Australia’s Housing Market: A Push for Institutional Investment Amid Rising Values

Australia’s housing market, currently valued at a staggering $10 trillion, is undergoing significant shifts. Amidst concerns about affordability and supply, industry leaders have proposed a range of solutions to address the issue. Here’s a look at the current landscape and potential interventions.

Institutional Investment: A Potential Solution

Sue Williams, in her article “What’s going to fix Australia’s housing market? Industry leaders weigh in,” highlights the Australian government’s recognition of the pivotal role institutional investors could play in mitigating the housing crisis. Large institutional players like super funds, mutual funds, insurance companies, and wealth funds are being eyed as possible sources of capital to address the under-supplied housing market.

Minister for Housing Julie Collins stated at the AFR Property Summit, “This government understands the role institutional investors could play in delivering more housing supply.” She emphasized the need for a framework that attracts institutional investment in Australia, as many of these investors already have significant holdings in commercial sectors and international housing markets.

This determination aligns with the federal government’s ambitious target of constructing 1.2 million new homes over the next five years. However, achieving this goal may be challenging due to obstacles like the availability of shovel-ready land, as noted by Nicola Powell, Domain’s chief of research and economics.

Current Housing Market Dynamics

According to CoreLogic, the combined value of Australian housing reached $10 trillion at the end of August, recovering from a downturn experienced between April 2022 and February 20232. This recovery occurred despite factors like a cost of living crisis and recent cash rate hikes.

Key factors contributing to the rise in housing values include:

Net overseas migration: The demand for housing has surged with increased overseas arrivals and reduced departures from Australia, intensifying competitiveness for properties.

Use of savings, profit, and equity: Households might be leveraging their savings, equity, or profits from previous home ownership for property acquisitions.

Constrained supply: Even with new listings increasing, total listings remain substantially lower than the five-year average.

However, the sustainability of this recovery remains uncertain. Borrowing is restricted by high serviceability buffers, and economic indicators suggest potential challenges to mortgage serviceability in the future2.

Balancing Growth and Affordability

With the housing market’s continuous growth, a multi-faceted approach is essential. Shane Oliver, head of investment strategy and chief economist at AMP, expressed concerns about issues such as labour shortages and material supply disruptions that could hinder the ambitious goal of 1.2 million new dwellings.

Further, Mark Bouris, Yellow Brick Road executive chairman, predicts that rising unemployment and the absence of pay raises could negatively impact housing prices.

To counter NIMBYism (Not In My Back Yard) sentiments, which often oppose new housing developments, Bouris proposed a system of rewarding locals who support development, suggesting potential tax rebates as incentives.

Trina Jones, the NSW rental commissioner, emphasized the potential game-changing role of institutional investors in the rental market. Larger scale investments could ensure better maintenance and repair, ultimately enhancing the quality of renters’ lives.

Australia’s housing market is complex, with intertwined challenges and opportunities. While institutional investment presents a promising solution to supply concerns, it’s clear that a holistic approach, encompassing policy reforms and innovative strategies, will be essential to ensure sustainable growth and affordability for all Australians.

References:

Williams, Sue. “What’s going to fix Australia’s housing market? Industry leaders weigh in.” ↩ https://www.domain.com.au/news/whats-going-to-fix-australias-housing-market-industry-leaders-weigh-in-1235450/ 

CoreLogic. “The value of Australia’s housing market just hit $10 trillion again. How is this possible?” ↩ https://www.corelogic.com.au/news-research/news/2023/the-value-of-australias-housing-market-just-hit-$10-trillion-again.-how-is-this-possible