February 2024

Real Estate Round Up #67

This month, the Sydney housing market has been the subject of extensive discussion and analysis, reflecting a complex interplay of factors influencing both the demand and supply sides of the market. Drawing from a range of sources, this report delves into the current state of the Sydney housing market, highlighting key themes such as government policy impacts, auction clearance rates, demographic shifts, affordability challenges, and the diverging paths of house and unit values. Each of these themes offers insight into the broader dynamics at play within Sydney’s property landscape.

Government Policy and Housing Investment

The Real Estate Institute of Australia (REIA) has raised concerns regarding the Albanese Government’s recent tax policy adjustments, suggesting that these changes could deter housing investment. The policy, which increases taxes on foreign investment while simultaneously reducing application fees for Build to Rent (BTR) projects, is seen as favouring corporate entities over individual investors. This shift could potentially exacerbate housing affordability issues, as corporate landlords might evict tenants to increase rental prices(1).

Affordability and Market Entry Strategies

Affordability remains a central concern in the Sydney housing market, with significant barriers for first-home buyers. The Domain article highlights affordable apartment options in capital cities, including Sydney, where buyers can find apartments for less than $500,000 in certain suburbs. This information is crucial for those looking to enter the property market under tight budget constraints(4).

Moreover, the challenges faced by first-home buyers in saving for a deposit are underscored by the Domain report, which suggests that buyers can expedite their market entry by adjusting expectations regarding location and property type. This adjustment in buyer strategy reflects the broader issue of affordability and the lengths to which individuals must go to secure homeownership(7).

Auction Clearance Rates Indicate Market Recovery

A notable recovery in auction clearance rates has been observed, with the capital city clearance rate reaching 76.2%, the highest since June of the previous year. This recovery is particularly pronounced in Sydney, where the early clearance rate hit 80.4%, suggesting a significant improvement in market sentiment. This resurgence in auction success rates may indicate a better alignment between buyer and seller pricing expectations, hinting at a stabilising market(2).

Demographic Shifts and Affordability

Sydney is experiencing significant demographic shifts, with young families increasingly leaving the city due to unaffordable housing prices. This trend is contributing to what has been described as a potential future where Sydney could become “the city with no grandchildren.” The departure of these families, primarily to more affordable regions, underscores the pressing issue of housing affordability in Sydney and its impact on the city’s demographic composition(3).

The Divergence of House and Unit Values

The gap between house and unit values in Sydney has widened significantly, with houses now commanding a premium of 45.2% over units. This divergence is attributed to factors such as the underlying land value, the scarcity factor, and a heightened desire for more space following the pandemic. Sydney has seen the largest expansion in the house premium since the pandemic began, highlighting the growing affordability gap between different types of housing(6).

The Role of Partnerships in Homeownership

The importance of dual-income households in achieving homeownership is highlighted in another Domain article, which points out that single-headed households, especially those with lower incomes, are finding it increasingly difficult to enter the independent rental sector, let alone the housing market. This trend underscores the growing challenge of affordability and the advantage that dual-income households have in accumulating the necessary capital for property investment(8).

Regional Markets Outpacing the Capital

The regional property market is outperforming the capital cities, with regional Australia recording a quarterly increase of 1.2% compared to the capital cities’ 1.0%. This trend is partly due to the ‘boom’ experienced during the pandemic, driven by high net internal migration flows and strong affordability in regional areas. Despite a slowdown in growth rates, regional markets continue to offer attractive opportunities for investors and homebuyers alike(9).

Wage Growth and Housing Affordability

The gap between wage growth and housing affordability continues to widen, as highlighted by the Australian Bureau of Statistics Wage Price Index. Despite a steady increase in wages since 2020, the pace of wage growth has not kept up with the rising costs of housing, exacerbating the affordability crisis for many potential buyers in Sydney and beyond(10).

Conclusions and Recommendations

The Sydney housing market is at a critical juncture, with government policies, market dynamics, and demographic trends all playing pivotal roles in shaping its future. To address the challenges of affordability and investment deterrence, it is crucial for policymakers to consider a balanced approach that supports both individual and corporate investors. Additionally, efforts to enhance housing supply, particularly in high-demand areas, could help mitigate the affordability crisis and support demographic stability.

The recovery in auction clearance rates offers a glimmer of hope for market stabilisation, yet the widening gap between house and unit values raises questions about long-term sustainability. As Sydney navigates these complex issues, the role of regional markets as a pressure valve for affordability and demographic shifts cannot be underestimated. A strategic focus on supporting growth in these areas, while also addressing the core challenges within Sydney, may provide a pathway towards a more balanced and accessible housing market.

References

  1. https://www.therealestateconversation.com.au/news/2024/02/12/reia-cautions-albanese-government-deterring-housing-investment/1707688166
  2. https://www.therealestateconversation.com.au/news/2024/02/11/corelogic-auctions-it-looks-the-year-has-started-with-much-better-fit-between-buyer
  3. https://www.abc.net.au/news/2024-02-13/sydney-house-prices-force-more-young-families-leave-nsw/103456198
  4. https://www.domain.com.au/news/where-to-buy-an-apartment-for-less-than-500000-australia-1261841/
  5. https://www.therealestateconversation.com.au/news/2024/02/13/sale-volumes-across-the-majority-australias-smaller-state-capitals-exceed-historic
  6. https://www.therealestateconversation.com.au/news/2024/02/20/gap-widens-between-house-and-unit-values-corelogic/1708367696
  7. https://www.domain.com.au/news/where-can-you-get-into-the-property-market-the-fastest-1263678/
  8. https://www.domain.com.au/news/the-key-to-finding-a-home-first-find-a-partner-2-1264984/
  9. https://www.therealestateconversation.com.au/news/2024/02/26/regional-property-market-outpaces-capitals-slowdown-hits-cities-corelogic/1708890959
  10. https://www.domain.com.au/news/how-the-gap-between-home-buying-hopes-and-reality-just-got-wider-2-1265445/