What’s happening with Australian property prices? 

Australian property prices have grown at rapid rates over the last twelve months despite fears they would crash during the pandemic. Property prices reached new records across Australia in August 2021. Data from CoreLogic’s latest monthly Hedonic Home Value Index suggest that the growth of property prices is falling slightly, in line with an unwinding of pandemic-related stimulus, but property price growth remains high.

Australian dwelling values rose 18.4% in the 12 months to August 2021, the highest annual growth rate since February 2004, says CoreLogic. Regional areas are experiencing the highest rates of annual dwelling value appreciation, recording 19.6% compared with 15.1% in capital cities (see Figure 1).

Figure 1. Dwelling value growth rates in regional areas and capital cities (%), Jan 20 – Aug 21

In dollar terms, Australia’s median property price has risen by $103,400 to $666,514 in the past year, which equates to about $1,990 per week (see Figure 2). This is quite extraordinary given the average full-time working adult earns $1,737 on a weekly basis, according to ABS May 2021 earnings data.

Figure 2. Median property prices in major capital cities and combined regions ($), Jan 20 – Aug 21

Rents are also surging across the country. In the 12 months to August, CoreLogic data reported that Australian rent values increased 8.2%, which is the strongest annual appreciation in rents since December 2008. Regional areas are again the most affected, recording 11.9% growth in rental prices over the year to July 2021. 

Why are prices going up?

There are several factors contributing to the most recent boom in Australia’s housing market.

Loose monetary policy and relaxed lending standards mean that money is easily accessed by those who are looking to extend credit for housing. Assisted by fiscal policies like HomeBuilder ($15,000 – $ 25,000 grants to build a new home or substantially renovate existing home), Family Home Guarantees (a single parent can get a home lean with a 2% deposit), and the First Home Super Saver Scheme (voluntary contributions of $30,000-$50,000 can be released), many were encouraged to purchase property, which encouraged others to join in – the Fear Of Missing Out (FOMO) effect. This has been particularly true in regional areas as remote working arrangements have allowed people to relocate to less crowded areas while keeping their job.

Housing demand has been further supplemented by a renewed wave of private housing investors. The portion of new lending for investment housing (excluding refinancing) rose to 28.7% in July 2021 from a low of 23.0% a few months earlier. 

In addition to private investment, an article from BuyersBuyers reports an increase in the number of Australian expats engaging with the housing market since the housing market surge towards the end of 2020. Expat interest has centred around the most expensive properties in Sydney, Melbourne, and Southeast Queensland. Data from the ABS Overseas Arrivals dataset show that around 500,000 Australians have returned home since the beginning of the pandemic, which equates to half of the expat community according to estimates from Advance.org.

According to some commentators, supply response to surging demand has been suppressed by widespread and long-lasting lockdowns that have made it more difficult to sell real estate, especially for those in Victoria and New South Wales. The total stock of housing properties advertised is currently sitting 27.1% below the five-year national average, says CoreLogic. However, according to the RBA, this may reflect the strength of the property market, with the July RBA Board minutes noting: “As had been the case for some time, the flow of new listings for sale remained similar to pre-pandemic levels but total listings were much lower, implying that dwellings were being sold at a rapid pace.” 

Rents have been pushed up alongside housing prices as landlords have struggled to maintain yields on their property investments. Renters with disposable incomes supplemented by fiscal support programs have been willing to pay the steeper asking price.

All of this has taken place against the backdrop of low vacancy rates, which according to SQM Research data dropped to 1.7% on average across the country in June 2021 from 2.2% one year earlier. In a recent statement, SQM Research Managing Director pointed toward elevated vacancy rates in Melbourne as evidence of “ongoing caution on future city lockdowns…”, which is simultaneously contributing to low vacancy rates in small capital and regional areas that are seen as less susceptible to outbreaks. The return of 500,000 expats is another notable factor that could be materially contributing to low vacancy rates.

Who’s losing out?

Regional locals, low-income earners, and first-home buyers are the three demographics to be hit the hardest by the recent housing boom.

The ABC has reported widely about regional residents being priced out of local housing markets. Regional areas often have fewer employment opportunities and lower wages than capital cities, meaning regional locals are unable to compete against big smoke escapees that have been arriving more frequently (see Figure 3). 

Figure 3. Net migration count for combined Greater Capital Cities (GCCs) and rest of state, Sep 01 – Mar 21

Source: ABS

Michele Adair, chair of the Community Housing Industry Association NSW, told the ABC in a recent article that there is a serious lack of affordable housing supply in regional Australia:

We are now seeing professional people, who have never in their lives imagined that they would have housing insecurity, simply not able to rent, let alone buy.

Broadly speaking, dwelling value growth of this magnitude is bad news for all those not yet in a financial position to own property but who wish to buy a property. With the latest ABS data placing annual wage growth at around 1.5%, Tim Lawless, CoreLogic research director, said in an interview with the ABC that: 

housing prices have risen almost 11 times faster than wages growth over the past year, creating a more significant barrier to entry for those who don’t yet own a home.

Finally, affordability constraints faced by first-home buyers are reflected in CoreLogic data, which show first-home buyers comprising a smaller portion of market demand across every state.

The difficulties faced by young people saving up for a house was dubbed the “Deposit Gap” in a 2016 Housing Affordability Report by the Australian Institute for Progress (AiP). The issue here being the large span of time it takes to save for a median priced house on an average income, which AiG calculated to be 12.8 years in Brisbane and 23.8 years in Sydney.

In this respect, an equity issue has also become apparent in Australia as young people become increasingly dependent on wealthy parents to help them buy a property. Digital Finance Analytics analysis shared with the ABC showed that the Bank of Mum and Dad would be the ninth largest lender in the nation.

Will things go on like this? 

Many economists believe that current trends in the housing market cannot be sustained, and indicators are emerging to suggest that growth in the housing sector may be losing momentum.

According to a mid-year survey of 22 leading economists, most believe the height of the property boom has passed, with dwelling prices expected to be up 16% in Sydney and 11% in Melbourne by the end of the year before returning to more normal rates of 4% and 3% growth in 2022, respectively.

HSBC Australia chief economist Paul Bloxham said in an interview with Domain.com that he expects “the housing market is going to cool over the coming quarters and running into 2022,” noting that ongoing border closures and stalled population growth would weaken housing demand and see price growth drop back to single digits.

CoreLogic’s Home Value Index also suggest that the market is beginning to cool. From a rolling 28-day growth rate peak of around 2.75% in March, the Home Value index recently tracked at 1.4% as of 31 July for capital cities. That said, this is still an annualised growth rate of 18.14% so there is considerable scope for further cooling. 

Australian Bureau of Statistics lending indicators data shows the value of new home loans fell 1.6% in June for the first time since October 2020, but new home loan commitments are still at very high levels (see Figure 4).

Figure 4. New home loan commitments total and owner-occupier, $ millions, Jan 08 – Jul 21

Source: ABS

ABS Building Approvals data reveal that the number of home building approvals also fell 8.6% to 17,601 in July. This was the fourth consecutive monthly decline reflecting the unwinding of pandemic stimulus measures, such as HomeBuilder that closed applications on 14 April 2021, but this figure is still over 20% higher than this time last year (Figure 5). We should note that the high levels of building approvals over the last six-to-twelve months herald a boost to future housing supply which should help moderate price growth in the next year or so. 

Figure 5. Total number of dwelling units approved, seasonally adjusted, Jan 07 – Jul 21

Source: ABS

What about policy action to moderate house price growth? We know that the RBA does not consider house price growth as a consideration in its setting of monetary policy, which leaves only so-called macro-prudential policies (e.g. restrictions on credit to investors) on the table. RBA Governor Lowe has essentially handballed the issue of property prices to the Australian Prudential and Regulation Authority (APRA) which would be responsible for implementing macro-prudential measures.  The minutes of the RBA Monetary Policy Meeting in July note:

In view of the environment of rising housing prices and low interest rates, members continued to emphasise the importance of monitoring trends in housing borrowing and ensuring that lending standards are maintained.

Another housing policy area that deserves attention is the various restrictions on housing supply (e.g., heritage and zoning rules) that increase the cost of housing. Relaxing supply restrictions could bring down property prices substantially over the long-term, as discussed by CIS Chief Economist Peter Tulip his CIS Policy Paper, Planning restrictions harm housing affordability:

Planning restrictions are estimated to raise house prices 73 per cent above these costs in Sydney, 69 per cent in Melbourne, 42 per cent in Brisbane and 54 per cent in Perth.

Of course, as with many economic policy issues, there is extensive debate about the influence of planning restrictions (e.g. see Cameron Murray’s article Land Banking: red tape and a dearth of housing supply are a myth). Peter Tulip acknowledges this in his CIS paper, noting that relaxing planning restrictions wouldn’t have much of an impact in the short-run, although it would have a substantial impact in the long-run. 


New home loan commitments are slowing and pandemic policies like HomeBuilder are drying up. But the housing market still has a long way to go before it settles down and property price growth slows to a more sustainable rate. Ultimately, while recent developments in property prices are alarming for many, various indicators suggest that some semblance of calm will eventually be brought about.



Published on 15 September 2021. This article was prepared by Adept Economics Research Officer Ben Scott and Director Gene Tunny. Please get in touch with any questions or comments by emailing us via contact@adepteconomics.com.au or call us on 1300 169 870.

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