Usually the term “a perfect storm” refers to a highly negative scenario.
One definition says a perfect storm is “an especially bad situation caused by a combination of unfavourable circumstances”.
I’d like to turn that around, because right now there’s a perfect storm of scenarios impacting real estate market and they’re overwhelmingly favourable for property investors and for real estate growth, while being extremely unfavourable for anyone looking for a place to rent.
Right now, real estate markets are being impacted by a well-entrenched imbalance between supply and demand – and it’s becoming increasingly pronounced.
We still have a shortage of listings of properties for sale, despite the Spring surge, we are still building far too few new dwellings and there continues to be a serious under-supply of homes available for rental.
Demand is rising, boosted by record overseas migration and the highest population growth in Australian in 20 years.
There’s little prospect of these shortages being addressed any time soon, given the lack of meaningful action by politicians and the problems in the building industry.
Here are some of data sets published recently that depict the power of this situation:-
- PropTrack noted recently that we have surging population growth at the moment which is spotlighting the severely limited supply of dwellings.
- The ABS has reported that our current national population growth rate is the highest in 20 years and that net overseas migration in the year to March 2023 was the highest on record.
- Australia now has the lowest number of homes for rent since 2012, according to CoreLogic, with the national vacancy rate sitting at 1%.
- The trend for vacancies has been sharply downwards for eight years now, apart from the Covid spike when borders were closed. In 2015 the vacancy rate for Regional Australia was around 6% and now it’s a tick above 1%, according to CoreLogic.
- We still have a shortage of listings of homes for sale, which is putting upward pressure on dwelling prices. In Perth, for example, the number of homes listed for sale is the lowest in 30 years. Property listings have risen in recent months but remain below the levels of a year ago, according to SQM Research, with Sydney 6.5% lower, Brisbane 12% lower and Perth 21% lower than a year ago.
- Home building has dropped in recent years, with home construction start totalling well over 200,000 in each of the four years from 2015 to 2018, but only 115,820 in 2021 and 133,720 in 2022. The National Housing Finance and Investment Corporation has forecast a national housing deficit of about 175,000 by 2027, with a particular shortfall in the unit market.
- National home prices reached a record high in September, regaining the price falls of 2022, according to PropTrack. Home prices have increased 4.3% in the first nine months of the year, it says, with prices rising in all capital cities except Darwin in September. CoreLogic has stronger figures, with dwelling prices up 6.3% in the YTD (to the end of September).
- Accountancy firm KPMG has forecast that prices nationally will rise about 5% from now until June 2024 and then 9-10% in the 12 months to June 2025. It says high demand and limited supply will outweigh the impacts of higher interest rates.
- Figures from Matusik Property Insights show that residential allotments keep getting smaller but lot prices keep rising. The rate per square metre in the five biggest cities has risen from $108 per square metre 30 years ago to over $900 per square metre now, with the rate more than doubling in the past decade.
- The inaugural Residential Land Report published by PEXA in September showed that Queensland and NSW land releases are falling well short of dwelling growth forecasts. The median land price in Brisbane rose 9.4% in FY2023 to almost $250,000 for a standard allotment.
- There have been signs of improvement in the home building industry, with building costs no longer soaring – the latest quarter recorded the lowest rise in prices in four years.
- The latest report from the Foreign Investment Review Board shows a huge uplift in the number of purchases by overseas investors, particularly from China, Hong Kong and other parts of Asia.
The overall message in this plethora of data is that we have too little supply at a time of high demand for real estate – and that the imbalance between supply and demand has overpowered the negative impacts of higher interest rates, leading to higher prices – in contradiction of the forecasts by major economists at the start of the year.