Population growth and the nation’s wealth will be the main long-term drivers of our property market, rather than short-term fluctuations caused by interest rate increases, inflation, or government intervention.
Despite the difficulty of forecasting, particularly about the future, history is instructive, so let’s take a look at the past, even though it is only one component of a comprehensive view of the Australian property market in the future.
I’ve been in real estate for over 30 years and lived through a few market booms, which are generally accompanied by significant structural changes.
In the 1970s, the median home price rose from $23,000 to $55,700, an average annual gain of 9.9%—and a reminder of the wealth-building potential of homeownership.
During the 1970s, more women joined the workforce, and banks began accepting their income for serviceability, giving households twice as much borrowing power. By 1980, the average price of a house in Sydney was around $76,500.
With the deregulation of banks in the 1990s, nonbank lenders such as Aussie Home Loans entered the market with less restrictive lending policies. As a result of this increase in credit availability, the value of homes more than doubled to $184,600, leading to a significant property boom.
The mining boom in the early 2000s led to significant wage increases across the nation, not only in Western Australia but throughout Australia, thus enabling people to borrow more money and causing another property boom. Buying a property in Sydney in 2000 cost roughly $312,000, with the price increasing to $575,900 by 2010.
Australia experienced another mining boom after the Global Financial Crisis in the late 2000s. Foreign investors saw our housing markets as relatively cheap and our economic and political environments as stable, which led to significant foreign investments in residential real estate.
During the most recent substantial property boom in 2020 -21, interest rates dropped to historic lows, giving borrowers significantly increased borrowing power. This, in combination with a number of government stimulus packages, created a property boom once in a lifetime and increased the total value of residential real estate in Australia by over $2 trillion during a time of considerable pent-up demand.
It is expected that the next major structural change will occur when the Baby Boomers die off and their families inherit their $6.2 trillion worth of residential properties.
Thus, we are left wondering what will drive the growth of property prices in the future.
We anticipate that our property markets will become increasingly fragmented moving forward, and capital growth will be determined by local factors such as demographics, gentrification, neighbourhood, and wage growth.
It is to remember that our property markets move in cycles, there are also times when prices fall, or when prices remain flat for years.