Australia’s real estate market is bracing for an extended phase of escalating property prices due to building approvals falling significantly short of population growth, according to an analysis by Your Property Your Wealth.
The analysis indicated that the 176,043 building approvals for the year ending February only meet 26% of the 659,800 net national population growth.
Daniel Walsh (pictured above), director of Your Property Your Wealth, noted that with population growth quadrupling the approved dwelling units, property prices are expected to spike.
“You simply can’t have such a significant gap between demand and supply without it resulting in soaring property prices,” Walsh said.
He pointed to rising interest rates and construction costs as exacerbating factors, diminishing the building industry’s output and further skewing the market balance.
The current disparity between population growth and building approvals echoes a supply-demand imbalance not seen for decades.
With a nearly 90,000 dwelling shortfall annually, based on Australia’s average household size of 2.5 persons, the situation presages a deepening housing crisis.
“The housing crisis is set to be deep and long with no medium-term remedy in sight,” Walsh said, suggesting a potential decade-long wait for market equilibrium.
“In the meantime, we are going to witness ever-increasing property prices because we simply do not have enough dwellings to house our current population, let alone the hundreds of thousands of new residents set to make our country home in the years ahead,” he said.
Walsh theorised that lowering interest rates due to decreased inflation could ameliorate the housing undersupply by encouraging construction and bolstering buyer confidence.
He forecasted strong price growth in more affordable capitals like Perth, Brisbane, and Adelaide, and remained optimistic about Melbourne and Sydney’s market potential once interest rates decline.
“Lower interest rates will also make people feel more confident given 90% of their wealth is tied up in property,” Walsh said, indicating a light at the end of the tunnel for the Australian housing market if conditions improve.
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