House Prices Under Labor

Economists are predicting the national property market will continue to soften despite Labor Government initiatives aimed at stimulation and a targeted ease of entry.

Labor’s recently announced ‘Help to Buy’ scheme – a new program targeting first home buyers, single parents and low-income earners in a bid to get them into the market sooner – was a key announcement from the incoming Albanese government and aligned to a confirmed continuation of the Coalition’s ‘Home Guarantee Scheme.’

“With affordability worsening due to the first interest rate rise in 11 years, the government incentives and offsets will aid housing in the short term,” says Dr Wilson, chief economist at My Housing Market.

“Of course, interest rates will play a large role in how the market behaves, and while they are certainly on the way up, how far up they go is still up in the air.”

Others point to future pain – with predictions of substantial drops in property prices.

AMP claims Australians should expect a 10% – 15% drop in house prices across the next 18 months.

By comparison, Westpac remains firm with an earlier forecast of a national price fall of 2% by the end of 2022 and a further 8% in 2023. The CBA, meanwhile, predicts national prices to flatline by the end of the year, also with an 8% drop in 2023.

Dr Wilson remains sceptical of such dramatic reductions.

“The historical data doesn’t suggest that rising interest rates impact the market at that level,” he says. “There’s no doubt that over the past six months there’s been flat, or negative price growth. But the housing market is still undersupplied and with building costs rising and a lack of building in the pipeline, along with migration set to return at full capacity soon, there will still be more people than houses.

“One only has to look at the rental market, especially in major cities like Sydney and Melbourne to see that there is still a high demand for housing.”

Not discounting the effect of interest rates on the economy, Dr Wilson explains states the key to the national housing market lies with long-term inflation and wage-growth.

“For the new government, and the RBA, the problem lies in wages, and making sure that it keeps pace with inflation. With inflation going up, housing becomes less affordable, and that will have a greater impact on prices than interest rates.

“But at the end of the day, prices will stay fairly flat, if not a little bit under the line, and will be for some time.”

There has been a substantial increase in the number of Australians earning high incomes who are renting their homes instead of owning them, and this may be another element contributing to higher market demand and continually rising rents, according to new research.

The portion of households with an annual income of $140,000 per year (in 2021 dollars), went from 8 percent of the private rental market in 1996 to 24 percent in 2021, according to research by the Australian Housing and Urban Research Institute (AHURI). The AHURI study highlights that longer-term declines in the rate of home ownership in Australia are likely the cause of this trend.

The biggest challenge this creates is the flow-on effect on lower-income households because they may face stronger competition for a limited supply of rental stock, and they also have less capacity to cope with rising rents that look likely to keep going up due to the entrenched undersupply.

The 2024 ANZ CoreLogic Housing Affordability Report notes that weekly rents have been rising strongly since the pandemic and are currently re-accelerating. “Nationally, annual rent growth has lifted from a recent low of 8.1 percent year-on-year in October 2023, to 8.6 percent year-on-year in March 2024,” according to the report. “The re-acceleration was particularly evident in house rents, where annual growth bottomed out at 6.8 percent in the year to September, and rose to 8.4 percent in the year to March 2024.”

Rents are also rising in markets that have experienced recent declines. “In Hobart, rent values saw a downturn of -6 percent between March and October 2023. Since bottoming out in October, rents have now moved 5 percent higher to the end of March, and are just 1 percent off the record highs in March 2023. The Canberra rental market was the only other capital city to see a decline in rents in recent years, where rent values fell -3.8 percent between June 2022 and September 2023. Since then, Canberra rents have risen 3.5 percent, and are 1 percent from the record high.”

The Productivity Commission’s review of the National Housing and Homelessness Agreement points out that high-income earners also have more capacity to relocate to cheaper markets when rents rise, which creates more competition for lower-income households competing for homes in those same areas.

ANZ CoreLogic notes that rents in lower-cost markets have risen the most in recent years, so much so that the portion of earnings that lower-income households have to dedicate to rent has reached a record high 54.3 percent. For middle-income households, it’s 32.2 percent and for high-income households, it’s just 22.9 percent. ‘Housing stress’ has long been defined as requiring more than 30 percent of income to put a roof over your head.

While some high-income households may aspire to own their own homes, rising property values have made that a difficult and long process given the years it takes to save a deposit. ANZ CoreLogic data shows it now takes a median 10.1 years in the capital cities and 9.9 years in regional areas to save a 20 percent deposit to buy a property.

It also takes 48.3 percent of income in the cities and 47.1 percent in the regions to cover mortgage repayments at today’s home loan interest rates, which is far greater than the portion of income required to service rents at a median 30.4 percent in cities and 33.3 percent in the regions.

House Prices Under Labor

Predicted market falls are coming – though some experts claim things have been over-egged.

This may be contributing to continually rising weekly rents