The Real Culprits Behind Australia’s Housing Affordability Crisis

Australia’s housing affordability crisis is a multifaceted issue often oversimplified by attributing it solely to population growth and migration. However, a comprehensive analysis by Propertyology reveals a more complex picture, highlighting a “perfect storm” of factors such as labor and material shortages, higher interest rates, and increased investor selling, all contributing to a significant supply shortage.

 

Debunking the Population Growth Myth

Simon Pressley, head of research at Propertyology, challenges the common perception that population growth is the primary driver of property market dynamics. Using data from the Australian Bureau of Statistics, Propertyology examined the population growth of 120 cities and municipalities with more than 20,000 residents over two decades up to June 2023. The analysis juxtaposed population growth against real estate capital growth rates, finding no direct correlation between the two.

 

For instance, Sydney experienced significant capital gains over the past twenty years but ranked only 43rd in terms of population growth among Australian cities. This disparity suggests that other factors are at play in driving property prices.

 

The Case of Mandurah and Other High-Growth Areas

Mandurah, a coastal city in Western Australia, saw its population grow by an astounding 91% over the past 20 years, making it the fastest-growing city in Australia for 14 of those years. Despite this, the median house price remained unchanged. This trend is mirrored in other high-growth areas such as Victoria’s Surf Coast (85% growth), Busselton in Western Australia (81% growth), Queensland’s Sunshine Coast (70% growth), and Mount Barker in South Australia (68% growth), all of which exhibited underwhelming property price growth.

 

Factors Beyond Population Growth

The analysis underscores that while population growth can impact housing markets, it is not the dominant factor many believe it to be. Instead, a combination of labor and material shortages, higher interest rates, and increased investor selling are significant contributors to the current housing affordability crisis.

Labor and Material Shortages: The construction industry has faced significant challenges in sourcing labor and materials, leading to delays and increased costs in building new homes.

Higher Interest Rates: Rising interest rates have made borrowing more expensive, reducing the affordability of mortgages for potential buyers.

Increased Investor Selling: With investors offloading properties, the market has seen fluctuations that contribute to price instability.

 

The Impact of Migration on Rents

Interestingly, migration appears to influence rental prices more directly than property purchase prices. CoreLogic’s research highlights the case of Carlton in Melbourne, where an 18.4% increase in population corresponded with an 18% rise in rents, while sale prices actually fell by 10.9% over the same period. This suggests that while migration can drive demand for rental properties, it does not necessarily lead to higher purchase prices.

 

Conclusion

The housing affordability crisis in Australia cannot be pinned down to a single cause like population growth. Instead, it results from a convergence of various factors, including supply chain issues, financial policies, and market dynamics. By understanding the broader picture, policymakers and stakeholders can develop more effective strategies to address the underlying issues and improve housing affordability for all Australians.

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