Average House Prices Edge Closer to $1m

Ted Tabet 

The average price of a residential property in Australia is nearing the $1-million mark for the first time on record, with house hunters spending about $350,000 more than they did a year ago on the typical home.

According to Domain, Australian house prices have experienced the fastest annual rate of growth on record at 21.9 per cent with house prices rising three times faster than units over the past year.

Domain chief of research Nicola Powell said despite the historic surges, prices—currently being underpinned by record low-interest rates and expected investment returns—were now preparing to cool as lockdowns end nationally.

Over the three months to September, all capital cities except for Perth and Darwin hit record highs for house prices with Canberra now the second most expensive capital city to purchase a house for the first time since 2005.

Sydney, the nation’s most expensive city, hit a new record of almost $1.5 million for houses after surging 30.4 per cent—rising by roughly $6700 a week over the past 12 months.

Unit prices hit a new record high of $802,475 after gaining $18,695 over the September quarter, surpassing the mid-2017 price peak for the first time.

NSW now accounts for $3.3 trillion, or 40 per cent, of the total Australian residential real estate market.

Melbourne, despite being in lockdown for most of the quarter, hit a new record high of $1.038 million after increasing by 16.8 per cent in the past year—the city’s strongest annual gain in 11 years.

The number of homes selling in Brisbane continues to surpass previous records to now be at its highest point in six years with listed homes for sale 7 per cent higher over the first three weeks of October compared to the two-year average.

House prices have now reached a new record high, surpassing the $700,000 mark.

Meanwhile, Hobart house prices have almost doubled over the past five years, the steepest increase of the capital cities.

Powell said price relief was now nearing as the rate of house price growth across capital cities halved in the September quarter compared to the previous quarter, suggesting the peak pace of growth has passed.

“We’re seeing the property market begin to cool down with soaring house prices in the last year adding to ongoing affordability pressures affecting buyers participation in the market,” she said.

“As Covid-19 lockdowns and restrictions come to an end and the sustained high prices appeal to vendors, sellers are beginning to re-engage with the market, increasing supply which in turn offer greater choices for buyers.”

The Reserve Bank of Australia recently acknowledged the hot housing market in its monthly board meeting minutes, and said policymakers needed to keep a close eye on lending standards.

It noted there had been an increase in loans with high debt-to-income ratios, and sustained growth in housing credit added to the risks of high household debt.

Housing credit growth is forecast to top 10 per cent on a six-month annualised basis early next year.

At the same time, wages growth is running at just 1.7 per cent, according to the latest Bureau of Statistics data.

“There has been an increase in the average loan value over the last year indicating that customers are borrowing more to keep up with rising prices and further driving house price growth,” Powell said.

“This may start to slow down as new serviceability measures are implemented from November 1.

“However, the sheer affordability of keeping up with rapid house price gains is proving a barrier for many buyers, especially first home buyers facing spiralling deposit goals and poor interest accrued on savings.

“Upsizing is also becoming a financial leap despite the benefit of strong equity growth, and particularly challenging if sold prior to purchasing.”


Land Costs Rise at Twice Rate of Building Materials

Land supply constraints and the Homebuilder-induced housing boom has led to the cost of residential land skyrocketing at twice the pace of building materials price rises in the past year.

The HIA-Corelogic quarterly residential land report analysing transactions across 51 Australian housing markets has shown building material costs have increased 4 per cent during the past year, while land prices have increased 8.5 per cent.

HIA chief economist Tim Reardon said a shortage in building materials and land supply constraints had boosted prices significantly during the past 12 months.

“The cost of residential land has risen more than twice as fast as the cost of building materials during the past year,” Reardon said.

“The shortage of building materials has caused delays to home building across the country and added 4 per cent to the cost of homebuilding in 2020-21, according to the Australian Bureau of Statistics.

“At the same time, the cost of residential land prices rose by 8.5 per cent, adding further to the cost of new home building.”

The surge in demand for land has spurred prices to new heights in Sydney, which experienced a 27.1 per cent rise in the past year.

“The strength of demand for land is set to continue throughout 2022 and into 2023,” Reardon said.

“As land is a key component of housing, this increase in price has been a key driver of the rising cost of homes and the decline in housing affordability.

“There is little the Federal and state governments can do to improve global supply chains and improve the availability of building products, but they are in direct control of the volume of land available for home building.

“Ensuring there is an adequate supply of land to meet housing demand is a key responsibility of state and territory governments and one of the necessary steps to addressing the affordability challenge.”

Corelogic research director Tim Lawless said the number of greenfield land sales had dropped recently due to less stimulus measures and a scarcity of supply.

“The HomeBuilder grant saw demand for vacant land brought forward, with land sales surging through the second half of 2020,” Lawless said.

“The more recent trend has been a slowdown in land sales but a surge in detached housing construction as the nation moves into the early stages of what is likely to be an extended period of residential detached housing construction.

“The sharp rise in vacant land prices during the year, together with rising construction costs, will place further upwards pressure on the cost of new housing.”

Lawless said affordability challenges were “becoming increasingly apparent” across Australia.

Earlier this week Moody’s Investors Service analyst Pratik Joshi warned housing affordability would worsen over the next six months due to property price rises and wage stagnation.

House affordability dropped much more than apartments, particularly in Sydney where house prices have grown more than 20 per cent during the past year.

“In Sydney, house affordability is worse than at any time in the past decade,” Joshi said.

“Based on our modelling, Sydney will reach its worst housing affordability in 10 years if prices increase by 4.6 per cent or if average mortgage lending rates rise by just 0.42 percentage points to 3.87 per cent.

“Australia on average would reach its worst affordability in a decade if housing prices increase by 15 per cent or if the mortgage lending rate rises to its average for last 10 years of 4.79 per cent.”


How high can house prices rise, with Australia’s combined capital median already near $1 million?


How high can house prices rise?

The median house in Sydney will now set you back almost $1.5 million, and for that budget, don’t expect to live very close to the CBD. In Melbourne, it’s nearly $1.04 million, and in Canberra, $1.07 million, the latest Domain House Price Report for the September quarter found. The capital city average is nudging $1 million.

The frenzied bidding seen in autumn is largely over, but don’t expect to get a bargain – property prices look set to edge even higher from here.

The pace of growth is key. Early this year prices were rising at a super-fast pace as buyers took advantage of interest rate cuts to borrow more money and buy their first home or a bigger family home. The huge budgets in play at auctions sent prices soaring and left underbidders shocked.

Interest rates can’t go much lower, so don’t expect another similar boost to borrowing power. Indeed, the bank regulator recently trimmed the maximum amount buyers can borrow, although it’s a slight change that only affects the small number of people who borrow to the limit.

But with more buyers than sellers, expect prices to keep going up for now, just not at the same breakneck pace and not for every home.

That is, we’ve probably passed peak price growth, but we’re not yet at peak prices. Westpac expects property prices to rise 8 per cent during 2022 and finish the year flat, senior economist Matthew Hassan said.

It’s a clear contrast to the past 12 months. Sydney houses are up 30.4 per cent in the year to September, on Domain figures, and 9.5 per cent for units, while even the world’s most locked-down city, Melbourne, recorded 16.8 per cent house price growth and 6.1 per cent for units. Houses in smaller cities have spiralled up, with Canberra up 32.4 per cent and Hobart up 31.9 per cent.

“It was absolutely rampaging price gains in the first quarter, and it was across the board,” Mr Hassan said. “That’s pretty much impossible to sustain.”

It wasn’t only about the Delta-variant COVID outbreaks (and there’s an argument that lockdowns actually push up prices as remote workers buy bigger houses with home offices).

Prices are getting so high that affordability starts to be a problem, he said.

But they’re not finished yet. If prices were peaking, Mr Hassan would expect consumer sentiment surveys to show a drop in price expectations, which is not happening. Another warning sign would be a drop in auction clearance rates to about the 50 per cent mark and a lot of auctions withdrawn, but recent auction clearance rates of about 80 per cent are “a million miles away from that”, he said.

Commonwealth Bank head of Australian economics Gareth Aird adds to that list a drop in the volume of new home lending, which could signal a peak but hasn’t happened yet.

Although the pace of price growth has peaked, that growth is still quite strong and enough to concern the regulator, he said.

Sydney house prices still rose 4.6 per cent in three months, it’s just that we’re comparing it to the March quarter, when the jump was twice as much.

The CBA expects property prices to rise 7 per cent next year, and Mr Aird said he thought it unlikely the bank regulator would try to push house prices down or increase interest rates for existing borrowers.

“The higher house prices get relative to incomes, that’s when affordability constraints kick in,” he said. “For prices to peak and start slowing you generally need a circuit breaker which is interest rates … we don’t think the Reserve Bank is raising next year.”

Although the Bank of Mum and Dad is active, affordability constraints are front of mind. A 20 per cent deposit on a Sydney house is now the equivalent of 13,628 cafe breakfasts, and in Melbourne it’s 9436.

Domain chief of research and economics Nicola Powell said the capital cities are still sellers’ markets and listings remain tight, although the peak rate of price growth has passed.

The amount of total stock on the market is lifting – only slightly – but it shows listings are starting to come onto the market faster than they are being sold, which would keep a lid on the pace of price growth, she said.

“A big element of this is affordability, that is feeding into this pace of growth,” Dr Powell said. “First-home buyers are facing such headwinds in terms of getting into the market. For some buyers, the leap to upsizing has just become too great.”

She said she expected another few quarters of price growth, at a more moderate pace.

The unknown is whether it will get harder again to borrow money, such as limits on taking on debt of more than six times incomes, which could take more heat out of the market.

On the ground, buyers and sellers are starting to see a split between the best properties and the rest.

In a boom, buyers with a fear of missing out will pay huge sums for houses on noisy main roads or with structural issues. Now, not quite as much.

“A-grade stock – and that’s what suits the largest demographic and is still hot out there – is all going very, very well,” PK Property managing director Peter Kelaher said. “C-grade stock is not going well at all.”

The Sydney-based buyer’s advocate said that now, several weeks post-lockdown, locals are booking holidays and getting on with their life rather than focusing on buying a new home.

“The urgency has come out of the market,” he said.

Melbourne emerged more recently and did not run as hard while private inspections were banned during the depth of lockdown. Buyer’s advocate David Morrell is seeing a post-lockdown rush, estimating some homes in affluent areas have jumped 5 to 10 per cent in price in the last six weeks. Inspection rules were relaxed before lockdown ended.

“It’s certainly come out hard, a lot harder than people think, and it’s caught everybody a bit by surprise,” he said, adding auctions of family homes in top neighbourhoods are soaring well over expectations.

But not everything is selling.

“There are still lemons out there that aren’t selling,” he said. “Your unit market is still very soft.”

He insisted buyers had no need to get caught up in the frenzy.

“You don’t need to panic and buy a second-rate property – that’s something we’re really saying to people.”


South-East Queensland Land Stock Plummets 70pc in Year

The big land squeeze is on in south-east Queensland with stock levels plunging almost 70 per cent during the past year, turning up the heat on buyer competition and price growth.

Ballots and auctions, rarely seen for land sales in Queensland before, are being introduced by developers due to the shortage and unprecedented clamour for land lots.

New data from property service group Oliver Hume shows current stock in south-east Queensland has plummeted 69.5 per cent over the past 12 months.

Only 396 lots of land were on the market across south-east Queensland in September this year compared to 1299 lots in September 2020.

The growth corridors of Logan (-74.5 per cent), Ipswich (-66.1 per cent) and Moreton Bay (-70.9 per cent) have experienced the most significant falls in the number of available lots over the year.

Only the Gold Coast bucked the trend with a small increase (5.9 per cent) but its stock levels are still well below the two-year average, down 28.6 per cent.

Oliver Hume Queensland project director Matt Barr said delays in construction and lengthy project approval processes had contributed to the declining stock levels.

He also said pent-up demand had caused heated competition in the market and price growth.

“Buyers are clamouring for land and the significant fall in available stock demonstrates just how high demand is at the moment,” Barr said.

“Developers are even implementing sales procedures such as ballots and auctions to give prospective buyers a fair chance of securing a lot.

“Auctions and ballots for land occur often interstate, but for them to be happening in Queensland tells you how hot the local property market has become.

“Strong demand, improving buyer confidence and low interest rates are making it one of the most competitive land markets in recent history.”

Barr said the good news was that several large developments were set to launch in the near future, which would help satisfy some of the demand.

But, he said, another factor on the horizon was “increased interstate migration which, as restrictions ease, could place even more pressure on the local land supply pipeline”.


Council Negotiates Land Deal for South Bank 2.0

The vision for South Bank 2.0 is crystallising as negotiations progress for a riverfront industrial site in Brisbane’s inner-city suburb of West End.

Speaking at the Property Council of Australia Queensland lunch, Brisbane Lord Mayor Adrian Schrinner confirmed the council’s offer had been “well received” and negotiations were progressing for the 7ha site at 137 Montague Road.

The site has been slated for the temporary international broadcast centre as part of the Brisbane 2032 Olympic Games.

Currently an industrial site for Visy Glass works, the buildings would be demolished, site remediation would be carried out and a power substation built for the temporary 57,000sq m international broadcast centre.

“It’s the perfect way to add to what was created at South Bank for Expo ‘88—this is going to be South Bank 2.0,” Schrinner said.

“The offer for the Visy Glass factory site has been well received and we are progressing through those negotiations now.”

According to the Future Host Commission Report, the land could be compulsorily acquired with fair compensation, and site preparation would require capital investment from the state government.

Under the plan, the factories along Montague Road at West End would likely move from their waterfront site over the next five years to make way for the temporary Olympic infrastructure, and ultimately an extension of public parkland.

“Everyone wants to get cracking on the Olympic opportunities and there’s a lot of work to be done … we want to measure twice and cut once, it’s neither a sprint nor a marathon,” Schrinner said.

Schrinner said the focus was on building the right infrastructure and legacy for the city and south-east Queensland beyond the Games.

The International Broadcast Centre would be within walking distance of five Olympic sporting venues and a shuttle bus would operate between the broadcast centre and the media centre at the Brisbane Convention and Exhibition Centre.

It would align with the council’s draft Kurilpa Riverfront Renewal Masterplan, which aims to unlock riverfront land in the industrial area of West End.

Lord Mayor Adrian Schrinner said the council had committed to deliver a new multi-use parkland on the 7ha site.

“Negotiations with the owner of the industrial business on the site continue positively,” Schrinner said.

“As soon as we can reveal more, we will … we’re looking forward to sharing our vision for South Bank 2.0 and delivering this lasting legacy for residents and visitors to our great city.”

At the heart of Brisbane’s Olympic Games is the $1-billion redevelopment of The Gabba as the main stadium to host the Opening Ceremony and the athletics.

The Brisbane Arena will be built near Roma Street Parklands with a capacity of 15,000 people, and will host the swimming and water polo, while Ballymore would be rebuilt to host hockey matches, and a new indoor arena has been slated for Albion.

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