Much like any other market, Australia’s residential property markets are subject to the law of supply and demand.
That means:
- When demand exceeds supply, home values typically rise
- When supply exceeds demand, home values typically drop
But here’s where it gets interesting.
Because while property prices might currently be falling, Australian property remains some of the most expensive across the globe, according to the 2022 Demographia International Housing Affordability Survey.
Why? Well, one big reason is that Australia’s a growing country – with the population adding around 150,000 people per year over the last two decades (barring the pandemic). But we haven’t built enough homes to match this population growth – resulting in a chronic undersupply, according to AMP Capital.
Unsurprisingly, lots of investors are doing just that right now, with refinancing activity at record levels, according to the Australian Bureau of Statistics.
The National Housing Finance and Investment Corporation agrees, warning in its most recent State of the Nation report that Australia is facing a housing shortfall of more than 160,000 homes over the next decade.
You only have to look at Australia’s rental markets to see the likely impact of this housing shortfall – with the national vacancy rate plummeting to 0.8% in October, its lowest point on record, according to Domain.
That’s after many investors sold up during the pandemic,contributing to a 48.2% reduction in rental listings in just 12 months. Meanwhile, the international border reopened, increasing demand and sending rents soaring – with the combined capitals seeing annual rental growth of 12.8% over the September quarter.
So what’s the solution?
Well, the obvious answer is to build more properties – which the federal government is trying to encourage through its new Housing Accord.
The Housing Accord is a landmark agreement between all levels of government and the private sector to build one million homes over five years, announced in the most recent federal budget.
However, building more properties is easier said than done when you consider supply and labour challenges, alongside skyrocketing construction costs and higher interest rates.
Why now could be a great time to buy
All this is a roundabout way of saying that now might be a great time to buy an investment property (if your circumstances allow).
That’s because it’s likely Australia’s housing supply problem will get worse before it gets better. So if you buy a quality property in a quality location, there’s a good chance its value will increase over the long term. Meanwhile, you can rent it out and generate a passive income.