Signs of a slowdown, but records still falling 

Nationally, housing prices increased 0.4 per cent in the first month of spring and 6.7 per cent over the year, according to the latest study from CoreLogic. The median value of housing nationally now stands at $807,110.

The data also shows that nationally home prices rose in September, but the pace of growth is slowing while new listings coming onto the market are 3.2 per cent higher than a year ago and 8.8 per cent higher than the previous five-year average for this time of the year. 

The REA Group’s September PropTrack Listing Report found new listings were at their highest volume for the month of September since 2015. PropTrack director of economic research Cameron Kusher told news.com.au while it was impossible to say exactly why listings were as high as they were, a lack of rate cuts is a factor.

“A lot of people had been anticipating interest rate cuts this year. They’ve now likely pushed out to next year,” Mr Kusher said. “Maybe, some people felt like they could hold on until late this year (to sell), but another four to six months is a step too far.”

Auction clearance rates have retreated to the low 60 per cent range across the combined capital cities, which is about 4 percentage points below the decade average.

Sydney house prices were up 0.2 per cent in September, up 0.5 per cent in the quarter and 4.5 per cent over the year. The median dwelling value in Sydney is now at $1.2 million. Although Sydney home values have continued to rise, the quarterly increase was the lowest growth result since the three months ending February 2023.

CoreLogic head of research Eliza Owen told the ABC that affordability constraints and reduced borrowing capacity mean the buyer pool is getting a little bit smaller: "This means that there aren't as many buyers for the amount of stock that's on the market.

"And for the buyers that are there, they might find they have a little bit more negotiating power in the transaction."

She says the immediate outlook for housing markets was further growth in values, "but the rate of those increases will inevitably slow down," she said. "That's because we haven't seen a reduction in the underlying cash rate. Borrowing capacity is still pretty constrained. Affordability is becoming more constrained. And even some of the strongest-performing markets over the past few months have seen a slight slowdown in the growth rate.”

Ms Owen said interest rate cuts slated for later this year or early next year would "provide a boost to borrowing capacity and should help to support a further lift in confidence to make high-commitment decisions like buying a home".

PropTrack’s senior economist Eleanor Creagh noted that nationally, home prices still were up 5.88 per cent from a year earlier and the market may have further to climb: “July’s tax cuts boosted borrowing capacities and buyers’ budgets, while the persistent growth in home prices is likely motivating some to overcome affordability challenges and transact,” Creagh said.

“Ahead, prices are expected to lift through the typically busier spring selling season, albeit at a slower pace.”

Another record

Australia has just produced a record number of suburbs with a median house or unit value above $1 million. Data from CoreLogic shows 29.3 per cent — or 1,057 — of the nearly 4,800 suburbs surveyed across the country now have a million-dollar median.

Sydney still reigns as Australia's most expensive capital and makes up nearly half of the entire country's million-dollar suburbs with 448 house markets and 107 unit markets above the million-dollar median mark. 

ABC News analysed this data and found that twenty-three Sydney markets had re-entered the seven-figure club, and 25 suburbs (mostly in the city's South West and Outer South West regions) joined for the first time. Gareth Hutchens from ABC News says that Australia’s housing market is “Australia’s multi-billion dollar money maker – if you’re selling”.

“In the past 10 years (June 2014 to June 2024), the total value of our residential dwellings has risen from $5.1 trillion to $10.9 trillion (+$5.78 trillion). Since June 2020 alone, the value of our dwellings has increased by $3.6 trillion.

“According to CoreLogic's recent quarterly Pain and Gain Report, Australia's property owners pocketed a record-breaking median nominal profit of $285,000 from resales in the June quarter of this year. Nationally, the median nominal profit from house sales was $340,000 and for units it was $185,000 (both records).”

Hutchens said that in Sydney, sellers enjoyed the highest median nominal gains from resale of the capital city markets in the June quarter, at $353,000 across all dwellings, and a substantial $615,000 across houses.

“For some individual LGAs, the median profit from resales was more than $450,000 — in the Hills district ($627,500), Hunters Hill ($627,500), the Northern Beaches ($550,000), Woollahra ($480,000), Waverley ($466,500), the Hawkesbury ($465,000), the Inner West ($460,000), the Blue Mountains ($458,000), and Wollondilly ($450,000).”

Oversupplied

There are now pockets of Sydney where an oversupply of homes has been created and up to one in seven of all properties in the area is currently up for sale.  The majority of these oversupplied markets are on the city’s fringes and in higher-density zones in middle ring suburbs, especially in the northwest and west, as well as in parts of the inner south.

SuburbData identified the areas of Sydney with the biggest oversupply of detached houses included the northwest suburbs of Oakville, Box Hill, Rouse Hill, Marsden Park and Riverstone. Oakville had the largest oversupply, with 13.4 per cent of the total housing stock in the area currently up for sale.

Suburbs with a unit oversupply were Schofields, Carlingford and Macquarie Park, in the northwest. There was also a cluster of suburbs oversupplied with units between Homebush and Parramatta, including Mays Hill, Rhodes, Sydney Olympic Park, Homebush, Merrylands and the Parramatta CBD. Other pockets said to be oversupplied with apartments were St Leonards, Mortlake and Haymarket.

So, some parts of Sydney with a higher supply of housing give buyers a chance to acquire properties without the stiff competition that’s found in the rest of the market where housing shortages remain commonplace. The drawback is that purchases made in these oversupplied markets come with a risk that anyone who buys there might be stuck in their home for years because of the difficulties they face when trying to sell.

“Oversupply is the enemy of capital growth. It keeps home values from rising and can even push them down,” SuburbData analyst Jeremy Sheppard told realestate.com.au. He cautioned that the potential reward of buying in one of these areas needed to be weighed against the likelihood of a buyer getting trapped in that market.

“These can be good markets if all you care about is a roof over your head,” he said. “In that way, there are potentially some opportunities for first-home buyers because there is not as much competition to buy. The problem is if you need to sell for whatever reason … Unless you’re willing to sell for a loss, you could be in a position where you need to wait many years until you’re able to cover your selling costs,” he said.

Affordable homes

So, where are Sydney’s affordable homes? Sean Tarek Goodwin from ABC News says of the small number of affordable homes sold in Sydney in September, the vast majority were in the west: “A total of 357 properties sold below $556,000 in Sydney in the past month, which is what a person earning an average income can afford.  Seventy per cent of those homes were in Western Sydney, and another 15 per cent were in south-west Sydney.

“The local government area (LGA) with the largest number of affordable properties was Cumberland, 25 kilometres west of the Sydney CBD, where almost 20 per cent of all affordable properties were sold.”

Cumberland includes suburbs such as Merrylands, Granville and Wentworthville. It was followed by Blacktown City Council, Liverpool City Council, and Canterbury-Bankstown. The suburb with the single-largest number of affordable properties was Liverpool with 32 on offer.

Paulette Ghaleb, a real estate agent in Western Sydney for three decades, says demand for apartments is increasing:  "A lot of first home buyers and investors have been priced off the market with respect to homes and now they're turning their attention to units because they're a lot more affordable."

She said a growing number of buyers were being priced out of other areas, while others were looking to escape high rents: "You've got a different range of buyers. Most of them are either locals who've been renting in the area … or the younger generation from more affluent areas who just can't afford to buy in those areas that want to get in the market.

"There's a real demand for the smaller, older-style complexes with staircases and no fancy features because they're perceived as a safe bet," she said. 

Good news for renters

Figures from Domain show that Australia’s steepest and longest rental surge in history may be over. Annual rent increases for houses have hit multi-year lows in Sydney, Melbourne, Brisbane, Perth and Adelaide, which suggests the relentless stretch of rising rents may have peaked. 

“Australia’s era of explosive rental growth appears to be nearing its end,” Domain’s head of research, Nicola Powell, said. “After enduring the steepest and longest rental surge in history our latest [report] shows that all capital cities have passed their peak in growth rates and are now decelerating rapidly, with some cities already in decline.”

Domain’s figures show that for rental houses, Sydney recorded its weakest growth rate for a September quarter in four years with annual gains at their lowest in almost three years. However, the average weekly rent was up marginally to reach a record high of $775.

Rental demand is easing, the report said, with the number of prospective tenants per rental listing on Domain’s website falling to its lowest level since 2019, indicating a better balance between supply and demand.

The report concluded the shift had been driven by a decrease in demand as more people move into share housing and intergenerational living to alleviate financial strain. It also noted net overseas migration had decreased 19 per cent since its March 2023 peak. The peak in migration had coincided with record rent growth.

PRD chief economist Dr Diaswati Mardiasmo said while some regional rents and capital city suburbs were stabilising, and others dropping up to 10 per cent, she didn’t believe rental markets would decline any further. She said landlords now have to cover much higher interest rates for their mortgage repayments, and even higher rates for their investor loans, together with increases in other costs including council rates and insurance.

RBA pauses again

The Reserve Bank has once again considered what to do about interest rates and concluded that no changes should be made at this time. This is after the US Federal Reserve joined the Bank of England, the Bank of Canada, the Reserve Bank of New Zealand and central banks in China, Sweden and the European Union in what is expected to be a series of cuts. 

In her press conference after the RBA’s board meeting Governor Bullock said disinflation was "further advanced" in those countries than it was in Australia. She said Australian interest rates were "restrictive" (high enough to hurt) but were working "broadly as anticipated".

She also voiced her opinion that while household spending was weaker than had been expected, it would be "some time yet before inflation is sustainably in the target range". She believes inflation is not yet moving sustainably towards the target and even if it may already be there for a short time she expects it to "pop back up again" when the temporary effect of electricity bill rebates wears off.

Westpac senior economist Matthew Hassan said that consumers expect interest rates to start to fall and house prices to rise over the coming year, according to the Westpac-Melbourne Institute Consumer Sentiment survey.

“People have calmed down about rate rise fears … the consumer is coming round to the idea that rates are likely to move lower than higher,” he told Domain. “There’s not an expectation of getting better prices by delaying a purchasing decision at this stage, but they’re not yet seeing lower interest rates that would help bridge the gap in a purchase.”

ABC News’ Peter Martin points out the danger in keeping inflation low by maintaining high interest rates: “If inflation is actually low, however that is brought about, shoppers become less tolerant of price rises (something the Reserve Bank says is happening) and less keen to demand high wage rises (something that is also happening).

“They also become less keen to rush out and buy things before their price goes up, something that can perpetuate high inflation,” he said.

More land releases

The Minns government’s plans to increase the supply of housing in NSW have gone ahead with ten new sites that include unused Crown land where 500 homes would be built in Stockton, a suburb of Newcastle; 393 dwellings would be built on an unused car park in Hurstville, 128 in Sydney Olympic Park and 49 on a vacant lot above the Eastern Distributor in Woolloomooloo.

In the budget, the government had earlier announced that 30,000 well-located homes would be built by agencies and the private sector on sites identified through the land audit and other previously rezoned sites. The four sites announced in July included the Clothing Store sub-precinct at North Eveleigh being converted into 500 dwellings, half of them earmarked for social and affordable housing.

The Minns government has also expanded a controversial program introduced by the Coalition just before the last election. This policy allows the government to take over rezoning proposals already in the planning system if it deems them “unreasonably delayed” or of state or regional significance. 

The renamed State-Significant Rezoning Policy replaces the Rezoning Pathways Program adopted by the Liberals in December 2022, which was welcomed by developers but condemned as “secretive” by some councils. The new policy says the assessment process will involve consultation and engagement with the relevant council and agencies, while legislation requires the department to exhibit the proposed rezoning for public comment.

Housing Minister Rose Jackson urged councils not to obstruct development applications: “Our partners in local government have a role to play to make sure that when we’ve done the work identifying the land, when we put the money in the budget to build the housing, they’re working with us to get housing approved so that we can actually start construction,” she told the Sydney Morning Herald.

“We’ve done that big, big first lift now. So you can expect to see more sites in more tranches more often, now that we’ve got those systems in place and the ball is rolling,” she said.

Housing for essential workers

With so much of the media’s attention devoted to the ‘housing crisis’ the focus is naturally on finding homes for families. This can mean we overlook other categories of housing seekers, including essential workers who often fill jobs in remote areas where accommodation is scarce.

In years past, governments answered this need by building and operating lodging, particularly in remote areas where affordable housing for those who work there is essential. Over time this source of accommodation has essentially dried up and employers are put in the position of having to supply housing as part of their employees’ salary packages.

"What we're seeing is that this is a problem that's being outsourced onto communities, onto local government and onto businesses," Maiy Azize, the spokesperson for lobby group Everybody’s Home told the ABC. "As recently as the early 80s, about one in three renters in Australia was actually renting from the government. They had the government as a landlord."

Now the federal government has targeted building 1.2 million new homes by 2030, and this has created an opening for superannuation funds to invest in affordable housing, such as that under construction by housing developer Assemble. In late July, two of Australia's biggest super funds, AustralianSuper and HESTA, poured $250 million into Assemble which is now building a mix of affordable, build-to-rent, and private housing in Melbourne.

In Sydney, Aware Super is creating a 135-apartment project in Zetland with a substantial portion of these apartments rented out at 80 per cent of the market rate. Aware has numerous projects underway in both Sydney and Melbourne, with the dual aims of providing critical infrastructure while earning a return for their investors.

"We've gone from having really affordable housing in Australia, back when the government used to provide a lot of it to now being a country that's really dependent on private investors, small time landlords and private developers to supply most of our housing," says Maiy Azize.

"We are definitely seeing that there are some communities that are getting squeezed more and they're being pushed into finding creative solutions because they have no other option. Because communities need aged care workers, they need childcare workers. It's not an option to not have these people live in their communities," she said.

Construction industry brighter

In recent times the construction sector has been hit by rising materials prices and a shortage of labour, leading to a near-record number of insolvencies among residential builders in NSW. Build quality has also suffered, with a report from the state’s building commissioner finding: “Around 53 per cent of strata buildings surveyed in NSW had serious defects in common property in 2023.”

However, there are now a number of signs that this vital sector will be able to find solutions to its current problems and the HIA (Housing Industry Association) expects building activity to pick up from late this year.

Graham Jahn, director of planning at the City of Sydney, says the perfect storm has passed. “And it was a perfect storm”, he said, noting that Sydney has experienced “24 weeks of rain that killed a lot of contracts and businesses that were on fixed prices over that time”.

“I think we could be moving from the bottom of the cycle,” Jahn said. “So I think the green shoots are there.”

The latest RLB Crane Index shows the country’s construction sector remains buoyant with 863 cranes on sites nationally. However, although the number of cranes deployed on civil and infrastructure projects is increasing, construction of apartments needed to fix the nation’s housing crisis is decreasing.

The Property Council’s group executive for policy and advocacy, Matthew Kandelaars, said Australia needs to build its way out of the housing crisis: “That new housing commencements are down is a particularly worrying sign and shows how fragile our housing pipeline is,” he said.

Affordability slips

To give you an idea of how Australia’s housing affordability is tracking, the Demographia Group, which reports annually on house prices in eight advanced economies, found that house prices in Australia’s five largest cities have risen from about three times average income in 1987, to seven times just prior to the Covid-19 pandemic, to 10 times in 2024.

And it’s also taking longer to save enough for a deposit on a home. Looking at the time it takes to save for a deposit, based on an average household income, it now takes 11 years to accumulate the required 20 per cent. That’s assuming you can afford to put aside 15 per cent of your income.

PropTrack’s latest Housing Affordability report reveals housing affordability is at its lowest level in at least three decades. The report says that housing affordability has fallen to the point where a median-income household earning about $112,000 could afford just 14 per cent of homes sold throughout the 2023-24 Financial year – a share that has declined from 43 per cent in just three years. 

Affordability is worst in New South Wales where a median-income household can afford just 10 per cent of homes sold.

PropTrack senior economist and report co-author Angus Moore said this was the smallest share since PropTrack’s records began in 1995: “We’re looking at the least affordable housing we’ve seen since at least the mid ’90s, and potentially even longer,” Mr Moore said.

In hopes of somehow facilitating home ownership politicians have introduced first homeowner grants, reduced stamp duty and early access to superannuation. But these moves have had the effect of mostly strengthening demand without increasing supply and only pushed prices further upwards.

Economist Saul Eslake says Australia is now feeling the effects of “60 years of bad policies” which “needlessly” encouraged Australians to spend more on housing through tax breaks for investors, shared equity schemes, stamp duty concessions, and lower interest rates, while constraining the supply by making it harder to build homes.

“Stop needlessly inflating demand by scrapping all the programs that needlessly inflate demand and stop constraining supply by stop doing the things that constrain supply,” he advises.

It might come as a surprise to those concerned about affordability, but one firm of market analysts says our housing is ‘relatively affordable’. 

Research by BestBrokers.com, comparing home prices and average incomes across 62 different countries, has found we actually rank 12th when it comes to housing affordability. The report found Australia also has some of the highest average home prices yet is “somewhat affordable” compared to most countries.

The report calculated that it would take 12 years and 3 months’ worth of real income to buy a 100 sqm home at an average $9131 per sqm in Australia.

Bestbrokers.com spokesperson Paul Hoffman said. “We calculated the number of monthly wages people need to save to afford to buy a home by dividing the estimated price of a 100 sqm home by the real net salary people earn on average each month.”

According to ABS figures, the average full-time adult weekly wage in Australia is $1,923, which translates to a net monthly salary of $6,432.

“We found that Australia has one of the highest average wages among the nations on our list,” Mr Hoffman said.

Sources:

‘Fixed and variable home loans fall ahead of expected cash rate cut by RBA,’ Jonathan Barrett, The Guardian, 11 October 2024
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