Mon, 22 Apr 2024

Market comment: ONLY THE LEAVES ARE FALLINGAutumn leaves may fall, but not listings or prices

When the RBA’s board left interest rates unchanged at its March meeting it gave greater certainty to buyers and sellers in the property market, with data showing there are more properties listed for sale now than at the same time last year. 

The minutes of the RBA’s March meeting also said underlying demand for housing was “brisk relative to supply”, driving up house prices and rents: “On the demand side, population growth remained high and the shift in preferences for more housing space that occurred during the pandemic was yet to unwind, despite worsening affordability,” the minutes said.

“On the supply side, new housing had been constrained by ongoing capacity constraints – particularly for finishing trades and where the required skills were easily transferable to non-residential construction – and rapid increases in construction costs.”

The RBA Board’s new schedule includes eight meetings each year so the next meeting will be May 6-7. The Board will also release its quarterly Statement on Monetary Policy to coincide with its announcement of the outcome of the May meeting.

The supply side has been assisted by new listings in Sydney being at a two-year high which gives more choice for those now hunting for a home. Owners who list their properties are being rewarded with good returns, with CoreLogic figures showing that across Sydney, 91.9 per cent of sales made a profit, up from 91.3 per cent in the previous quarter.

Domain chief of research and economics Dr Nicola Powell says that a number of factors have contributed to the increase in listings: “What the expectation is, is once we see cash rates come through that is likely to shift sentiment again. While it’s likely to still be pessimistic for some time, normally … when you see an improving consumer sentiment, it does then [translate] into higher levels of housing activity – more churn occurring in the market – and that in itself can create momentum.”

But she adds that it’s still too early to predict the course of the autumn selling season: “I do think that there is still sentiment out there among buyers that they’re mindful how much they take on in terms of debt, and how much they actually pay for a home…I think the overall backdrop of the cost of living crisis does make people more wary of the debt side of the housing market.”

It certainly does look like many owners now think this is a good time to sell their properties. PropTrack says new property listings in February were up 16.6 per cent on the same month in 2023. This was driven by the highest number of new capital city for sale listings in February since 2012, up 22.2 per cent on last year, with Sydney’s listings up a remarkable 33.6 per cent.

Demand from buyers is keeping up with the rise in listings. Expected rate cuts have helped home prices across Australia rise 6.79 per cent over the past year in March as signs of FOMO (Fear of Missing Out) have returned to the market. Sydney home prices rose 0.4 per cent in March to hit a new peak median price of $1,069,000, according to the latest PropTrack Home Price Index.  

The price of housing shows few signs of weakening due to surging land values across Australia. What is happening is that the price gap between houses and apartments has widened to a new record difference since the start of the pandemic.

CoreLogic data shows that the price gap between apartments and standalone houses has widened by 45 per cent since March 2020 and January 2024. Over that time, house prices in capital cities rose by 33.9 per cent, or $239,000, while unit values in the capitals rose by just 11.2 per cent — equivalent to $65,235.

 Several factors including the scarcity of houses and a desire for more space are keeping house prices higher than units. CoreLogic's Tim Lawless says that Sydney has seen the biggest difference: “Coming into the pandemic, there was about a 33 per cent premium for houses, that's now risen to 68 per cent."

Mr Lawless told the ABC the widening gap between house and unit prices in Sydney's property market appeared to be counterintuitive: "As a [housing] market, it's the most expensive and has the most affordability challenges, yet we've seen it also record the biggest widening between house and unit values," he said. 

"It suggests that the buyers seem to be willing to pay this premium to have some space, to have a yard in a detached home,” adding "It's still loosely described as the great Australian dream, that people want their own block of land with a house on it and a bit of space, and I think that premium for space became apparent through the pandemic, and it seems to have held on.”

Buyers in the current market are looking in areas that are adjoining more popular regions, Domain data indicates. Home values in Sydney’s inner south-west, including Campsie, Earlwood, and Wolli Creek rose 1.7 per cent in the three months ending February to a median of $1,133,270. That was followed by the Central Coast (up 1.6 per cent), the outer south-west (1.2 per cent) and North Sydney and Hornsby (up 1.1 per cent).

Domain said the clearance rate in Sydney’s south-west rose 24 percentage points in February, the outer west and Blue Mountains went up by 20.3 percentage points, and the outer south-west increased by 13.5 percentage points. 

However, Domain’s chief of economics and research, Dr Nicola Powell said while higher clearance rates in auction-centric markets were expected, it was the improvement in more affordable markets that was a standout: “What it showcases and supports the flight to affordability is the increase in clearance rates,” Powell said, noting that buyers were still mindful of mortgage repayments and taking on too much debt.

For a longer-range forecast of Sydney housing prices, Maree Kilroy, a senior economist at Oxford Economics, told the Australian Financial Review that surging demand would continue to outstrip the available supply of homes driving Sydney’s median price to $1.93 million in 2027.

“You have a fundamentally undersupplied market and with net overseas migration running at half a million people, a growing participation by foreign buyers, downsizers and cash buyers, demand has outweighed the drag interest rates would typically have,” Ms Kilroy told the AFR.

Cash still king

It will surprise a few people watching the ongoing dramas over housing finance that more than one in four properties purchased in NSW – and in Victoria, and in Queensland were paid for in cash in 2023. More than $129 billion worth of property were bought without a mortgage, and as you might have guessed, the majority of purchasers were older, often retired ‘asset rich’ Australians.

Research by Property Exchange Australia (PEXA) found that $454.7 billion worth of residential property was purchased in the eastern states 2023, and of that $129.6 billion were paid for in cash. 
This means 28.5 per cent of properties sold in New South Wales, Victoria and Queensland last year were purchased without a mortgage — an increase of 1.5 per cent (or $1.9 billion) since 2022.

Julie Toth, chief economist at PEXA, told the ABC that the proportion of cash-only buyers is likely to grow in the future: "Our research found the demographic profile of cash buyers is different to mortgage buyers — cash buyers tend to be older and more likely to be retired," she said.

"They tend to have lower household incomes, but they also have fewer dependents and are more likely to be 'asset-rich', with accumulated property, savings and superannuation to fund their next purchase. The demographics also suggest that we might see an increase because the older age cohort is growing."

Drilling down into the details, PEXA found that the percentage of NSW properties purchased for cash in 2023 was 27.7 per cent, with the median cash-only purchase in this state totaling $770,000. Ms Toth said the data from NSW confirmed that Sydney is "the most expensive property market in Australia".

"Even though the proportion of cash sales are lower, the aggregate value still picks up when we're at such high property values to begin with," she said.

And in case you were wondering where in Sydney these cash purchases were being made, the suburbs with the highest proportion of properties bought in cash were Milsons Point (63.6 per cent), Darling Point (60 per cent) and Sydney CBD (54.3 per cent).

Housing shortfall

The current shortage of housing is going to worsen nationwide by 2026, according to the Urban Development Institute of Australia. The industry lobby group says that across all capital cities only 79,000 new homes will be finished in 2026, a drop of 26 per cent compared to 2023 and the lowest number of new homes in a decade.

Planning bottlenecks, a shortage of labour and skyrocketing materials costs are to blame, says the Institute, and the construction industry would have to build 300,000 new homes between 2026 and 2029 to meet the federal government’s target of 1.2 million, while in the meantime the population is expected to soar.

It’s more expensive than it’s ever been to build a new house in Australia. The average cost was about $490,000 in January this year – up nearly 10 per cent from about $446,000 a year earlier – based on ABS figures. In the three years before the pandemic, the average cost to build a house only increased by around 5 per cent, from roughly $315,000 to $331,000.

It’s not the fault of the zoning and building approvals, says Luci Ellis, Westpac chief economist, who says it’s due to a large backlog of properties that have been approved that are yet to be completed: “There are a range of issues in the production and cost of production of housing at the moment, including the [demand] from other parts of the construction sector,” Dr Ellis said.

Professor Nicole Gurran, an urban planning researcher and policy analyst at the University of Sydney, sees similar causes for the lack of new projects, which she says comes down to the combination of high interest rates, supply chain issues and worker shortages pushing up material and labour costs respectively.

"I don't think anyone's surprised at all to see that projects aren't coming forward for approval," she told "We need high property prices to fuel high levels of residential construction. That's why we've never in the past been able to build our way out of the price inflation spiral: we depend on that to produce the volume that the population requires.

"But because we've got so many people priced out of the market, it's a real mismatch between the financial drivers and demand and the underlying demographic drivers of housing need."

Denita Wawn, CEO of Master Builders Australia, says issues around critical infrastructure costs need to be resolved: "We need state and territory governments and local governments to resolve zoning issues and planning issues. [The] ability – or lack thereof – of developers to make a profit on their building projects is a key factor in whether Australia will hit its housing target.”

The NSW government has already announced plans to increase density and height limits by up to 30 per cent for developments where 15 per cent of the floor area is set aside for affordable housing. It also hopes to boost supply in the inner city by allowing more terraces, semis and walk-up flats.

But as a nation we’re falling behind, both in building sufficient new housing and by bringing in numbers of migrants far beyond our capacity to house them. For example, 106,900 residences were completed in 2023, a 9 per cent fall year-on-year, while in 2022-23 737,000 migrants arrived in the country contributing to a net gain of 518,000 people.

Susan Lloyd-Hurwitz, chairwoman of the National Housing Supply and Affordability Council, which advises the government on housing policy, called the plan to build 1.2 million homes in the five years to June 2029 ‘highly ambitious’: “Reaching it will require planning reform, a larger skilled workforce, a more productive home building industry, accelerated land release and a reduction in barriers to institutional investment,” she told The Australian Financial Review.

The shortage will equate to a shortfall of about 230,000 homes by 2029 according to Carlos Cacho, chief economist for leading investment and advisory group Jarden Australia. Mr Cacho says the shortage of labour is the biggest issue and noted there’s already large amounts of spending on public and private non-residential construction.

Renters’ tough times continue

Domain data shows that Australia’s national vacancy rate has fallen to a record low 0.7 per cent and the share of houses available for lease in Sydney and Melbourne has never been lower than it is now. 

Sydney house rental costs have risen $20 per week over the past three months to a record $750, with units not far behind at a median $700 per week. Unit rents have soared from $510 in December 2019 to $700 today – an increase of more than 37 per cent.

A Herald article summarised the driving forces behind these increases: “Sydney’s longstanding affordability problem has mutated since the pandemic. Supply shortages, successive interest rate hikes and migration-fuelled demand have caused rents to soar over the past two years, exacerbating housing stress and carving into usually comfortable middle-class households.”

Domain’s chief of research and economics, Dr Nicola Powell, explains why the demand for units is still growing: “Units tend to be centrally located. They’re in the CBDs. They’re close to major working hubs and infrastructure hubs, whereas houses will be typically in your outer or in your middle suburbs,” she says.

Dr Powell does think the market will reach what she calls a “tipping point” later in 2024: “Some sub-markets will operate with more balance and rent growth will slow—some areas already show these signs,” she says. “We are seeing the number of prospective tenants per rental listing ease, suggesting some pressure has been lifted.”

The current high costs of renting in Sydney are contributing to a major change in this city’s population. A recent report from the NSW Productivity Commission warned that Sydney lost twice as many young people than it gained in a five-year period.  According to the data, about 35,000 people aged 30 to 40 moved to Sydney between 2016 and 2021, – but an estimated 70,000 fled.

SQM Research data shows that the median weekly house rent is $1049, up 12.2 per cent year-on-year, and the median unit rent is $701 per week, up 10.5 per cent in the past 12 months, SQM Research data shows.

Affordability worsens

Research conducted on behalf of the Greens party indicates that affordable housing is now out of reach in the eastern capitals, including Sydney, with the average annual salary needed to buy a home without financial stress a whopping $164,400 – more than $66,000 above the average income. Even the cost of a unit would put the average earner under housing stress. 

The data assumed prospective buyers had a 20 per cent deposit and would acquire a variable rate mortgage of 6.49 per cent over 25 years. The analysis deemed housing affordable if repayments represented less than 30 per cent of income.

So, how much would it take in the way of income to make buying a home affordable? The median sale price is for a house in Sydney in now $1.36m while the median sale price for units is $767,250. For someone to afford the monthly mortgage payments and not be under housing stress, the household would need to have a $272,000 deposit and to be earning $293,578 a year for a house. For a unit in Sydney, it takes a salary of $165,623 a year with a deposit of $153,450.

What a change from 2020. The year began with the typical free-standing Sydney house worth $974,000. This was quite a drop from the peak of $1,060,000 back in July 2017, but still an uplift from the market’s bottom price of $865,000 in June 2019. Then came Covid and default rates on mortgages seemed to almost disappear after mortgage interest rates collapsed and a range of government support programs arrived. Inflation too nearly dropped out of sight.

But that was then, and now interest rates are much higher, houses cost a lot more, most of the government support has been scaled back or eliminated, and inflation’s a daily concern. Not all those who’ve acquired a home with a mortgage in recent times have escaped the affordability issues.

A combination of inflation and high-interest rate loans have caused grief for a number of homeowners who have recently fallen behind in their mortgage repayments, as is shown in the latest minutes of the Council of Financial Regulators. This august group of economic watchdogs includes the RBA, Treasury, the Australian Prudential Regulation Authority and ASIC.

The language in the minutes of the financial regulators is measured: “Most households continue to be able to meet their debt servicing and other essential spending commitments, although many have had to make adjustments to their finances in a period of higher inflation and interest rates,” the minutes showed.

“However, hardship applications had risen materially over the past year.”

S&P Global’s most recent quarterly measure of mortgage-backed securities now shows a lift in the proportion of loans in arrears, while National Australia Bank’s outgoing chief executive, Ross McEwan, said in February that most of his bank’s customers were faring well, but warned it was facing higher mortgage arrears.

Housing and politics

Housing, or to be specific, the lack of it, has become a political football of major proportions. Both major parties agree that something needs to be done, and fast, to address the critical shortage of housing in Australia. The next federal election will provide an opportunity for them to place their proposed solutions to the problem before the voters.

An editorial in the Sydney Morning Herald gave Premier Minns a pat on the back for his plans: “As reports of homelessness, vaulting rents, interest rate rises and the inability of younger generations to buy dominate the headlines, Premier Chris Minns deserves credit for the way he has tackled the state’s housing supply crisis.”

But will it be enough? Rose Jackson, the NSW Minister for Housing and Homelessness, says she’s told the federal government they need to spend twice as much on fixing the housing crisis. She’s also told her Labor colleagues in Canberra that tax concessions for property investors should be reviewed.

"We want to see the national housing and homelessness agreement double its contribution from the Commonwealth to the states," she said. "We're talking billions here … billions of dollars need to be spent on this."

Andrew Leigh, the Assistant Minister for Competition, Charities and Treasury, told Q+A: "Fundamentally, the problem is that we're not building enough homes.  All the policies you will hear the federal government talking about is about getting more housing supply out there, after a period where housing supply has fallen below population [growth] and home prices have gone through the roof."

The Albanese government had a try at promising to reform negative gearing in 2019 that didn’t go over well, and now say they’re not going to try that avenue of tax reform again. They have already introduced 17 new policies on housing and found $26 billion to target the housing crisis by increasing supply. But this is going to take a lot of time and the next election’s already on its way.

Labor’s help-to-buy scheme that’s designed to assist 10,000 homebuyers a year through shared equity is currently stuck in parliament because the Coalition and Greens aren't backing it.

The Coalition is still working on its policies for the housing sector. Peter Dutton’s cabinet reshuffling in March included announcing Andrew Bragg as the shadow assistant minister for home ownership. The first policy idea to emerge has been that homeowners could pay their superannuation into mortgage offset accounts – an idea that’s been criticised by some experts for its likelihood to raise housing prices.

Meanwhile, the Greens are targeting younger voters who feel they’ve been locked out of home ownership by high prices and supply shortages. They’re asking voters for the balance of power so they can implement policies that will cut rents, ‘massively’ invest in affordable housing, and create 100,000 new homes in NSW. 


‘Rents still rising across Australia; units nearly as expensive as houses in Sydney, Melbourne and Brisbane,’ Maria Gil, Domain, 12 April 2024
‘Economics firm makes huge call on Aussie home prices, tipping sharp increases over the next three years,’ Shannon Molloy,, 9 April 2024
‘How the rental crisis ate its way into the middle class,’ Max Maddison and Nigel Gladstone, Sydney Morning Herald, 7 April 2024
‘Suburbs where you can buy a unit and actually make money,’ Elizabeth Redman, Domain, 5 April 2024
‘House prices continue to rise as number of landlords increase,’ Nadia Daly, ABC News online, 2 April 2024
‘The type of home that’s more expensive than ever,’ Jemimah Clegg, Domain, 3 April 2024
‘Population surge and smaller households fuelling home prices: RBA,’ Michael Read, Australian Financial Review, 3 April 2024
‘Australian house prices hit record high for fifth consecutive month,’ Petr Hannam, The Guardian, 2 April 2024
‘Australian house prices hit new high according to March PropTrack data,’ Jessica Wang,, 2 April 2024
‘Australia’s home values keep rising despite cost-of-living pressures,’ Rachel Clun, Domain, 2 April 2024
‘Australian salary needed to buy a home without being in ‘housing stress’ revealed,’ Ellen Ransley,, 1 April 2024
‘How much of a pay rise you’d need to buy a bigger house,’ Elizabeth Redman, Domain, 30 March 2024
‘The proof that Minns’ housing policy is the right call,’ The Herald's View, 29 March 2024
‘Homebuyer FOMO returns ahead of looming rate cut,’ Benn Dorrington,, 28 March 2024
‘Australia's housing crisis has become a fierce political battle that could have major implications for the next federal election, Q+A and RN Breakfast host Patricia Karvelas, ABC News online, 25 March 2024
‘NSW minister's challenge to federal Labor colleagues: double housing fund, review negative gearing,’ Jason Whittaker, ABC News online, 26 March 2024
‘Affordable housing beyond reach in all Australia’s eastern capitals, data shows,’ Sarah Bashford Canales, The Guardian, 21 March 2024
‘Sydney’s most in-demand suburbs for home buyers now,’ Tawar Razaghi, Domain, 17 March 2024
‘It doesn’t have a future': The plan to save Sydney from itself,’ Shannon Molloy,, 12 March 2024
‘More than one in four properties purchased in NSW, Victoria and Queensland paid for in cash in 2023,’ Kate Ainsworth and Mark Rigby, ABC News online, 13 March 2024
‘In a few months, Australia will start trying to build 1.2 million homes. Experts say lots needs to change first,’ Daniel Jeffrey, 9News, 17 March 2024
‘Are we entering a real estate sell-off?,’ Michael Janda, ABC News online, 15 March 2024
‘New housing supply to hit decade low,’ Larry Schlesinger and Michael Read, Australian Financial Review, 19 March 2024
‘Pressures grow as more buyers fall behind on their mortgages,’ Shane Wright, Sydney Morning Herald, 12 March 2024
‘More homes listed for sale as autumn shapes as first big test for the property market,’ Sarah Millar, Domain, 17 March 2024