Market Trends and Rental Prices:

The demand for property in Sydney remains strong, with sellers in Sydney and Melbourne getting the message that prices are rising ahead of the spring season(11). This is in part because of the perception of property as a safe investment during economic uncertainty and the increased demand for properties with outdoor space and home offices, post-pandemic(3). However, this demand is not being met with a corresponding increase in supply, leading to higher prices and increased competition among buyers. As a result, hopeful home buyers face the next hurdle of moving goalposts as prices continue to rise(3). The surging prices are placing a significant burden on first-time buyers and those with limited financial resources.

The rental market is also facing challenges, with an increasing number of people struggling to find rental properties despite having stable employment and a history of paying rent on time(2). This is partly due to the supply shortage and increased competition among renters, but also because landlords are becoming more selective about their tenants, possibly due to concerns about the economic outlook and the ability of tenants to pay rent in the future(2). The stringent criteria set by landlords are creating an additional layer of difficulty for prospective tenants.

Post pandemic, home offices are still popular

Supply Shortages:

Land shortages are at the core of the housing crisis, according to the Housing Industry Association (HIA)(5). This is due to a combination of factors, including increased demand for land, restrictions on land use, and challenges in the construction industry. The NSW government has acknowledged this issue and has developed a 10-point plan to increase rental supply, which includes fast-tracking planning approvals, incentivizing the construction of more rental properties, and investing in social and affordable housing(9). Addressing the land shortages is crucial for stabilizing the housing market and ensuring affordable housing for all.

Economic Outlook:

The economic outlook is uncertain, with concerns about the ongoing impact of the COVID-19 pandemic and the increasing costs associated with climate change. The insurance crisis is one example of how the economic and climate crises are interconnected. Homeowners are facing increasing insurance premiums due to the increased risk of natural disasters, and some are struggling to afford the increased costs(6). This, in turn, could impact the housing market, as it may make it more difficult for people to buy or sell properties. The interconnection of these crises necessitates comprehensive solutions that address multiple challenges simultaneously.

Potential Solutions:

One potential solution to the supply shortage is to encourage the construction of more eco-friendly homes. This could help address both the demand for more sustainable housing options and the need for increased supply. Ray White, a real estate agency, suggests that eco-homes are the future and that there is a growing demand for properties with environmentally friendly features(4). There is also a push to transform construction in Australia by making the promised 1.2 million homes climate-friendly(10). This would involve investing in new technologies and construction methods to reduce the carbon footprint of new homes. The transition to eco-friendly homes is not only essential for addressing climate change but also for meeting the growing demand for sustainable housing.

Another potential solution is to incentivize the knock-down-rebuild of properties for investors. This involves demolishing an existing property and building a new one in its place. While this can be expensive and time-consuming, it may be a more cost-effective option for investors in the long run, as it can increase the value of the property and provide tax benefits(7). However, this option may not be suitable for all investors, as it requires a significant upfront investment and may not be feasible in all locations. Thorough evaluation of the costs and benefits is necessary before proceeding with this option.

Government Actions:

The NSW government has taken several actions to address the housing crisis. One of these is the 10-point plan to increase rental supply, which aims to address the shortage of rental properties and make it easier for people to find affordable rental accommodation(9). This includes measures to fast-track planning approvals, incentivize the construction of more rental properties, and invest in social and affordable housing. These actions are crucial steps towards addressing the housing crisis, but ongoing efforts and continuous monitoring are necessary to ensure their effectiveness.

Another government initiative is the First Home Loan Deposit Scheme, which allows first home buyers to purchase a property with a smaller deposit and reduces their monthly repayments(8). This is designed to make it easier for first home buyers to enter the property market and could help address the demand for affordable housing options. While this scheme provides much-needed support to first home buyers, it is important to ensure that it is accessible to those who need it most and that it does not inadvertently contribute to further inflation of property prices.

Conclusion:

The Sydney housing market is facing several challenges, including increasing market trends, rental prices, supply shortages, and an uncertain economic outlook. Potential solutions to these challenges include encouraging the construction of eco-friendly homes, incentivizing the knock-down-rebuild of properties for investors, and government initiatives to increase rental supply and support first home buyers. Ultimately, addressing these challenges will require a multifaceted approach that takes into account the needs of all stakeholders in the housing market. Continuous efforts and collaboration among all stakeholders, including the government, the construction industry, and the real estate sector, are essential for creating a more sustainable and inclusive housing market in Sydney.

References:

1. Allhomes (2023). It’s like stepping into yesteryear: The hallmarks of a charming home. [online] Available at: https://www.allhomes.com.au/news/its-like-stepping-into-yesteryear-the-hallmarks-of-a-charming-home-1228975 [Accessed 29 Aug 2023].
2. Domain (2023). Sammi has a full-time job and paid rent for 15 years. No one will rent her a property. [online] Available at: https://www.domain.com.au/news/sammi-has-a-full-time-job-and-paid-rent-for-15-years-no-one-will-rent-her-a-property-1229570/ [Accessed 29 Aug 2023].
3. Domain (2023). Moving goalposts: The next hurdle for hopeful home buyers. [online] Available at: https://www.domain.com.au/news/moving-goalposts-the-next-hurdle-for-hopeful-home-buyers-2-1228730/ [Accessed 29 Aug 2023].
4. The Real Estate Conversation (2023). Eco homes the future: Ray White. [online] Available at: https://www.therealestateconversation.com.au/news/2023/08/14/eco-homes-the-future-ray-white/1691976676 [Accessed 29 Aug 2023].
5. The Real Estate Conversation (2023). Land shortages at core of housing crisis: HIA. [online] Available at: https://www.therealestateconversation.com.au/news/2023/08/10/land-shortages-core-housing-crisis-hia/1691641223 [Accessed 29 Aug 2023].
6. The Real Estate Conversation (2023). Rising premiums the next crisis facing homeowners. [online] Available at: https://www.therealestateconversation.com.au/news/2023/08/05/rising-premiums-the-next-crisis-facing-homeowners/1691198059 [Accessed 29 Aug 2023].
7. Your Investment Property (2023). Knock down and rebuild: what you need to know. [online] Available at: https://www.yourinvestmentpropertymag.com.au/property-renovation/knock-down-and-rebuild-what-you-need-to-know-275255.aspx [Accessed 29 Aug 2023].
8. Your Investment Property (2023). How the First Home Loan Deposit Scheme is helping Australians. [online] Available at: https://www.yourinvestmentpropertymag.com.au/news/how-the-first-home-loan-deposit-scheme-is-helping-australians-275211.aspx [Accessed 29 Aug 2023].
9. Your Investment Property (2023). NSW Government reveals 10-point plan to tackle housing crisis. [online] Available at: https://www.yourinvestmentpropertymag.com.au/news/nsw-government-reveals-10point-plan-to-tackle-housing-crisis-275183.aspx [Accessed 29 Aug 2023].
10. ABC News (2023). Experts call for 1.2 million homes to be made climate-friendly as part of construction overhaul. [online] Available at: https://www.abc.net.au/news/2023-08-28/experts-call-for-1.2-million-homes-to-be-made-climate-friendly/100416492 [Accessed 29 Aug 2023].
11. The Age (2023). Buyers told to act now as property prices set to surge. [online] Available at: https://www.theage.com.au/business/the-economy/buyers-told-to-act-now-as-property-prices-set-to-surge-20230824-p58sv8.html [Accessed 29 Aug 2023].