Market comment: ROCKETING AHEAD

Wed, 29 May 2024

Market comment: ROCKETING AHEADPrices outgrow previous records, more planning reforms are introduced

Sydney’s median house price rose 2.1 per cent to $1,627,625 in the March quarter,. This is the first time the market has exceeded $1.6 million and is now 12.8 per cent higher since bottoming out in December 2022.

The median unit price rose 1.9 per cent in the March quarter to reach a new high of $806,137. It has recovered $55,000 of the $59,000 value it lost during the 2022 downturn and is now just $4000 under its December 2021 peak.

Sydney’s median house price of $1,627,625 is now more than double that of the median unit price. The price gap reached a record $821,488 in the three months to March 2024, on Domain data.

These figures also show that the gap has more than doubled since the pandemic hit; house prices were 54 per cent more expensive than units, or $405,037, in the three months to March 2020. Today, the gap is three times as wide as it was in the late 1990s, when it hovered at about 30 per cent.

Domain Chief of Research and Economics Dr Nicola Powell said Sydney house and unit prices have both risen for five consecutive quarters. She believes house price growth will slow until interest rate cuts begin, but unit price growth will continue as buyers look for more affordable homes.

“First home buyers will go to the lower end of the market,” Powell said. “Units are much more affordable because we’ve been better at building units than we have done houses.”

However, she said more property options needed to be built, so people would not try to buy a house with a relatively small windfall from selling a unit: “There needs to be more stepping stones for people between the unit market and the house market – we still have a missing middle,” Powell said.

PropTrack economist Anne Flaherty says that Sydney’s prices growth has actually been driven in part by high borrowing costs: “With property prices sitting at record highs in many places, and with interest rates still incredibly high, more buyers are being priced out of a lot of different suburbs. More buyers are looking to those more affordable areas and that’s increasing demand.” 

PropTrack figures show that the Sydney suburbs with the strongest price growth include suburbs in the east like Dover Heights (up 97 per cent) and Vaucluse (up 80 per cent).  However, most of the strongest performers are found further from the city, including Sylvania Waters (up 95 per cent) in the south, Bayview (up 77 per cent) in the north and Caddens (up 85 per cent) and Leppington (up 84 Per cent) in the west.

Owners in some parts of Sydney are thought to be selling their properties due to pressure from lenders or to other factors beyond their control. In April these ‘distressed’ listings reached 13.2 per cent of all listings in the Blacktown area and 8.3 per cent in the Parramatta area. However, across Sydney the overall percentage of sales classed as ‘distressed’ was just 3 per cent, down from 4.6 per cent a year ago.

Difficult deposits

The housing market’s high prices have left average income earners struggling to save a deposit. This is especially true when they’re paying high rents, and faced with compromises such as hunting for smaller homes or homes more distant from their employment if they can no longer afford the average home.

CoreLogic head of research Eliza Owen says that housing values have defied gravity and they haven’t been weighed down in the same way borrowing capacity has: “The data represents an environment in which home values aren’t tied to borrowing capacity based on income alone.

“You need something else to bridge that gap, which would be a higher deposit, or capital that comes from, presumably, the sale of another asset. If you’re selling property to buy another property then you’ve got a much better chance of keeping up with the market; [or the] bank of mum and dad, if you’ve got parents that can help you out with more to put towards the property,” she said.

Investment bank Jarden’s chief economist Carlos Cacho said that the relationship between borrowing capacity and property prices has been a solid and longstanding relationship for 20 years but has now broken down: “The average household is no longer able to afford the average home, so what you’ve seen is [that] home buyers are skewing much higher income and much higher wealth,” he said.

“People are not able to borrow as much as they were before so they have to fund more of their purchases with cash on average. The buyers in the current market are less constrained by borrowing capacity and they’re less reliant on funds from a bank.”

Almost a third of CBA’s home borrowers now have a combined income north of $200,000, he said, adding that there’s a shift towards buyers who have larger deposits and a corresponding drop in low-deposit buyers. “A lot of that would be intergenerational wealth transfer.”

Director and mortgage broker at 40 Forty Finance Will Unkles said that clients frequently need family assistance so they can afford a deposit: “Most parents, when choosing to do this, see this as an early transfer of generational wealth, which enables their children to live close to them and maintain contact with their grandchildren and financially assist the moment that will have the greatest impact on their grandchildren’s quality of life,” he said.

Impact Economics and Policy lead economist Dr Angela Jackson agreed the trend was concerning:
“If you’re a first home buyer and you’re actually trying to save it yourself, it becomes increasingly difficult,” she said. “And that’s why people are renting for longer. Without that intergenerational support, it’s much harder to enter the property market for the first time,” she told Domain’s Jim Malo.

And yet, there are many property purchases for cash in some investor-favoured suburbs including purchases as high as $3.35 million in Darling Point where three in five buyers paid cash in 2023. Buyers also paid more than $2 million last year for the typical cash purchase in Mona Vale ($2,375,000) and Manly ($2,255,000).

Planning reforms continue

The federal budget will include $12.3 billion in new housing programs to reduce the growing shortage of housing across Australia. Prime Minister Anthony Albanese will work with state and territory governments to inject more cash into construction, including a five-year program of social housing that is intended to repair homes and improve crisis support.

Just in case you were wondering if the government knew how serious the housing situation was becoming, the 2024-25 budget has dedicated a full chapter to the housing crisis, saying: "Australia's housing system has been unable to build enough new housing stock to keep up with the needs of our population. This has caused a growing supply deficit, resulting in worsening affordability for both renters and first-home buyers."

The Prime Minister said the planned new spending would encourage states to kickstart their own housing projects. NSW is already underway with its own program to rapidly increase the construction of new housing, focusing on specific areas that it believes can support increased development.

The Minns government has recently announced more reforms to its planning agenda including adding another six train stations to the present 31 after some Sydney councils requested more suburbs be added. This means planning controls in those suburbs will allow the construction of six-storey residential apartment buildings within 400 metres of the station, commencing in April.

The government now says these reforms are “projected to deliver” more than 170,000 homes. For this number to be reached, each of the 37 suburbs would have to build 4,600 homes on average. 

As the Herald’s Michael Koziol points out, that would make most of these suburbs some of the densest places in Sydney. “The policy applies to land within 400 metres of each train station, or about 0.5 square kilometres. For the 170,000 figure to be reached, each of the 37 precincts would have to build 4600 homes, on average, by 2039, resulting in density of 9200 homes or about 18,000 people per square kilometre.

“That would make them some of the densest places in Sydney, which only has 53 square kilometres with a population density above 8000 people per square kilometre, which is defined as very high density by the Australian Bureau of Statistics.”

The government’s housing targets include a requirement for two per cent of the approved housing to be ‘affordable’, considered a low figure by the state’s community housing bodies. Approval will also allow the height of apartments in rezoned precinct to increase to 22 metres which enables developers to build up to eight storeys when the 30 per cent bonus for affordable housing is taken into account.

Meanwhile, the government’s work with councils continues as a form of truce between the two sides seems to have developed. Local housing plans will be developed with the councils of Bayside, Burwood, Canada Bay, Canterbury-Bankstown, Central Coast, Cumberland, Georges River, Inner West, Lake Macquarie, Newcastle, Penrith and Wollongong.

The government will also work with Wollongong Council to further investigate Coniston and Unanderra as additional stations to be included.

Planning Minister Paul Scully urged other local governments to continue raising their concerns with the government about the housing policy to ensure it was tailored for each community: “The principle that underpinned the discussions with councils is that any local plans must go beyond the NSW government’s housing expectations, not backwards. 

“In addition, the government’s reforms to state infrastructure contributions, mean that the infrastructure investment needed to support housing growth in these areas will also be made.

“The TOD [Transport Oriented Development] program is part of the biggest planning reforms this state has ever seen and will be a critical tool in meeting the growing demand for housing and improving affordability, especially for young people and families.”

Before any changes result from the government’s “build up not out” planning reforms it’s worth noting that nationally we’re putting 40 per cent more people into the same land area we were in 2003. Statistically, Sydney’s population density is lower than Melbourne or Adelaide, but that’s because the city’s boundaries are much bigger than these other capitals.

In fact, Sydney has the highest proportion of apartments of any Australian city – just under 40 per cent of all dwellings.

A cliffhanger

There’s still a significant number of households – hundreds of thousands, moving from fixed interest rate mortgages to variable interest rates over the coming months. It’s taken a while for the full impacts of the RBA’s interest rate increases to be seen in this transition, but Australians’ adoption of cheap interest rate loans during the Covid-19 pandemic meant a flood of refinancing was to be expected around this time.

This was given the name “Mortgage Cliff” and it’s still looming over those who haven’t yet refinanced their existing mortgages.

Research by Reserve Bank economist Benjamin Ung found that more than a third of fixed-rate loans that were still outstanding in 2022 will roll over to variable rates this year: “This will contribute to a further increase in the average outstanding mortgage rate as these fixed-rate borrowers transition to much higher prevailing interest rates than they are currently paying,” he found.

Those moving to higher rates will see an increase from about 2 per cent to over 6 per cent, meaning that across all Australian households, total repayments will reach an all-time high of 10.5 per cent of disposable income by the end of 2024.

Loans aren’t getting any easier to get, as ANZ boss Shayne Elliott told investors in November last year: "Our view that it's the unintended consequence of that is that it is harder to get a home loan or a credit card in Australia or New Zealand today than it has been in 30 years," he said. "…If you want a loan, you have to be better off or you have to essentially be rich," Mr Elliott warned.

The RBA’s own figures show that Australian borrowers repaid $28 billion to their banks in the final three months of 2023; they were charged $17.1 billion in interest on their loans. Banks have also cut their discounts on loans to new customers and are now applying the benchmark standard variable rate to all customers, new or existing.

Renters’ situation worsens

A new Anglicare Australia report says that rental affordability is as bad as it’s ever been and the number of affordable rentals for households on low incomes has reached its lowest point ever. The report also shows that average rents are now $200 per week higher than they were pre-pandemic.

The report tested 45,115 rental listings in March across the country. A property was considered affordable if it required less than 30 per cent of a household's income. Paying more than that is thought to put renters into housing stress.

Its findings are echoed by Homelessness Australia’s CEO Kate Colvin, who tells us some Sydney renters are paying more than 95 per cent of their incomes in rent: “The costs and consequences of our warped housing system will only escalate for young people and the broader society, unless we make better choices.”

Federal Minister for Housing Julie Collins said the government has a "broad and ambitious housing reform agenda" to give more Australians a home.

She said the government has set a target of building 1.2 million new homes by 2029. It has set up a $10 billion Housing Australia Future Fund to help build 30,000 new social and affordable rental properties, and a $2 billion Social Housing Accelerator for around 4,000 new social homes.

The chair of the National Housing Supply and Affordability council, Susan Lloyd-Hurwitz, said Australia is in “a longstanding crisis, fundamentally driven by the failure to deliver enough housing of all types – from social housing through to market home ownership.

“Prices and rents are growing faster than wages, rental vacancies are near all-time lows, 169,000 households are on public housing waiting lists, 122,000 people are experiencing homelessness and projected housing supply is very low,” she said.

She also said that rents were up 35 per cent since 2020 and 8 per cent in 2023, with a vacancy rate of 1.6 per cent making it increasingly difficult to find a rental home.

Stamp duty’s impacts on housing supply

One novel solution to help fix the shortage of rental accommodation has been proposed: eliminating stamp duty, which has been described as “a big upfront levy on the purchase of a home” and “Australia’s most inefficient tax”.

The Herald’s Matt Wade sums up how stamp duty works to reduce the number of properties available to potential owners and renters: “Stamp duty discourages owners from moving to housing that better suits their needs, whether that’s a worker who is offered a better job in another city or an older person living alone in a big house” he writes. 

“It’s one reason there are so many large family homes with multiple spare bedrooms in the best-located suburbs of our capital cities,” he says, adding that it encourages families to renovate when moving house might have been a better option.

Brendan Coates, the economic policy program director at the Grattan Institute, says we’ve known for decades that stamp duty is not a good tax. He estimates that making the switch from stamp duty to a broad-based property tax would reduce rents and house prices by up to 6 per cent. He also estimates a nationwide shift from stamp duties to a broad-based property tax would lift Australians’ incomes by $20 billion a year.

Even the NSW Treasury’s modelling found that a change from stamp duty to a property tax would lift home ownership in NSW by 6.6 per cent. This would equate to about 130,000 households “shifting from rental accommodation into their own homes”.

Build-to-Rent update

Australian developers including Mirvac and Lendlease are actively pressuring all levels of government to create appropriate legislation that will strengthen the appeal of Build-to-Rent projects (BTR) to investors. 

BTR is as straightforward as the name sounds…developers build towers of apartments that are made to be rented or leased instead of sold. This could be a way to create much-needed housing in cities that are experiencing shortages of rental properties while at the same time creating an investment opportunity with long-term growth potential. 

Consulting firm EY estimates the current size of the BTR sector in Australia is $16.87 billion – only about 0.2 per cent of the total national residential housing sector. EY’s modelling shows that changes to the MIT withholding tax rate on BTR projects that would reduce it from 30 to 15 per cent could create something like 150,000 apartments by 2033. 

Property Council of Australia chief executive Mike Zorbas told the Herald’s Carolyn Cummins that lowering the MIT withholding tax rate on build-to-rent projects that include an affordable housing component could accelerate delivery of 10,000 affordable homes over the next 10 years on top of those 150,000 rental homes.

CBRE surveyed 1200 global investors and found nearly half said they would invest in BTR assets which made it the most preferred sector in all three main global regions: the Americas, Europe and Asia-Pacific.

Andrew Purdon, CBRE’s regional director – Living Sectors Capital Markets, said that enacting suitable taxation legislation would “help spur greater offshore interest in Australia’s fledgling build-to-rent market while speeding up the delivery of much-needed new housing stock”.

“Many of our investor clients have been eagerly awaiting the details of proposed changes and hope it puts BTR on a level playing field with other forms of housing such as student accommodation,” Purdon said.

“The lack of clarity on this issue since the intention to reform was announced in the federal budget nearly 12 months ago has undoubtedly affected investment decisions in BTR as many investors have taken a ‘wait and see’ approach before committing to new developments.”

Major developments already under way include Lendlease’s plan to transform the southern site of the Queen Victoria Market precinct in Melbourne. Across three new buildings, Gurrowa Place will feature a 28-storey next-generation workplace, 560 build-to-rent units with 80 affordable homes, and 1100 student residences managed by Scape.

Developer Novus, which has a new BTR project overlooking Melbourne’s Botanic Gardens, said there was more activity to come at its NSW sites in Parramatta and Chatswood.


‘Australia's housing crisis in 10 graphs, from the federal budget,’ Gareth Hutchens, ABC News online, 15 May 2024
‘Sydney suburbs with the most distressed property sales,’ Elizabeth Redman and Alexandra Middleton, Domain, 13 May 2024
‘Labor adds billions to state deals on housing,’ David Crowe, Sydney Morning Herald, 11 May 2024
‘Sydney won’t get 170,000 new homes at stations. Here’s why,’ Michael Koziol, Sydney Morning Herald, 7 May 2024
‘How much it costs to buy a home in the suburbs where buyers pay cash,’ Elizabeth Redman, Sydney Morning Herald, 5 May 2024
‘How much it costs to buy a home in the suburbs where buyers pay cash,’ Elizabeth Redman, Sydney Morning Herald, 5 May 2024
‘Is one solution to mortgage hardship making it easier for people to get a home loan? Mortgage brokers and the big banks think so,’ Nassim Khadem, ABC News online, 4 May 2024
‘Moving from a Sydney unit to a house gets three times harder in a generation,’ Tawar Razaghi, Domain, 5 May 2024
‘Australia’s housing crisis to worsen with ‘significant shortfall in supply’, Labor’s expert council says,’ Paul Karp, The Guardian, 4 May 2024
‘Build-to-rent increases pressure for law reform to underpin new housing,’ Carolyn Cummins, The Sydney Morning Herald, 21 April 2024
‘Should you wait for interest rate cuts to buy a house?,’ Jim Malo, Domain, 19 April 2024
‘Another mortgage cliff faces home buyers and the economy,’ Shane Wright, The Sydney Morning Herald, 21 April 2024
‘Housing density has surged across Australia's cities, yet home prices keep hitting fresh records,’ Michael Janda, Sydney Morning Herald, 28 April 2024
‘Only 0.6 per cent of rentals are affordable for minimum wage workers in Australia: report,’ Madeleine Achenza,, 23 April 2024
‘Rental affordability in Australia is as bad as it has ever been, according to new Anglicare Australia report,’ Courtney Withers, ABC News online, 23 April 2004
‘Another mortgage cliff faces home buyers and the economy,’ Shane Wright, The Sydney Morning Herald, 21 April 2024
‘Priced out: Home buying hurdle nearly doubles in half a generation,’ Jemimah Clegg, Domain, 29 April 2024
‘Property prices defy gravity as average households priced out,’ Elizabeth Redman, Domain, 25 April 2024
‘Rental Crisis: Prices across Brisbane stabilise but stock levels remain tight,’ David Bonaddio,, 16 April 2024
‘NSW government announces new transport hubs to help boost housing project,’ Aisling Brennan,, 12 April 2024
‘The secret’s out’: Suburbs where prices have more than doubled in four years,’ Daniel Butkovich,, 18 April 2024
‘New Sydney housing targets rattle advocates and developers,’ Max Maddison, Sydney Morning Herald, 24 April 2024
‘When the new planning rules arrive in your suburb,’ Alexandra Smith, Sydney Morning Herald, 12 April 2024
‘NSW government announces new transport hubs to help boost housing project,’ Aisling Brennan,, 12 April 2024
‘When the new planning rules arrive in your suburb,’ Alexandra Smith, Sydney Morning Herald, 12 April 2024
‘How to fix the housing crisis? Let’s start with this defacto tax on divorce,’ Matt Wade, Sydney Morning Herald, 20 March 2024