Dr Kev’s Property Market Insights – November 2023

Australia’s housing market has maintained its growth momentum in terms of both price increase and rental demand. National housing prices have risen by 2.7% over the three months leading up to November 2023. During this period, the top three performing cities in terms of price growth are Perth (4.7%), Adelaide (4.2%), and Brisbane (3.6%).

The national vacancy rate has remained around 1.1%, which marks a significant decline from the 2.4% observed before 2021. A balanced market has a vacancy rate of 2 – 3%. The current vacancy rate is reflective of the severity of Australia’s housing market shortage. Among the capital cities, the tightest rental markets are Perth (0.4%), Adelaide (0.5%), and Brisbane (1%).

Nationally, the supply of new housing has been on a decline over the past five years, with the growth rate of housing stock decreasing from around 2% in 2018 to 1.4% in 2023.

Notably, across the capital cities, the growth rate of new housing supply in the inner regions is lower compared to the outer regions. This is significant given that most of the population increase consists of skilled migrants who prefer to live in proximity to job centers and amenities. As a result, the imbalance between housing demand and supply in the inner regions has been exacerbated, which means further pressure on housing prices in inner and metropolitan regions.

The ABS data shows that the population growth rate has surged to its highest level in many decades. In the 12 months leading up to March 2023, 560,000 people were added to the country’s population. During the same period, only 172,000 dwellings were completed. Using the average household size of 2.5 people, the required dwellings for this population increase is 224,000, resulting in a shortage of 52,000 dwellings in one year alone. This unprecedented housing shortage level has driven up both property sale and rental prices at the fastest pace in many decades.

The Reserve Bank of Australia (RBA) raised the cash rate by 0.25% (bringing it to 4.35%) at its November 2023 board meeting. The primary reason cited for this decision is to curb inflation and bring it to the target range of 2-3% within a reasonable timeframe.

Higher interest rates typically translate to increased borrowing costs for home buyers and property investors. This, in turn, might make it more expensive to finance property purchases and impact mortgage affordability.

However, there are potential consequences related to new property developments as well. An increase in interest rates may deter some new development projects, which can further exacerbate the existing housing shortage issue. This is because reduced construction activity means fewer new houses available to meet the strong demand, potentially putting additional upward pressure on housing prices.

Estimated dwelling stock, Statistical Areas Level 4 (ASGS2021), highest percentage change

Estimated dwelling stock, Statistical Areas Level 4 (ASGS2021), lowest percentage change

Source: ABS