Your Weekly Property Wrap-Up: New Builds Stall as Market Tightens

The Australian home building sector is predicted to slow down significantly in 2024, reaching its lowest pace in over ten years. This slowdown is attributed to rising costs of materials, land, and finance, making it challenging for developers to construct dwellings profitably. This situation casts doubt on the government’s ambitious housing targets.

• Housing Shortfall: Australia expects a shortfall of at least 175K homes by 2027, failing to meet demands driven by smaller household sizes and post-pandemic migration.
• Cost Increases: The cost of building new houses continues to rise, with significant increases in essential materials like terracotta tiles, timber windows, and reinforcing steel.
• Labour Shortages: Extreme labour shortages are exacerbating construction costs and project delays. Competition for workers is intense, particularly in Queensland due to large infrastructure projects.
• Government Targets: The government aimed to build 1.2 million new homes over five years from 2024, but this target now seems less achievable. Housing starts in 2024 are expected to slow to about 155K, the lowest since 2012.
• Buyer Challenges: Buyers face a 30% increase in construction costs and a similar reduction in borrowing capacity, impacting affordability and new housing demand.
• Market Sentiment: Despite the challenges, there’s a sense that market sentiment may improve over time, although affordability remains a pressing issue.
• Future Outlook: Western Australia might fare better in meeting housing demand, thanks to relatively lower housing prices and less severe labor shortages.

Perth Leads Australia’s Property Market Into 2024

Summary: Perth has emerged as Australia’s leading property market, surpassing the eastern capitals in terms of sales speed and rental market tightness. This shift in the property landscape is creating a housing crisis for those unable to secure homes in the Western Australian capital.

• Fastest Selling Market: Perth homes now have a median listing duration of just 11 days before sale, significantly quicker than other state capitals, with Brisbane at 21 days.
• Seller’s Market: CoreLogic’s research director, Tim Lawless, notes this trend indicates a market strongly favouring sellers over buyers.
• Rental Market Pressure: Perth is experiencing a severe rental squeeze, with a vacancy rate of only 0.4%. This is leading to higher rents and challenging living conditions for tenants.
• Housing Supply Issues: The sharp supply and demand imbalance in Perth’s property market is due to subdued housing construction in previous years and a recent population boom driven by the expanding mining sector.
• Government Response: The state government has initiated a new housing unit to boost supply and is investing in social housing and homelessness measures.
• East Coast Cooling: In contrast, the east coast markets, particularly Sydney and Melbourne, are experiencing price falls and a slowdown, attributed to the impact of rising mortgage rates.
• Investor Interest in Perth: Property valuer Gavin Hegney reports a surge in eastern state investors in Perth, contributing to the property boom.
• Potential Solutions: Loosening of regulations to encourage co-living and rooming house constructions and Interim emergency measures like allowing homeowners to rent out rooms without tax penalties to alleviate the housing crisis.

How is The Australian Economy Looking in 2024 – A Positive Outlook?

As we enter 2024, there is cautious optimism about the Australian economy’s outlook after a challenging decade marked by low growth, pandemic impacts, and inflationary pressures.

• Economic History: The period between 2013 and 2019 was characterized as lackluster in economic terms, followed by the pandemic’s impact in 2020 and 2021.
• 2022 Challenges: The end of lockdowns in 2022 brought new challenges, including the Ukraine war and inflation, resulting in the most significant interest rate hikes in over a generation.
• Inflation and Interest Rates: Inflation, which nearly reached 8% in late 2022, is expected to continue its downward trend, with the Reserve Bank potentially cutting rates by September 2024.
• Wage Growth: Recent quarters have seen wage growth outpacing inflation, offering relief to workers. The government is highlighting improvements in wages, particularly for lower income groups.
• Tax Cuts: From July 1, 2024, significant tax cuts will be implemented, especially benefiting high-income earners, potentially increasing disposable incomes.
• Risks and Recession: Despite positive signs, risks remain, including the possibility that increased disposable incomes could fuel inflation. Geopolitical risks and the potential for a recession, estimated at a 40% risk by some economists, also loom.
• Global Factors: International factors, like Middle Eastern conflict and shipping disruptions, could impact inflation and interest rates.

Brisbane’s Real Estate Market Surges

Brisbane has recently eclipsed Melbourne as Australia’s third most expensive city for property, marking a significant shift in the national real estate landscape. This change comes after a notable rise in Brisbane’s property prices.

Price Surge: Since 2020, property prices in Brisbane have increased by 50%, with the median dwelling price now at $787K, surpassing Melbourne’s median of $780K.

• Market Dynamics: Brisbane remains a seller’s market, but property values are not increasing as rapidly as before, with monthly growth slowing from 1.5% in October to 1% in December.
• Housing and Unit Prices: Brisbane’s median house price stands at $875K, compared to Melbourne’s $948K. Units in Brisbane are also more affordable, with a median price of $561K versus Melbourne’s 610K.
• Rental Market Pressure: Brisbane is experiencing continuous rental price increases, with the Domain Rental Report indicating a 10th consecutive quarter of growth for unit rents. The average weekly rent for houses is now $600 and $560 for units.
• Market Stabilisation Factors: Flood-impacted homes in Brisbane may lead to further market stabilisation as people seek to move from flood-prone areas.
• National Rental Trends: Across Australia, rental prices have held steady for the first time in almost three years, indicating a potential easing of the rental market pressure.

That’s A Wrap

As we conclude this week’s edition of Property Edge, it’s clear that the Australian property landscape is undergoing significant shifts, presenting both challenges and opportunities. From the slowing building pace threatening housing targets to Perth emerging as a major player in the national property market, these developments signal a dynamic phase in real estate across the country.

Brisbane’s ascension as a top-tier property market, surpassing Melbourne, further underscores the regional variations and the evolving preferences of buyers and renters alike. Meanwhile, the broader Australian economy shows signs of a potential upturn in 2024, albeit with caution due to looming risks and uncertainties.

As always, these diverse trends underscore the importance of staying informed and adaptive, whether you’re an investor, homeowner, or industry professional. We hope this week’s insights provide valuable perspectives as you navigate the ever-changing property market. Thank you for joining us, and we look forward to bringing you more updates in the next edition of Property Edge.

Stay informed, stay ahead.

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