Despite a challenging interest rate environment, our housing markets continue to experience significant home price growth, driven by a robust demand that outstrips supply.
This is even in the face of affordability constraints which would typically slow market activity.
A key factor behind this trend is the surge in the working-age adult population, bolstered by net migration accounting for over 80% of our population growth, says Eleanor Creagh, PropTrack's Senior Economist.
This demographic shift has resulted in a steadily increasing demand for housing, outpacing total population growth.
She further explained:
"On the supply side, the residential construction sector faces its own challenges, including capacity constraints and rising costs, which have led to a reduction in new builds.
The current supply deficit is among the most severe we've seen, exacerbated by a period of net migration outpacing new housing development, reversing the trend seen during the Covid period."
Interestingly, during the pandemic, smaller household sizes contributed to a significant increase in housing demand, effectively balancing the total population decline of 2020 and 2021.
Even though average household sizes have risen slightly from pandemic lows, the preference for smaller living units continues, pushing demand even higher and driving up prices and rents, says Ms Creagh.
Recent data up to September 2023 indicates that with an official population increase, we would have needed 264,000 additional households if average household sizes had remained constant.
However, with only 170,000 new homes completed during this period, we face a significant shortfall of around 94,000 homes.
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This shortage is sharply reflected in the housing and rental markets, highlighting why home prices have remained resilient despite high-interest rates.
Factors such as strong labour market conditions, tight rental markets, and home equity gains continue to fuel robust homebuying demand.
As we've entered 2024, home prices have experienced a rapid increase, though we anticipate a potential slowdown as we approach a seasonally quieter period for property markets, especially with delayed expectations for interest rate cuts.
The PropTrack Home Price Index reveals that while the pace of growth has decelerated since March across all capital cities except Darwin, most capital city markets are seeing a peak in annual growth rates.
Despite this, the trend for home prices remains upward, with smaller capitals like Perth, Adelaide, and Brisbane recording the strongest year-on-year price increases.
Ms Creagh explains:
"These smaller markets benefit from relative affordability, strong population growth, and tight rental conditions, which support higher home values.
Low stock levels are further intensifying competition, making these cities sellers’ markets where prices continue to rise rapidly."
Looking ahead, despite concerns about economic outlooks due to higher interest rates and inflation impacting household budgets, the housing market is expected to see further price increases.
The ongoing imbalance between supply and demand, supported by steady population growth and favourable market conditions, continues to underpin strong housing demand, comments Ms Creagh.
