Lack of Supply Pushing Prices Up (in some areas)
Property prices in Australia are expected to continue rising due to a lack of supply and increased demand for housing. Despite high inflation and rising interest rates, the lack of homes being built to meet growing demand will apply further upward pressure on prices. Contributing to the heightened demand is a growing population, with a notable surge in migration, and rising incomes.
Additionally, the federal government’s Housing Australia Future Fund, meant to facilitate the construction of 30,000 new social and affordable dwellings over five years, has been stalled in the Senate. Moreover, JPMorgan research has found between 50,000-60,000 “missing homes” – dwellings approved for construction but not yet completed, exacerbating the housing shortage. These combined factors have contributed to a housing crisis, escalating property and rental prices.
First RBA rate hike cost Victoria 2000 new home approvals
The Reserve Bank of Australia’s first interest rate hike in May last year has significantly impacted the construction sector, leading to a decrease of over 2000 new home approvals in Victoria in April this year. According to the Australian Bureau of Statistics, Victoria approved 3209 new houses, townhouses, and units in April, compared to 5250 at the same time last year.
The construction industry is facing several challenges such as material and trade shortages and concerns about major builder collapses, all of which have turned buyers away from the new home market. HIA chief economist Tim Reardon said that the interest rate hike’s impact was now being reflected in the statistics due to the construction cycle’s long lag times. He warned that the number of new homes being built would likely decrease further amid growing population and housing shortages.
When Will Home Prices Be Affordable Again?
The summer homebuying season has been slow due to high mortgage rates and home prices. The 30-year fixed mortgage rate peaked at 6.79% in early June, and existing home sales in May were almost flat, according to Freddie Mac and the National Association of Realtors respectively. Regional home prices remain high, causing affordability issues, particularly for first-time buyers. Housing supply is also constrained, partly due to homeowners who secured homes at record-low interest rates in previous years opting to stay put.
In the June 2023 forecast, the market remained stagnant, affected by a possible recession and inflation. Even as the Federal Reserve paused rate hikes, experts predicted more increases could occur due to stronger jobs and personal consumption expenditures data. The median existing-home sales price dropped 3.1% year-over-year to $396,100, marking the fourth month of such declines. However, the Federal Housing Finance Agency reported a 4.3% increase in home prices in Q1 2023 compared to Q1 2022.
Concerning new rules on mortgage fees, higher fees will affect borrowers who place between 5% and 25% down. Although designed to make homeownership more accessible, some critics argue the changes may negatively impact less risky borrowers. Current mortgage rates, well over 6%, discourage new applications, especially as 97% of borrowers have rates below 6%.
The low housing inventory problem, dating back to the 2008 housing crash, continues, with experts predicting it won’t be resolved in 2023. The lack of supply has sustained high home prices, with inventory approximately 46% below the historical average.
In construction, single-family starts rose for the third consecutive month in April, despite a slight drop in building permits. Builder sentiment also improved, but challenges persist due to costlier supplies, labour shortage, and tighter credit conditions from the Fed’s rate hikes. Overall, the housing market’s recovery is expected to be sluggish and region-specific, with affordability remaining a critical issue.
Victorian government playing hide-the-funding for new housing estates.
The Victorian government has been criticised for accumulating over $481 million in the Growth Areas Infrastructure Contribution (GAIC) fund, which has seen no disbursement in the last two years. This fund was established in 2010 to support infrastructure projects in expanding suburbs, with landowners in new developments paying fees to aid services like new train stations, schools, and community centres. However, critics argue that these funds are not being used sufficiently to match the rapid population growth in these suburbs, causing lack of basic amenities and significant infrastructure deficits, particularly in transportation. The government contends that it is awaiting the completion of about 120 upcoming projects before allocating the funds.