The property price driver outweighing all others in 2023

Though property prices experienced a downturn between April 2022 and February 2023, as interest rates began to rise, a swift recovery has surprised many. According to CoreLogic, as of September 2023, prices have recovered around half of the preceding downturn between April 2022 and February 2023, when national home values fell 9.1 per cent.

As Dr Wong noted: “The housing market behaved quite the opposite way from the market expectations in the midst of high inflation and high mortgage rates.”

“Instead of the much-anticipated downturn caused by high cost of living and high mortgage repayments, house prices continue to perform strongly – consistently registering positive growth since the beginning of 2023. Australian house prices are expected to hit a new record high in the final quarter of 2023,” he said.

As someone who has been tracking market indicators for over a decade, Dr Wong remarked that there are a number of factors that regularly push Australian dwelling prices up and down.

“The market boom during the mid-2010s observed some significant foreign purchases, the market downturn in 2018 was due to the infamous Royal Banking Commission enquiry that caused credit squeeze, followed by another significant boom due to the expansionary fiscal and monetary policies implemented during the COVID-19 pandemic,” he explained.

“Although foreign investment represented a significant housing market driver during the 2010s, it had little impact on house prices growth during the COVID-19 pandemic lockdown period,” he remarked.

Though there are a number of market factors continuing to put pressure on Australian property prices, all are being outweighed by the Goliath-like strength that supply shortages currently have over prices.

“This year, the key driver for the housing market is undoubtedly the shortage in housing supply,” Dr Wong stated.

“The National Housing Finance and Investment Corporation (NHFIC) estimated that household demand in Australia will grow from 10.7 million to around 12.6 million in 2033 and showed housing supply is already in a shortfall condition, with the supply to household formation balance to be a cumulative negative in the territory of a -106,300 balance over the next five years”.

Though he noted that there is no quick fix to this particular issue, he said that governments could hasten the creation of new homes by focusing on two main roadblocks: skills shortages and planning delays.

Out of these two obstacles, Dr Wong opined that speeding up development approvals is the easier one to tackle, with the housing academic encouraging governments at the state and local levels to eliminate “non-productive bureaucracy delay”.

On the issue of a shortage of skills, he said long-term planning would be the only course.

“[The skills shortage] has been a longstanding one in the country and thus requires a long-term plan to ensure the human resources capacity. Besides enabling training programs nationwide to encourage more workers in the industry, the government must enable a flexible skilled migration program to both fill the workers gap and reduce the cost of construction,” he said.

With efforts to clear up the roadblocks and rapidly increase supply still in their infancy, Dr Wong predicted that the shortage of supply would continue to have an outsized influence over prices for well over a year.

“House prices shall continue to go from strength to strength into 2024–25 in the midst of high inflationary pressure, due mainly to the housing supply shortage,” he said.