June 2023

Real Estate Round Up #59

Introduction

The Sydney housing market is in a state of flux. With rising rents, a shortage of available properties, and increasingly unaffordable suburbs, the market presents significant challenges for renters, homeowners, and investors alike. Yet amidst these issues, opportunities emerge, shaped by broader economic factors, government interventions, and comparisons with other markets. This report will explore the current state of the Sydney housing market, drawing on multiple sources to provide an in-depth analysis of its key trends, issues, and potential solutions.

Market Trends

The Sydney housing market has recently seen significant changes and challenges. A report from Domain(1) highlights the reality for first-time buyers where a deposit under $100,000 is required to secure property in select suburbs. However, the rising market trends indicate that these suburbs are fast dwindling.

Sydney has risen from 6th to 3rd place out of 10 global cities ranked for luxury residential rental(4). This rise demonstrates the attractiveness of Sydney’s real estate to international investors. However, it also brings to light concerns about housing affordability for locals. Housing rents across Australia have seen a staggering increase of 2.75% according to REIA(5), further underlining the pressure on tenants.

Fastest-growing regions in Australia so far in 2023 highlight the urban sprawl and the increasing demand for homes in regions outside of the typical metropolitan areas(11). The combined capital cities clearance rate has rebounded to a three-week high according to CoreLogic(12), another testament to the high demand for properties.

Overall, the Sydney market, like many of its global counterparts, is experiencing significant pressure from both domestic and international sources, with rising prices and increasing interest rates among the key challenges.

Key Issues and Challenges

Housing market trends alone do not offer a comprehensive view of the housing situation in Sydney. Underneath the surface, multiple issues and challenges contribute to the current state of affairs.

The rental crisis in NSW is one such challenge. As reported by the Real Estate Institute of New South Wales (REINSW), vacancy rates continue to fluctuate, a trend that has severe implications for renters in the city and beyond(2). Tenants seeking affordable and convenient accommodation are faced with limited options, leading to intensified competition for rental properties. Tips for tenants in today’s tight rental market(3) underline this struggle, suggesting strategies to stand out in the crowded and competitive rental scene.

For those who have been able to invest in property, an increase in mortgage rates poses a significant problem. With twelve rate hikes and counting, Australia’s most mortgaged regions are facing serious repayment challenges(6). ABC News provides advice on what to do if struggling to make home loan repayments, offering options like negotiating with lenders or selling before foreclosure(7).

Furthermore, the issue of housing supply can’t be overlooked. Certain markets in Australia currently have zero new homes for sale, signalling a severe supply shortage(8). As the demand for properties soars, the shortage of supply leads to heightened competition, pushing prices upward and exacerbating the housing affordability crisis.

Potential Solutions and Government Interventions

The complex issues plaguing Sydney’s housing market necessitate multifaceted solutions, including both market-driven adjustments and purposeful government intervention.

In response to climbing interest rates and mortgage stress, one possible solution could be increased oversight and regulation of lending practices. Ensuring that loans are only granted to those who have a realistic capacity to repay them could prevent many homeowners from finding themselves in untenable financial situations.

For the rental market, increasing the supply of rental properties could alleviate some of the current pressure. This could be achieved through incentives for property owners to rent out vacant properties, or by easing restrictions and red tape around the construction of new rental units.

At the policy level, there are several government interventions that could make a significant impact. For example, funding and incentives could be provided to increase the construction of affordable housing units. Investment in infrastructure and public transport could make outer suburbs more appealing, easing the demand on inner-city properties.

Moreover, changes in taxation could incentivise the construction of new homes or the sale of existing ones. For instance, lowering the capital gains tax for properties sold within a certain period after purchase might encourage property turnover, bringing more homes onto the market.

However, these interventions are not without potential drawbacks. For instance, increased regulation could make lenders more cautious, potentially making it more difficult for first-time buyers to enter the market. Likewise, while lower taxes could stimulate the market in the short term, they could also lead to reduced government revenue and potentially contribute to inequality in the longer term.

Experiences of Different Groups and Comparative Analysis

The Sydney housing market crisis is experienced differently by various groups. Renters, in particular, face increasing rents and a dearth of available properties, while investors enjoy rising property values. First-time buyers grapple with the challenge of entering the market due to soaring prices and higher lending rates. Low-income households are disproportionately affected by the crisis, as their options for affordable housing dwindle. Government support measures, while helpful to some, are often insufficient to bridge the gap caused by such a steep rise in costs (6, 3).

As we turn our attention to other markets, it’s clear that Sydney is not alone in its struggles. Other Australian cities, including Melbourne and Brisbane, face similar housing crunches. Sydney, however, outpaces most when it comes to cost: it ranks as the third most expensive city for luxury residential rentals globally, surpassing traditional frontrunners like New York and London. This adds a layer of complexity to the crisis and underscores the necessity for targeted, locally appropriate solutions (4).

In contrast, some regions in Australia are experiencing unprecedented growth. The fastest-growing regions in Australia in 2023 include parts of Victoria and Queensland, where affordable housing and a booming economy are attracting both domestic and international migrants (11).

In conclusion, the Sydney housing market crisis is a multifaceted issue, affecting various groups differently. While certain market trends and government interventions hint at potential solutions, there remains a pressing need for comprehensive, well-coordinated strategies to ease the burden on Sydney’s residents and create a more sustainable housing market.

Conclusion

The current state of the Sydney housing market paints a picture of a complex, multifaceted crisis. From soaring rents to an ever-widening affordability gap, the market’s challenges touch all segments of the population. Despite the steep hill to climb, there is room for optimism. Government interventions, the potential for strategic housing construction, and lessons learned from other markets suggest a path forward. As we move into the future, it will be essential to continue monitoring these trends and advocating for solutions that bring housing within reach for all residents of Sydney.

Source List

  1. https://www.domain.com.au/news/secure-property-in-these-suburbs-with-a-deposit-under-100000-1219057/
  2. https://www.therealestateconversation.com.au/news/2023/06/19/rental-crisis-continues-grip-nsw-vacancy-rates-fluctuate-riensw/1687159313
  3. https://www.therealestateconversation.com.au/news/2023/06/19/tips-tenants-todays-tight-rental-market/1687120605
  4. https://www.therealestateconversation.com.au/news/2023/06/14/sydney-rises-6th-3rd-place-out-10-global-cities-ranked-luxury-residential-rental
  5. https://www.therealestateconversation.com.au/news/2023/06/14/australian-housing-rents-soar-275-reia/1686701557
  6. https://www.therealestateconversation.com.au/news/2023/06/20/australias-most-mortgaged-regions-and-the-impact-12-rate-hikes-and-counting
  7. https://www.abc.net.au/news/2023-06-21/what-to-do-if-struggling-to-make-your-home-loan-repayments/102474516
  8. https://www.domain.com.au/news/the-tightest-property-markets-in-australia-right-now-have-0-new-homes-for-sale-1218987/
  9. https://www.therealestateconversation.com.au/news/2023/06/15/auctions-selling-15-days-quicker-than-private-treaty-days-market-remain-high-ray
  10. youtube.com/watch?v=WW1BSd0RIrk
  11. https://www.domain.com.au/news/fastest-growing-regions-in-australia-so-far-in-2023-1220013/
  12. https://www.therealestateconversation.com.au/news/2023/06/26/combined-capital-cities-clearance-rate-rebounds-three-week-high-corelogic/1687750250
  13. https://www.migrationdataportal.org/international-data?cm49=36&focus=profile&i=stock_abs_&t=2020
  14. https://www.abs.gov.au/ausstats/abs%40.nsf/94713ad445ff1425ca25682000192af2/1647509ef7e25faaca2568a900