Housing affordability and rental market outlook: Insights and predictions
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The balance between rising interest rates and the persistent shortfall in housing has led to an increase in property prices across Australia throughout 2023 and into the early months of 2024. According to Oxford Economics Australia’s Residential Property Prospects report, a component of their new ResRadar service, this trend is expected to intensify from 2025 onwards, fueled by anticipated interest rate reductions and ongoing housing shortages.
“Perth is predicted to maintain its leading position in house price growth across the forecast period,” Maree Kilroy, Senior Economist and author of the report, shared. The research also indicates a deceleration in the growth of rental prices as the economy adjusts to stretched household budgets, limiting affordability.
The property market’s dynamics in 2023 were significantly influenced by competing forces: the pressure of increased interest rates versus the fundamental shortage of housing. Demand, however, has remained robust, leading to a broadened escalation in property prices across different markets and price ranges. The combined capital city median price for dwellings rose by 1.5% quarter-over-quarter to $946,000 in the final quarter of 2023, with notable contributions from Perth, Adelaide, and Brisbane.
Despite challenges from rising living costs, Australian households have generally maintained their financial health, supported by a strong labour market and strategic adjustments in spending habits. “The foundation of our economic resilience has been bolstered by the capacity of borrowers to leverage savings accumulated during the pandemic, coupled with a significant number of mortgage holders making prepayments well beyond the required amounts,” Kilroy elaborated.
The influx of overseas migrants, a significant portion of whom enter the rental market, continues to drive Australia’s population growth and, by extension, the demand for both rental and owned properties. This demand is further amplified by the needs of downsizers and the buying power of the baby boomers’ offspring.
The report anticipates the last increase in the cash rate for the current cycle occurred in November 2023, with expectations set for a downward adjustment. This projection has already begun to bolster buyer confidence in 2024, evidenced by an uptick in new listings across most markets.
Looking forward, Oxford Economics Australia forecasts an acceleration in price growth from late 2024, driven by anticipated rate cuts and a sustained housing deficit. This shift is expected to favor units, which are predicted to outperform houses in terms of price growth, reflecting a response to affordability pressures, migration trends, and a competitive market for inner-city apartments.
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The rental market, while currently experiencing a surge due to high migration rates and a historically low vacancy rate, is projected to see a slowdown in growth. “As we progress, the ability of households to accommodate further rental increases will diminish, moderating rental growth rates during lease renewals,” Kilroy added.
This comprehensive report underscores the multifaceted dynamics of Australia’s property market, highlighting the interplay between economic policies, demographic trends, and housing supply challenges. As the nation moves towards a more balanced market, the insights provided by Oxford Economics Australia offer valuable guidance for policymakers, investors, and homeowners alike.
By highlighting the nuanced perspectives of industry experts and the data-driven analysis of market trends, this article ensures an impartial and informative overview of Australia’s housing market forecast, adhering to the principles of neutrality and factual reporting.