housing
September 14, 2023

Australia is well known for ‘The Outback’, the Sydney Opera House, Kangaroos, the cricket team and as of recently, its eccentric housing market. 

If you have been contemplating entering the Australian real estate market in 2023, you are likely to encounter a landscape that holds several surprises. Factors such as rising interest rates, and the ongoing uncertainties stemming from the global pandemic have reshaped Australia’s property market in unprecedented ways.

Although recent data indicates a yearly decrease in property prices, this does not necessarily equate to improved affordability, particularly considering the record highs observed in preceding years. This decline signifies a general reduction in property values across the nation. Housing prices have dipped, while mortgage payments have gradually risen, driven by interest rate hikes implemented by the Reserve Bank of Australia (RBA).

According to figures from CoreLogic that were quoted in an article penned by Ava Crawford (‘Where is the Australian housing market right now?’), despite this downward trend, property values remain notably higher than they were at the onset of the pandemic in March 2020. This growth in property value has managed to persist even as prices have receded from the peaks reached during the property boom of 2021-2022. Although there is some decline in house prices, the Australian housing market remains far from achieving stability. 

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An overview

Despite the fact that house prices have experienced a rise in recent months, numerous regional areas in Australia are currently witnessing a decrease in housing values on an annual basis, as highlighted by CoreLogic’s quarterly regional market update. As Sophie Venz and Jason Murphy puts it across in their article for Forbes, this analysis which scrutinises the 25 largest non-capital city regions in Australia, reveals that 18 of these areas have recorded a decline in house values over the year leading up to July 2023. This phenomenon persists despite these regions displaying modest growth in the recent past. 

Among the most impacted regions were the ‘NSW lifestyle markets’ of Richmond-Tweed, with a drop of -20.4%, as well as Southern Highlands and Shoalhaven, experiencing a decline of -15%. In Victoria, the declines were most pronounced in Ballarat  (-11.2%) and Geelong (-10.4%). 

Venz and Murphy also state that Eliza Owen, the Head of Research at CoreLogic Australia, noted that although regional dwelling values were rebounded over the last five months, they still stand at -5.6% below their levels from the same time last year. She goes on to say that while the real estate market is showing signs of recovery, the growth in value is primarily propelled by capital city markets, reflecting subdued housing demand in regional Australia as demographic patterns normalise. The article quotes Owen: “Investors tend to shy away from the housing market during negative economic shocks. The sharp rise in interest rates has coincided with a -23.6% fall in new housing investment lending between April 2022 and May this year, and this includes a slight recovery in investment lending in recent months, which has lifted 10% from a low in February this year. On the demand side, record levels of overseas migrants, many of whom rent in inner-city unit precincts, has bolstered rental demand this year, causing an imbalance between rental demand and supply.”

The current position of the Australian housing market

In the Northern Territory of Australia, according to a recent market analysis, the property market in Darwin has lost its previous momentum and can no longer be categorised as one of the growth markets in the country, despite the notable performance of high-end properties. 

As stated in an article written by Courtney Snowdne for the real estate section of ‘news.com’, the Winter 2023 Hotspotting Price Predictor Index (PPI) has indicated that the real estate market in the capital of the Northern Territory  is currently at best ‘lukewarm’, although there are some positive aspects to highlight. 

Terry Ryder, the director of Hotspotting mentioned that this assessment follows a PPI report from three months earlier, which had labelled Darwin as one of the most active and thriving markets among the capital cities. The earlier report has also noted an increase in suburbs being classified as markets with consistent growth. However, ever since the publication of the report, the tables have turned and the market has shown a negative growth. While some suburbs in Darwin and Palmerston Local Government Areas are showing notable stability, the “most significant change has been the rise in the number of suburbs now categorised as plateauing (stagnating progress) or experiencing declines”. To put it into numbers, the report indicated that 19 of the 33 suburbs in the Greater Darwin area were either plateau or declining markets. 

The situation of the rental market 

For many Australians, the housing crisis might appear to have reached its peak. Rent prices have surged due to historically low vacancy rates, meanwhile, support for lower-income households is being reduced. Young individuals are encountering formidable barriers to property ownership, and even those who have managed to secure mortgages are grappling to keep their heads above water following multiple interest rate hikes.

The soaring housing cost is a nightmare for the renters. David Taylor writing for ‘ABC News’  says that according to REA Group, the rental market pressures are still very much prevalent in capital cities.This is mainly because the demand is strong and the number of available rentals are scarce. Although there has been a slight increase in rental vacancies and the duration a property remains available for rent, both of these metrics are historically low. Concurrently, the quantity of rental properties accessible in the market remains limited, while there is a widespread and robust demand for rentals. Consequently, due to these circumstances, the cost of renting properties continues to escalate. Leading to no relief in sight for the housing crisis situation.  

Additionally, people are coerced to pay extremely high rentals to secure houses because of the gap between demand and supply. For instance, in places like North Melbourne, if you are to even be shortlisted as a tenant, you will have to pay much more than the advertised price to secure the property. While this is clearly a breach of Victoria’s tough rental-bidding laws, unfortunately with Australia being at the epicentre of a rental crisis, situations such as these recur on a frequent basis. As stated by Micheal Read, an economics correspondent writing for  AFR, according to CoreLogic, the cost of advertised rents has surged by 10% over the last year. This further compounds the financial burdens that households are already dealing with, such as rising energy expenses and grocery costs.

To make matters worse, transitioning to a more affordable rental option is not a straightforward solution. Currently, finding available housing has become more challenging than at any point in the past two decades. Only a meagre 1.1.% of the country’s rental properties are currently available for lease. Not only is the rental scene in Australia in hot waters, there is a forecast that the country could soon face a shortfall of more than 100,000 homes with the way that things are going.

Once you take a long and hard look at the unfolding of the current events in the country, it does not come as a surprise that according to the most recent report from CoreLogic, Australia has been given the second spot in the world, by the IMF, regarding  housing market risk. It is only second to Canada.

A slice of this ranking can be attributed to the levels of household debt in relation to income, another can be dedicated to how this debt sits on variable interest rates. The remaining slices can be assigned to the turbulent rental market situation, the miniscule percentage of Australians who own their homes outright and the increasing level of mortgages that more and more home buyers hold. 

(Sandunlekha Ekanayake)

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