Property price growth across the country is, again, shifting up a gear, and it’s unclear when the market will cool.
The pace of quarterly growth continued to tick higher in May, with property data firm CoreLogic reporting values up 1.9 per cent, from a recent low of 1.1 per cent, during the three months to January.
The latest Bureau of Statistics figures show the mean price of residential dwellings rose by $14,300 to $959,300 in the March quarter.
The total value of residential dwellings in Australia rose by $209.4 billion to $10,720 billion in the March quarter.
It means the value of the Australian property market, at $10.7 trillion, is now three times that of the share market, at $3.1 trillion.
“I think we will probably be in a situation where we’re no longer seeing such astronomical price growth in a couple of years from now,” said CoreLogic’s head of research, Tim Lawless.
Not enough houses
The central force driving prices higher is overwhelming demand, according to Mr Lawless.
The latest Bureau of Statistics show the number of residential dwellings rose by 52,700 in the March quarter.
Annualised, this equates to 210,800 dwellings being built per year.
This is an improvement on previous years, when between 150,000 and 170,000 dwellings were being built per year.
But for demand to match supply, roughly 240,000 homes need to be built each year.
“And that lack of available supply, against what seems to be quite high demand, is what’s pushing prices up,” Mr Lawless said.
Frozen out
Decades of rising property prices have now pushed some city dwellers on a median income out of the property market altogether, according to Mr Lawless.
“When you look at how much income needs to be dedicated to servicing a mortgage in Sydney, if you’re on a median household income and you’re buying a median-priced property, theoretically you’re going to be spending about 60 per cent of your gross income in purchasing a median-priced dwelling,” he said.
“Clearly no lender is going to lend to you on that ratio.
“So what it probably means is that the household on the median income simply can’t afford to buy a median-priced property anymore.”
Real estate agency Ray White’s head of research Vanessa Radar describes this as an “unfortunate” situation.
“Unfortunately, that’s the position we’re in at the moment.”
But it is boosting Ray White’s bottom line.
“We’ve actually had some really good growth in terms of our returns for our business,” she said.
“Our prices have increased so therefore our returns are increasing in turn.
“It is a difficult one because you want to be able to balance affordability for people as well, it’s not just looking at the bottom line of our business.”
With a larger volume of transactions at the higher end of the market, Ms Radar expects strong price growth to continue.
“What is making it more difficult is the rising cost of land, coupled with rising construction costs and rising labour costs.
“That’s setting a new economic price that needs to be achieved in order for these new buildings to come out of the ground.”
First home hope fades
For those still clinging to the Australian dream of home ownership, there is potential for a future period where prices fall or at the very least stabilise, according to Mr Lawless.
“It’s going to be at least 12 to 18 months before we see any sort of material supply response,” he said.
“It’ll take a long time for affordability to return to something that’s more normal.”
ANZ economist Blair Chapman encourages those who have been able to save even a small deposit to shop around.
“Don’t try to purchase your dream home first up — a lot of people set their expectations a little high,” he said.
“Once you actually start investigating the market, bringing your expectations back in line with where these are in reality, can help.”
And, of course, there is a limit to what many Australians can afford.
Already we are seeing more households move into mortgage stress, and that is expected to continue.
The government says its $32 billion Homes for Australia plan will ensure more Australians have a secure and safe place to call home.
It includes a $10 billion Housing Australia Future Fund, to fund 30,000 social and affordable rental homes, and a national target to build 1.2 million well-located homes.
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