- Major and ongoing supply issues are keeping a floor under house prices.
- While a brief dip was recorded when the rate hikes began, prices have quickly recovered and are expected to continue rising when rates are cut.
- That dip was minor compared to property price growth in the years prior.
The Australian housing market has recorded remarkable growth across the pandemic and continues to do so. While a multi-speed market has emerged in recent times, Australia, more broadly, is not expecting to see prices decline until one major challenge in the Australian property market is addressed: construction.
What has happened to Australian property prices since the pandemic?
The pandemic property mania saw Australian house prices soar.
By how much?
CoreLogic figures show that for the two years prior to the latest rate hiking cycle, Australian real estate prices leapt 31.7%.
Figures mentioned in a speech delivered by Chair of the National Housing Supply and Affordability Council, Susan Lloyd-Hurwitz, at the launch of the Housing System Report 2024, showed that Australian property prices grew by over 35% since the start of the decade.
Didn’t the rate hike cause a market crash?
Blink and you would have missed it. Prices saw a brief decline when the interest rates began to rise, but since that time, Australian housing values have risen 2.8% (since April 2022, according to CoreLogic).
This smaller capital gain is a ‘legacy’ of that brief fall in values, according to CoreLogic research director, Tim Lawless, but since that fall, value growth has made up for the losses.
”The perception might be that property values are continually increasing but we can’t forget the short and very sharp downturn that occurred in the immediate aftermath of the first rate increases,” said Lawless.
According to CoreLogic figures, housing values across Australia fell 7.5% in the initial period of the rate hiking cycle. Indeed, the company’s index recorded a consistent decline in national property values between May 2022 and January 2023.
Thereafter, real estate values across the nation resumed their upward march. The latest results from CoreLogic found that Australian home values have recorded a cumulative 11.1% rise since the index bottomed out in January 2023.
“Since the market bottomed there have been 15 consecutive monthly increases in values nationally, but that performance is not indicative of the entire market. Underneath the headline figure, there is significant diversity in the housing market’s performance.”
How did each city’s property market perform?
The variance between some of the stronger and weaker performers was marked, with the percentage change in housing values coming in at 25.7% growth for Perth, through the rate hiking cycle to April 2024, to an 11.2% decline in Hobart.
Across Australia’s two largest cities, Sydney recorded a marginal gain of 0.4%, with Melbourne seeing values fall 4.2% since April 2022.
“Such a discrepancy in growth rates highlights the diversity of market conditions over the past two years,” said Lawless.
“This reflects the complexity within local markets.”
Tim Lawless, CoreLogic
“While some cities have exhibited resilience driven by robust economic fundamentals and housing demand, others such as Melbourne, Hobart, and Canberra, where housing is more affordable now compared to two years ago, have grappled with factors such higher supply, affordability constraints and weaker demographic trends.”
Western Australian suburbs have been a standout performer in recent times, with CoreLogic finding an overwhelming majority of Australia’s strongest house value growth suburbs were in the western state. Over the past two years, nine out of ten suburbs recorded the strongest value growth, with Armadale topping the list at 60% growth since April 2022; this was on top of 36.2% growth across the preceding two years.
Perth was also home to the greatest proportion of suburbs to be at a record high in April this year, with CoreLogic finding 97.3% holding that distinction. Adelaide was second, with 90% of suburbs, while Brisbane saw 85.1% of suburbs at the top of their games.
On the flip side, Hobart was the worst with no suburbs at a record high, and only 1.5% of Melburnian suburbs were bringing their A-game.
Back to the bigger picture, what does construction have to do with prices?
Ray White Group chief economist, Nerida Conisbee, noted that house prices will continue to rise until construction woes end.
Supply remains the crux of the problem, and the road towards increasing supply is a rocky one.
According to the recently released State of the Housing System 2024 by the National Housing Supply and Affordability Council, Australia’s housing supply figures make for a disheartening read.
- Last year saw the lowest annual number of completions in the past decade, with 172,000 dwellings;
- Time from approval to completion of a new house rose from nine months in 2019-20 to 12 months;
- Approval to completion times for new townhouses were 15 months, while new apartments took 29 months – over two years;
- Forecasting showed demand will continue to outstrip supply, with predicted new builds, minus demolitions, of 1.04 million, while new demand is expected to be 1.079 million; and
- The 1.2 million homes target is unlikely to be met unless a lot more is done. Current projections are for a gross new market housing supply of 903,000 dwellings during the National Housing Accord period between July 2024 and June 2029.
The building and construction industry has faced challenge after challenge since the pandemic started. Conisbee noted that:
- Builders faced supply chain challenges during the pandemic, with slower material delivery leading to reduced productivity and homes taking longer to complete;
- Heightened global demand for materials drove prices up;
- Labour prices then rose;
- Insolvencies are at record highs, meaning fewer and fewer builders are available to start or complete projects;
- No capital to fund new developments;
- Low foreign investment;
- A market where buying established makes more financial sense than building a new house.
Did these all happen at once? No, but the timing of each challenge meant builders never got a chance to take a breather.
As material costs began to flatten, Conisbee noted labour prices rose. And, while construction costs began to moderate by the end of last year, the insolvency crisis got worse:
“Building industry insolvencies are now at record highs and there appears to be no slowdown in the rate of increase,” said Conisbee.
“Costs may no longer be rising at such a fast pace but it is getting very hard to find someone to build anything.”
Nerida Conisbee, Ray White Group
She recounted the staggering number of construction firms that either entered external administration or had a controller appointed in the 12 months to March 2024: 2,632.
Additionally, Conisbee said the time for this issue to be overcome will be at least 18 months.
Many of her concerns are also found in the aforementioned State of the Housing System 2024 report, released towards the start of this month.
High interest rates were also a concern, with everyone from builders to households, investors, and apartment developers all hamstrung. Either it’s too tough to keep a business going, buy a home, or get the right financial foundations to get an apartment development the funding green light.
Among other issues, the report highlighted:
- Low levels of productivity;
- The adoption of innovative building methods is also low;
- Land for housing is either limited or costly, with available land sometimes not suitable for development; and
- Complicated requirements for zoning and planning approval.
Bold reforms needed
The report released by the Council made it clear that Australia needs bold and innovative reforms to achieve the 1.2 million homes target.
Under the microscope will be areas such as social housing, homelessness, tenant’s rights, zoning and planning systems, construction sector capacity, data management, and a better taxation system.
