Australian property market

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The weighted capital city residential property price index, produced by the Australian Bureau of Statistics, since 2003 ABS-6416.0-ResidentialPropertyPriceIndexes-EightCapitalCities-ResidentialPropertyPriceIndexIndexNumbersPercentageChanges-ResidentialPropertyPriceIndex-WeightedAverageEightCapitalCities-A83728455L.svg
The weighted capital city residential property price index, produced by the Australian Bureau of Statistics, since 2003

The Australian property market comprises the trade of land and its permanent fixtures located within Australia. The average Australian property price grew 0.5% per year from 1890 to 1990 after inflation, [1] however rose from 1990 to 2017 at a faster rate. House prices in Australia receive considerable attention from the media and the Reserve Bank [2] and some commentators have argued that there is an Australian property bubble.[ citation needed ]

Contents

The residential housing market has seen drastic changes in prices in the past few decades. The property prices are soaring in major cities like Sydney, Melbourne, Adelaide, Perth, Brisbane and Hobart. [3] The median house price in Sydney peaked at $780,000 in 2016. [4] However, with stricter credit policy and reduced interest from foreign investors in residential property, prices have started falling in all the major cities. [5] When compared with the soaring prices of 2017, the housing prices fell by 11.1% in Sydney and 7.2% in Melbourne in 2018. [6] In 2022 the residential rental market has seen a significant increase in rents, which has been described as a ‘rental crisis’.

Description

Composition

In 2011 there were 8.6m households with an average household size of 2.6 persons per household. [7] Freestanding houses have historically comprised most building approvals, but recent data shows a trend towards higher density housing such as townhouses and units. [8] Turnover rates vary across market cycles, but typically average 6% per year. [9] Since 1999-2000 the proportion of households renting from state/territory housing authorities has declined from 6% to 3% while the proportion renting privately increased from 20% to 26% in 2019-20. [10]

Regional variations

The Australian property market is non-uniform, with high variation observed across the major cities and regional areas. [11]

Sydney

Sydney established house price index, produced by the Australian Bureau of Statistics, since 2002 ABS-6416.0-ResidentialPropertyPriceIndexes-EightCapitalCities-EstablishedHousePriceIndexIndexNumbersPercentageChanges-EstablishedHousePriceIndex-Sydney-A83728384R.svg
Sydney established house price index, produced by the Australian Bureau of Statistics, since 2002

In Sydney, as of March 2010, the Property Market's vacancy rate reached 0.53% signalling that the market is recovering, as these rates had reached 2% in August 2009. As of July 2015, the Property Market in Sydney has surged in the first Q of 2015, up 3.1%. [12] Sydney's eastern and northern suburbs typically attract the highest prices, reflecting their desirability and premium location. [13] The annual capital growth for houses and units in Sydney is 4.2% and 3.8% respectively. [14]

Key issues

Affordability

Melbourne House prices to income ratio, 1965 to 2013. MelbourneHousing2013.JPG
Melbourne House prices to income ratio, 1965 to 2013.

In the late 2000s, housing prices in Australia, relative to average incomes, were among the highest in the world. As at 2011, house prices were on average six times average household income, compared to four times in 1990. [15] This prompted speculation that the country was experiencing a real estate bubble, like many other countries. [16]

Foreign investment has also been identified as a key driver of affordability issues, with recent years seeing particularly high capital inflows from Chinese investors. [17]

Immigration to Australia

A number of economists, such as Macquarie Bank analyst Rory Robertson, assert that high immigration and the propensity of new arrivals to cluster in the capital cities is exacerbating the nation's housing affordability problem. [18] According to Robertson, Federal Government policies that fuel demand for housing, such as the currently high levels of immigration, as well as capital gains tax discounts and subsidies to boost fertility, have had a greater impact on housing affordability than land release on urban fringes. [19]

The Productivity Commission Inquiry Report No. 28 First Home Ownership (2004) also stated, in relation to housing, "that Growth in immigration since the mid-1990s has been an important contributor to underlying demand, particularly in Sydney and Melbourne." [20] This has been exacerbated by Australian lenders relaxing credit guidelines for temporary residents, allowing them to buy a home with a 10 percent deposit.

The RBA in its submission to the same PC Report also stated "rapid growth in overseas visitors such as students may have boosted demand for rental housing". [20] However, in question in the report was the statistical coverage of resident population. The "ABS population growth figures omit certain household formation groups – namely, overseas students and business migrants who do not continuously stay for 12 months in Australia." [20] This statistical omission lead to the admission: "The Commission recognises that the ABS resident population estimates have limitations when used for assessing housing demand. Given the significant influx of foreigners coming to work or study in Australia in recent years, it seems highly likely that short-stay visitor movements may have added to the demand for housing. However, the Commissions are unaware of any research that quantifies the effects." [20]

Some individuals and interest groups have also argued that immigration causes overburdened infrastructure. [21] [22]

Foreign investment in residential property

In December 2008, the federal government introduced legislation relaxing rules for foreign buyers of Australian property. According to FIRB (Foreign Investment Review Board) data released in August 2009, foreign investment in Australian real estate had increased by more than 30% year to date. One agent said that "overseas investors buy them to land bank, not to rent them out. The houses just sit vacant because they are after capital growth." [23]

Negative gearing

Australian property investors often apply the practice of negative gearing. This occurs when the investor borrows money to fund the purchase of the property, and the income generated by the property is less than the cost of owning and managing the property including interest. [24] The investor is expecting that capital gains will compensate for the shortfall. Negative gearing receives considerable media and political attention due to the perceived distortion it creates on residential property prices. In anticipation of Labor being elected in the 2019 federal election, the banks issued less interest only loans which are used by many investors for negative gearing. [25]

Residential rental market

In 2022 the Australian residential rental market saw an annual increase in rents of 12%, the strongest increase in 14 years. Across Australia the vacancy rate was 1%, when a rate below 2% is considered very competitive with affordability constraints impacting tenants. [26] A number of sources have described the situation as a ‘rental crisis’. [27] [28]

The primary reason for the rental crisis is a lack of supply due to a variety of reasons, including existing landlords selling their rental properties which are being purchased by owner-occupiers [29] [30] [27] and some landlords using their properties on the short term rental market such as Airbnb. [31] Other commenators cited a lack of social housing being provided by the government. [32] The COVID-19 pandemic also impacted the rental market with shared households reducing in size and city workers moving to regional areas due to increased remote work. [33]

See also

Related Research Articles

A housing bubble is one of several types of asset price bubbles which periodically occur in the market. The basic concept of a housing bubble is the same as for other asset bubbles, consisting of two main phases. First there is a period where house prices increase dramatically, driven more and more by speculation. In the second phase, house prices fall dramatically. Housing bubbles tend to be among the asset bubbles with the largest effect on the real economy because they are credit-fueled,,and a large number of households participate and not just investors, and because the wealth effect from housing tends to be larger than for other types of financial assets.

A real-estate bubble or property bubble is a type of economic bubble that occurs periodically in local or global real estate markets, and it typically follows a land boom. A land boom is a rapid increase in the market price of real property such as housing until they reach unsustainable levels and then declines. This period, during the run-up to the crash, is also known as froth. The questions of whether real estate bubbles can be identified and prevented, and whether they have broader macroeconomic significance, are answered differently by schools of economic thought, as detailed below.

<span class="mw-page-title-main">Irish property bubble</span> Irish mid 2000s asset price bubble

The Irish property bubble was the speculative excess element of a long-term price increase of real estate in the Republic of Ireland from the early 2000s to 2007, a period known as the later part of the Celtic Tiger. In 2006, the prices peaked at the top of the bubble, with a combination of increased speculative construction and rapidly rising prices; in 2007 the prices first stabilised and then started to fall until 2010 following the shock effect of the Great Recession. By the second quarter of 2010, house prices in Ireland had fallen by 35% compared with the second quarter of 2007, and the number of housing loans approved fell by 73%.

<span class="mw-page-title-main">Japanese asset price bubble</span> Economic bubble in Japan from 1986 to 1991

The Japanese asset price bubble was an economic bubble in Japan from 1986 to 1991 in which real estate and stock market prices were greatly inflated. In early 1992, this price bubble burst and Japan's economy stagnated. The bubble was characterized by rapid acceleration of asset prices and overheated economic activity, as well as an uncontrolled money supply and credit expansion. More specifically, over-confidence and speculation regarding asset and stock prices were closely associated with excessive monetary easing policy at the time. Through the creation of economic policies that cultivated the marketability of assets, eased the access to credit, and encouraged speculation, the Japanese government started a prolonged and exacerbated Japanese asset price bubble.

<span class="mw-page-title-main">Affordable housing</span> Housing affordable to those with a median household income

Affordable housing is housing which is deemed affordable to those with a household income at or below the median as rated by the national government or a local government by a recognized housing affordability index. Most of the literature on affordable housing refers to mortgages and a number of forms that exist along a continuum – from emergency homeless shelters, to transitional housing, to non-market rental, to formal and informal rental, indigenous housing, and ending with affordable home ownership.

<span class="mw-page-title-main">Real estate investing</span> Buying and selling real estate for profit

Real estate investing involves the purchase, management and sale or rental of real estate for profit. Someone who actively or passively invests in real estate is called a real estate entrepreneur or a real estate investor. In contrast, real estate development is building, improving or renovating real estate.

The Australian Dream or Great Australian Dream is, in its narrowest sense, a belief that in Australia, home ownership can lead to a better life and is an expression of success and security. The term is derived from the American Dream, which describes a similar phenomenon in the United States also starting in the 1940s, although they are differentiated from each other in that the American Dream is more concerned with the abstract notion that upward social mobility in general is achievable for all while the Australian Dream is more invested specifically in home ownership as a means of prosperity. Although this standard of living is enjoyed by many in the existing Australian population, commentators have argued that rising real house prices have made it increasingly difficult to achieve the "Great Australian Dream", especially for those living in large cities and the Millennials.

<span class="mw-page-title-main">Home ownership in Australia</span> Overview of home ownership in Australia

Home ownership in Australia is considered a key cultural icon, and part of the Australian tradition known as the Great Australian Dream of "owning a detached house on a fenced block of land." Home ownership has been seen as creating a responsible citizenry; according to a former Premier of Victoria: "The home owner feels that he has a stake in the country, and that he has something worth working for, living for, fighting for."

<span class="mw-page-title-main">Australian property bubble</span> Economic theory

The Australian property bubble is the economic theory that the Australian property market has become or is becoming significantly overpriced and due for a significant downturn. Since the early 2010s, various commentators, including one Treasury official, have claimed the Australian property market is in a significant bubble.

<span class="mw-page-title-main">Chinese property bubble (2005–2011)</span> Real estate bubble

The 2005 Chinese property bubble was a real estate bubble in residential and commercial real estate in China. The New York Times reported that the bubble started to deflate in 2011, while observing increased complaints that members of the middle class were unable to afford homes in large cities. The deflation of the property bubble is seen as one of the primary causes for China's declining economic growth in 2013.

Real estate in China is developed and managed by public, private, and state-owned red chip enterprises.

<span class="mw-page-title-main">Affordable housing in Canada</span>

Affordable housing in Canada refers to living spaces that are deemed financially accessible to households with a median household income. Housing affordability is generally measured based on a shelter-cost-to-income ratio (STIR) of 30% by the Canada Mortgage and Housing Corporation (CMHC), the national housing agency of Canada. It encompasses a continuum ranging from market-based options like affordable rental housing and affordable home ownership, to non-market alternatives such as government-subsidized housing. Canada ranks among the lowest of the most developed countries for housing affordability.

Rent regulation is a system of laws for the rental market of dwellings, with controversial effects on affordability of housing and tenancies. Generally, a system of rent regulation involves:

The property bubble in New Zealand is a major national economic and social issue. Since the early 1990s, house prices in New Zealand have risen considerably faster than incomes, putting increasing pressure on public housing providers as fewer households have access to housing on the private market. The property bubble has produced significant impacts on inequality in New Zealand, which now has one of the highest homelessness rate in the OECD and a record-high waiting list for public housing. Government policies have attempted to address the crisis since 2013, but have produced limited impacts to reduce prices or increase the supply of affordable housing. However, prices started falling in 2022 in response to tightening of mortgage availability and supply increasing. Some areas saw drops as high as around 9% - albeit from very high prices.

<span class="mw-page-title-main">Affordable housing by country</span>

Affordable housing is housing that is deemed affordable to those with a median household income as rated by the national government or a local government by a recognized housing affordability index. A general rule is no more than 30% of gross monthly income should be spent on housing, to be considered affordable as the challenges of promoting affordable housing varies by location.

<span class="mw-page-title-main">Canadian property bubble</span> Rise in real estate prices since 2002

The Canadian property bubble refers to a significant rise in Canadian real estate prices from 2002 to present. The Dallas Federal Reserve rated Canadian real estate as "exuberant" beginning in 2003. From 2003 to 2018, Canada saw an increase in home and property prices of up to 337% in some cities. In 2016, the OECD warned that Canada's financial stability was at risk due to elevated housing prices, investment and household debt. By 2018, home-owning costs were above 1990 levels when Canada saw its last housing bubble burst. Bloomberg Economics ranked Canada as the second largest housing bubble across the OECD in 2019 and 2021. Toronto scored the highest in the world in Swiss bank UBS' real estate bubble index in 2022, with Vancouver also scoring among the 10 riskiest cities in the world.

Negative gearing in Australia deals with the laws in the Australian income tax system relating to net loss suffered by a taxpayer on their investment property, commonly called negative gearing. Negative gearing can arise in a number of contexts; for example, with real estate investments, it arises when the net rental income is less than the mortgage loan interest payable, and with shares, when net dividend income is less than the interest payable on a margin loan.

<span class="mw-page-title-main">Housing in the United States</span> Overview of housing in the United States

Housing in the United States comes in a variety of forms and tenures. The rate of homeownership in the United States, as measured by the fraction of units that are owner-occupied, was 64% as of 2017. This rate is less than the rates in other large countries such as China (90%), Russia (89%) Mexico (80%), or Brazil (73%).

Judith Nancy Yates was an Australian housing economist. She was a lecturer and associate professor at the University of Sydney from 1971 to 2009. As a social liberal economist, she published over 120 papers in academic journals and government and industry reports on most aspects of Australia's housing sector, most notably on distributional aspects of the tax and finance system, on affordability and the supply of low-rent housing.Throughout her career she was appointed to a number of government advisory committees, and she contributed to many government inquiries.

The Australian residential property market is the section of the Australian property market that provides rental properties by landlords to tenants. In Australia 31% of households rent their residences. The vast majority rent from private landlords, and a small minority rent from public housing authorities. Over the last three decades the proportion of Australians in public housing has halved, whilst the amount renting privately has grown. The average weekly price for a rental in Australia is $570 AUD. Sydney has the most expensive capital city rents. Rental rates have increased faster than inflation in recent years.

References

  1. ↑ Stapledon, Nigel. A History of Housing Prices in Australia 1780-2030. School of Economics Discussion Paper: 2010/18. Sydney, Australia: The University of New South Wales Australian School of Business. ISBN   978-0-7334-2956-9. Retrieved 1 May 2011
  2. ↑ Monetary Policy
  3. ↑ "Residential Housing Market Australia - Statistics and Facts".
  4. ↑ "Median house prices in major cities in Australia as of August 2016 (in thousand Australian dollars)".
  5. ↑ "Australian house prices down in every capital city except Adelaide and Hobart".
  6. ↑ "Australian house prices falling at fastest rate in a decade".
  7. ↑ "4130.0 - Housing Occupancy and Costs, 2011-12". Archived from the original on 2015-09-23. Retrieved 2015-09-30.
  8. ↑ Apartments, townhouses continue to drive Australian building approvals
  9. ↑ "Housing Prices, Turnover and Borrowing" (PDF). Archived from the original (PDF) on 2015-07-07. Retrieved 2015-10-03.
  10. ↑ "Housing Occupancy and Costs". Australian Bureau of Statistics. Retrieved 19 September 2022.
  11. ↑ 6416.0 - Residential Property Price Indexes: Eight Capital Cities, Jun 2015
  12. ↑ Property prices in Sydney surge while other capitals underperform: ABS
  13. ↑ Sydney forecasts
  14. ↑ "Real Estate Sydney NSW 2000". www.microburbs.com.au. Retrieved 2023-06-19.
  15. ↑ "The facts on Australian housing affordability". The Conversation .
  16. ↑ Is There a Recession Brewing in Our Housing Bubble?
  17. ↑ Wall of Chinese capital buying up Australian properties
  18. ↑ Klan, A. (17 March 2007) Locked out Archived 2008-10-22 at the Wayback Machine
  19. ↑ Wade, M. (9 September 2006) PM told he's wrong on house prices
  20. 1 2 3 4 "Microsoft Word - prelims.doc" (PDF). Archived from the original (PDF) on 3 June 2011. Retrieved 14 July 2011.
  21. ↑ Claus, E (2005) Submission to the Productivity Commission on Population and Migration (submission 12 to the Productivity Commission's position paper on Economic Impacts of Migration and Population Growth). Archived 27 September 2007 at the Wayback Machine
  22. ↑ Nilsson (2005) Negative Economic Impacts of Immigration and Population Growth (submission 9 to the Productivity Commission's position paper on Economic Impacts of Migration and Population Growth). Archived 27 September 2007 at the Wayback Machine
  23. ↑ "Foreign buyers blow out the housing bubble". Crikey.com.au. 2009-09-21. Retrieved 2016-01-20.
  24. ↑ Negative gearing and positive gearing
  25. ↑ "Merchant Channels | Investment Banking & Construction Finance". merchantchannels.co. Retrieved 2018-03-07.
  26. ↑ Taylor, Josh (14 July 2022). "'A landlord's market': rents hit record highs across Australia's capital cities". The Guardian. Retrieved 22 September 2022.
  27. 1 2 "What's causing the national rental crisis?". National Seniors Australia. Retrieved 22 September 2022.
  28. ↑ "Australia's runaway rents". Australian Broadcasting Commission. 21 September 2022. Retrieved 22 September 2022.
  29. ↑ Dudley, Ellie (2 August 2022). "The 'ridiculous' rent hikes in Aussie suburbs". news.com.au. Retrieved 22 September 2022.
  30. ↑ "Australia's rents continue to climb, despite affordability constraints". CoreLogic. Retrieved 22 September 2022.
  31. ↑ Nallay, Alicia (24 June 2022). "How Australia is dealing with Airbnb, Stayz in a housing crisis". Australian Broadcasting Commission. Retrieved 22 September 2022.
  32. ↑ Rolfe, Brooke (8 August 2022). "Real cause of Australia's dire rental crisis revealed". news.com.au. Retrieved 22 September 2022.
  33. ↑ "Sign unpopular rent increases could have reached their peak". news.com.au. 13 August 2022. Retrieved 22 September 2022.
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