to last year when prices fell by 9.1% between May 2022 and February 2023, before making a U-turn in March (Prashant Mehra).

Despite these changes, the increase in property prices is a double-edged sword. “There is still some uncertainty around the trajectory for the cash rate, particularly given the latest monetary policy announcement showing a tightening bias from the Reserve Bank,” commented Eliza Owen, CoreLogic’s Head of Research (RealtyPlus).

The higher prices have been a hurdle for prospective first-home buyers, with research showing that 90% are unable to purchase a property. PropTrack economist Angus Moore commented on the affordability issue, stating, “Fundamentally, the only way to make housing more affordable is to build more of it where people want to live. And arguably, we haven’t been doing enough of that. That’s part of why housing is expensive in some parts of Australia” (Prashant Mehra).

Housing Industry Association’s Senior Economist, Tom Devitt, also highlighted the challenges faced in the housing market, including insufficient homebuilding, lack of suitable land for residential housing, and supply constraints such as material and labor shortages. He suggested long-term structural changes to tackle the issue: “In the medium to long term, there need to be structural changes to the tax system, to our planning laws relating to development and the release of land, and our financial regulators need to make it easier for the banks to lend to homebuyers” (Prashant Mehra).

Australia’s property market has a long history of importance to the nation’s economy and wealth, but the recent price boom is challenging this perception, as prices have escalated well beyond the reach of many potential buyers. It is a tale of two markets, where rising prices are welcomed by some, yet have resulted in a housing affordability crisis for others. Amidst all these developments, one thing is clear – all eyes will be on the RBA’s next move and its impact on the property market.

References:

“Australia Sees Sudden Turnaround in Property Prices” by RealtyPlus https://www.rprealtyplus.com/international/australia-sees-sudden-turnaround-in-property-prices-110776.html 

“Australian Housing Crisis: The High Price We’re Paying” by Prashant Mehra https://www.forbes.com/advisor/au/property/high-cost-of-australian-housing/