What are the Reasons for Property Prices Rise and Fall in Australia?

Real Estate
21. Dec 2023
What are the Reasons for Property Prices Rise and Fall in Australia?

Australian property is always a mix of rise and fall. If we go back in history, there is always something going on with it. However, at the same time, many investors consider Australian property to be expensive, especially in Sydney and Melbourne, compared to other countries like the US, Asia, and Canada.

How they measure affordability is another aspect. One of the measuring factors is the debt-to-income ratio.

As we look into it, it is well known that the Australian housing sector is full of the highest debt level. It shows a debt-to-income ratio of 211%, double that of 101% in the US.

However, economists warn against a simple comparison of these metrics because some of them fail to account for differences in government and institutional ownership in different housing markets, as well as the wide variation in interest rates across countries. However, if you are still looking for a clearer picture of why Australian property prices rise and fall, we will discuss the history and reasons in this article. 

The Story of Australia’s Property Market

Australians have always been famous for their wealth and security. They consider it the ultimate goal of life. We can see it in the country's high level of home ownership in comparison to other countries, with the share staying well above 50% since the post-World War II period.

According to the report by an Intelligence Firm named PropTrack, the spike in property prices in Australia occurred in 1950, doubling in a single year. This happened at the same time as the end of World War II price controls on land and rents. Before this, land in capital cities was relatively inexpensive, keeping housing prices controlled. 

According to Australian Bureau of Statistics data, house prices in Sydney averaged around $27,500 in 1970. If we compare it with the market today, it will be worth around $250,000 right now. In comparison, the current median price of a home in Sydney is $1.1 million.

Then, in the 1980s, financial sector reform resulted in higher rivalry, which, together with a shift to a low inflation, low-interest rate environment in the early 1990s. As a result, Prices rose in the late 1980s and early 1990s as demand increased.


What is the 2022 to 2023 Burst?

The reason for Australia’s current fall may be simpler. For the majority of the last two decades, the Reserve Bank of Australia and other central banks have kept interest rates well below inflation. Unsurprisingly, it fueled booms in almost every industry, including real estate.

Even after a 10% price drop in 2022, nominal prices are still significantly higher than they were before the boom began.

It is no secret that the Australian housing market has had its fair share of challenges in the last few years. But early this year market sank even interest rates were rising at that time. 

Of course, prices are driven by many other different factors, too. 

Other than interest rates, the confidence of consumers also matters 

According to the recently released National Accounts, Australia's population increased by approximately 620,000 people in the previous fiscal year.

That is the highest number in history and a hundred thousand more than was projected in the May federal budget. Considering the numbers, these people need homes too. 

In contrast, housing supply growth is lagging, with building approvals for new homes at a decade-low.

Moreover, despite some commentators predicting that rising interest rates would cause property prices to fall by 15%, 20%, or even 30%, the Australian property markets have shown remarkable resilience.

While the cash rate can be a good short-term indicator of price growth, other factors, such as population growth and housing supply, have had a greater impact on dwelling values.

So, until the supply responds to demand, the rise will be likely to continue.

Reasons for the Property Prices Rise and Fall in Australia 

As we talked about, the interest rate is not the only reason for the rise and fall of property prices in Australia. There are many other factors contributing to it. Here are the significant ones:

1. Land Shortage: 

Australia has always faced significant changes in the supply of land due to the shortage of suitable land. This one reason can alone lead to an imbalance between supply and demand.

2. Planning Laws: 

Unsuitable planning laws can also cause chaos and contribute to the lack of adequate housing supply.

3. Tax Concessions: 

Higher-income earners benefit from tax policies such as negative gearing of investment properties, which contributes to rising property prices.

4. Population Growth: 

The housing market is under pressure due to rising population and limited land supply, particularly in large cities such as Melbourne and Sydney.

5. Infrastructure Costs: 

The cost of constructing new infrastructure, such as roads, utilities, and public services, contributes to rising property values.

6. Foreign Investment: 

Although foreign investment has contributed to rising property prices, it is not the primary cause.

7. Interest Rates: 

Interest rate changes can have an impact on borrowing ability and demand, affecting property prices.

8. Home Lending: 

The increasing strictness of lending standards and the reduction of deposit requirements can also have an impact on property prices.

9. Climate Change: 

Climate change is another significant factor. Ever-changing weather patterns have made some towns unliveable. This leads to a shortage of habitable land for people. 

10. Urbanization: 

The highly urbanized market in Australia adds to the pressure on housing supply and demand.

Bottom Line

As for 2023, immigrants are also coming to Australia, so as the population grows, housing demand is likely to increase too. So, in the coming 2 years, 2024 -2025, you can see significant changes in the housing market. However, nothing is certain until it happens. 

Until then, you can closely monitor house listings in Australia. To do that, you have a directory of Ummaup, which has a complete and updated database of property listings. Just stay connected with current updates if you like to have good investments in your plan. 

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