In a recent report released by KPMG Australia, the nation’s property landscape is poised for substantial transformations over the coming years.
The study, which offers a comprehensive analysis of housing and apartment prices, projects noteworthy shifts in property values across various cities.
The report anticipates a national upswing in house prices, with an impressive 4.9% increase projected over the next nine months. Looking ahead, a more robust surge of 9.4% is forecasted in house prices for the year leading up to June 2025. These findings signify a promising trajectory for the Australian housing market.
Turning to apartment prices, KPMG’s insights indicate a nationwide average rise of 3.1% by June 2025, with an even more significant 6% increase anticipated in the following 12 months. This suggests a growing demand for apartment living across Australia.
Regional variations play a pivotal role in this evolving market. In the fiscal year 2024, Perth is expected to lead with an impressive 8.4% increase in house prices. However, looking ahead to FY25, Hobart is poised to surpass other cities with an astonishing surge of 14.2%. These regional disparities highlight the diverse opportunities and challenges that investors and homeowners may encounter across different parts of the country.
Notably, the report underlines the superior performance of Hobart’s units, with expected price hikes of 8.7% and 10% over the next two years. Following closely behind are Sydney, Melbourne, and Adelaide, all expected to experience significant increases in unit prices. These insights provide valuable guidance for those considering investments in the Australian property market.
KPMG Australia’s Chief Economist, Dr. Brendan Rynne, emphasizes the complex interplay of factors influencing property prices. He notes, “Despite high interest rates, constrained supply is likely to dominate the short-term factors driving property prices.” This constraint is a result of limited available land, declining approval rates, and slower construction activity.
Several factors are expected to push property prices upward in the coming years, including increased demand due to migration, anticipated rate cuts in FY25, potential easing of lending conditions, high rental costs driving renters towards homeownership, barriers to new home construction, and a resurgence in foreign investor demand.
However, Dr. Rynne highlights the counterforce of mortgage stress, as first-time buyers are now allocating a significant portion of their earnings to mortgage payments. Approximately $350 billion of mortgages are set to expire this year, affecting 880,000 Australian households. An additional 38% of fixed-rate credit is set to expire in 2024 and beyond.
The report acknowledges substantial regional variations in property prices over the past three years. Adelaide houses have notably outperformed the national average, while Sydney and Melbourne have experienced slight decreases.
Additional noteworthy changes include the impact of the Home Builder stimulus on housing approvals and completions, migration trends, and the gradual recovery of foreign investment.
Rising rental costs also play a pivotal role in driving up dwelling prices, as more renters explore homeownership. KPMG’s projections indicate that annual rent growth is expected to be 5.6% over the next two years, significantly higher than the long-term average of 3.1%. This may necessitate increased dwelling completions or reduced migration levels to restore equilibrium.
Forecast of growth in house prices (%, y/y)
Forecast of growth in unit prices (%, y/y)
Surging inflation and housing pressures
In August, Australia witnessed a significant rise in its annual inflation rate, soaring to 5.2%. This surge was notably driven by a substantial 7.8% increase in rents, marking housing and rental pressures as major contributors to overall cost pressures within the economy.
The rental market, in particular, continues to grapple with challenges stemming from a prolonged drought in new apartment construction and the adverse effects of rising interest rates. Denita Wawn, CEO of Master Builders Australia, voiced concerns about the government’s intention to further escalate costs through extensive industrial relations reforms, especially at a time when households are already grappling with the disappointment of elevated inflation rates.
Wawn emphasized the critical role of builders and tradespeople in addressing the housing and rental inflation issue and achieving the objectives outlined in the Housing Accord. While the cost of newly built homes has started to ease with material costs returning to August 2021 levels, it remains considerably above the average. This necessitates ongoing efforts to exert downward pressure on building costs.
With a substantial majority of businesses in the industry being small in size, productivity enhancement and simplification of industrial laws are crucial. This is especially pertinent since small businesses typically lack dedicated HR departments, making clear and straightforward industrial laws a necessity to provide clarity and certainty to employers.
Wawn expressed deep reservations about the industrial relations Bill currently before Parliament, citing concerns about increased compliance burdens, red tape, and legal risks. She argued that such a bill would hinder efforts to raise wages sustainably, exacerbate the housing crisis, and jeopardize the viability of independent contractors and self-employed tradespeople. In light of these concerns, Master Builders and other major employers have urged the government to reconsider the bill.
In addition to the inflation data, the Australian Bureau of Statistics (ABS) released engineering construction activity data, revealing a 2.1% expansion in the volume of engineering construction work completed. Wawn highlighted the significance of robust engineering construction activity, as it contributes to the country’s positive GDP growth rate. Such investments are vital for enhancing economic productivity and expanding capacity for future growth.