Australia’s Property Market Defies Crash Predictions Amid Rising Immigration and Housing Shortage
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Despite fears of a crash, the Australian property market continues to rise, driven by strong population growth, a surprising surge in immigration, and an ongoing housing shortage. The two primary sources of demand for housing in Australia remain a growing population and rising incomes, with an unexpected boost in migration accounting for the rise in population. The Reserve Bank was surprised by the immigration announcement earlier this year, planning for a net migration increase by hundreds of thousands of people in 2023.
Paul Bloxham, the HSBC chief economist, explains that the increase in migration not only boosts the overall economy but also intensifies the demand for housing. “The subsequent effect of the re-opened border and strong inward migration has driven a housing shortage, with rents rising sharply, adding to inflation”.
Simultaneously, JPMorgan research uncovered tens of thousands of “missing homes” approved by authorities for construction but have not been completed. The number of ‘missing’ dwellings now totals between 50,000-60,000, a considerable shortage given tightness in the residential rental market.
“In the midst of increasing unemployment, the housing market could be sustained by severe housing shortage and a growing population,” David Taylor wrote in his article1. This assertion has been supported by another financial advisor and property commentator, Ben Nash, who stated, “While the risk is there, if you’re thinking about buying property, it’s important you’re smart with how you plan”.
He suggests potential property buyers should ensure their numbers stack up, considering how much they can afford now and their ability to cover property costs in the future. This is particularly important due to the increasing costs of owning property, largely driven by increasing interest rates and mortgage payments.
Despite these potential difficulties, Nash remains optimistic. “Cracking into the property market isn’t easy, but it is an important step towards long term success with your money,” he wrote. This sentiment echoes the predictions made by the CBA’s head of Australian economics, Gareth Aird, who foresees national property prices lifting 3 per cent in 2023, and 5 per cent in 2024.
However, property market dynamics could change if inflation remains elevated, which could lead to interest rate hikes from the Reserve Bank and pull property prices lower1. SQM’s Louis Christopher predicts that if the RBA’s cash rate hit 5 per cent, the probability of a “hard landing” in the housing market would rise well above 70 per cent.
Overall, Nash suggests that while there is no certainty in short-term property prices, the risk of a crash seems to be receding each day. With smart planning, potential homeowners can navigate the risks, avoid property traps, and find success in the current housing market.
References:
David Taylor, “How tens of thousands of ‘missing’ homes could push Australia’s property prices even higher”, June 2023 https://www.abc.net.au/news/2023-06-23/australia-housing-crisis-shortage-missing-homes-property-market/102515694
Ben Nash, “‘Serious dollars’: Common property ‘trap’ that can cost first home buyers a fortune”, June 2023 https://www.news.com.au/finance/real-estate/buying/serious-dollars-common-property-trap-that-can-cost-first-home-buyers-a-fortune/news-story/fa0190dfaeef292de8c2fbf4c33b4aaf
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