Nicola Powell, the Chief of Research and Economics at property classifieds giant Domain, has admitted that 2023 caught her off guard as the property market defied expectations. Despite the fastest interest rate-tightening cycle in living memory, house prices surged to new all-time highs, fuelled by historic immigration levels and a slowdown in new home construction, creating a severe housing supply shortage.
Looking ahead to 2024, Powell believes there are several factors that could continue to reshape the housing market and potentially drive prices even higher. One of the key drivers is the long-term impact of the population growth surge. While net overseas migration may have peaked, the influx of over 500,000 migrants in a year is expected to have a lasting effect. Migrants who have managed to secure leases in the tight rental market may now seek to become homeowners. However, newcomers arriving in 2024 could find it exceptionally challenging to secure rental properties.
The common denominator in both scenarios is increased competition among buyers for a limited supply of houses. Housing supply shows little sign of improvement, setting the stage for continued price pressures.
While recent data suggests a moderation in house price growth, Domain's forecasts indicate a growth of 6 per cent to 8 per cent for houses in Australian capital cities and 2 per cent to 3 per cent growth in units for the upcoming year. Powell points to four significant trends that are likely to influence housing market conditions in 2024, all of which may exert upward pressure on house prices.
Firstly, there is the "flight to affordability." Buyers are exploring alternative sources of funding to enter more affordable segments of the market. Whether it's Baby Boomers passing on early inheritances or government home buyer schemes like the federal government's shared equity Help to Buy program set to launch next year, these policies aimed at promoting home ownership may intensify competition for properties.
The second trend to watch is a potential tipping point in the rental market. Renters facing higher rents may increasingly seek homeownership through first-time buyer incentives, house-sharing arrangements, or by targeting more affordable suburbs or settling for units instead of houses. These shifts out of the rental market will add to the pool of buyers, maintaining upward pressure on prices.
The third trend is related to interest rates. Any rate cuts or adjustments to the mortgage serviceability buffer could stimulate increased demand. However, without a corresponding increase in housing supply, affordability will remain a challenge.
Powell's message is clear: housing supply needs to improve swiftly. Encouragingly, political attention is now more focused on this issue, with policy changes in motion, including the federal government's plan to build 1.2 million houses over the next decade and changes to planning laws in Victoria, NSW, and the ACT. With a federal election looming in 2025, the pressure on politicians to address housing concerns is growing, as another year of housing price increases could intensify the call for action in the housing market.
