How did the Australian property market perform in 2020?

Nine months into the pandemic, Australian property values have eased slightly but annual price growth is still positive, thanks to the strong market turn in the latter part of 2019.

How did COVID-19 affect the property market in 2020?

The Australian economy took a large hit this year following our health response to coronavirus. The Australian economic quarterly decline was the largest in 60 years, with a 7% fall in the June quarter and a 6.3% fall over the year. Surprisingly, this has not affected the property market as strongly as most experts expected.

Signs of Recovery and Government Initiatives

15 May 2023

|In Blog

|By Margio

The Australian housing market has experienced a significant downturn, but recent indicators suggest that it may have reached a turning point. CoreLogic’s National Home Value Index has shown consecutive monthly rises, indicating a potential bottoming out of housing values.

Several factors, including stabilising housing values, positive auction clearance rates, and improving sentiment, support this positive shift.

This article explores the current state of the Australian housing market, the impact of supply and demand imbalances, and the government’s efforts to address housing affordability and support homebuyers and renters.

TL;DR:

Australian housing values have likely bottomed out, with consecutive monthly increases.
Housing values are stabilizing or rising across most areas of the country.
Positive trends are supported by auction clearance rates, improved sentiment, and home sales.
Supply and demand imbalances contribute to the positive shift in the housing market.
The government has implemented various initiatives to address housing affordability, including adjustments to Commonwealth Rent Assistance (CRA) and Build-to-Rent (BTR) development incentives.
Labor’s 2023-24 Budget focuses on increasing housing supply, enhancing CRA, and funding community housing and homelessness programs.
Challenges remain, such as high interest rates, housing unaffordability, and the impact of rapid rate hikes on household balance sheets.
The trajectory of interest rates will significantly influence the housing market’s outlook.

Table of Contents

Signs of Recovery in the Australian Housing Market

NAB’s May 2023 report on the Australian housing market highlights that after a period of decline, the Australian housing market is showing signs of recovery. CoreLogic’s Home Value Index indicates a positive growth trend, with values stabilizing or increasing across most regions. Sydney is leading the way, experiencing consecutive monthly rises since February. The four largest capital cities have also recorded housing value increases over the rolling quarter.

The positive trend coincides with a growing imbalance between supply and demand. Increased net overseas migration is amplifying demand, while low housing supply further supports rising values.

Prospective vendors, who stayed on the sidelines during the downturn, are now benefiting from below-average inventory levels and improved negotiation leverage.

Government Initiatives to Address Housing Affordability

The Australian government has recognized the need to address housing affordability and has implemented various initiatives to support homebuyers and renters. In the recent budget, Labor introduced adjustments to Commonwealth Rent Assistance (CRA), Build-to-Rent (BTR) development incentives, increased funding for community housing, and additional support to tackle homelessness.

The CRA program, the largest housing assistance program, provides financial aid to households in the private rental market. The budget included a 15% increase in the maximum rate of CRA, benefiting around 1.35 million households. While this recognizes the challenges faced by renters, the increase is modest compared to rising rents.

To create a fairer and more efficient system, the Productivity Commission recommends indexing CRA to rent increases and expanding eligibility to low-income renters who do not receive other government support.

Build-to-Rent (BTR) Developments and Tax Reforms

As outlined in CoreLogic’s report, the Labor’s budget also introduced tax reforms aimed at incentivizing Build-to-Rent (BTR) developments. BTR refers to residential developments in which all units are rented by one owner. The proposed reduction in withholding tax rates for eligible fund payments to newly constructed BTR developments from managed investment trusts (MITs) aims to attract more investment.

However, it’s important to note that BTR developments are not necessarily affordable housing, but they provide a more secure alternative to the current rental market. Industry experts argue that increasing BTR investments could boost housing supply.

Conclusion

The Australian housing market shows signs of recovery with rising housing values, improved auction clearance rates, and positive sentiment. While government efforts to address affordability through adjustments to Commonwealth Rent Assistance (CRA) and incentives for Build-to-Rent (BTR) developments are commendable, challenges like high interest rates and housing unaffordability persist.

The trajectory of interest rates will play a crucial role in the market’s outlook. A comprehensive review of CRA could help identify better ways to expand and target the program. Build-to-Rent developments have potential, but they are not necessarily affordable housing.

Direct investment into social housing and passing the help-to-buy scheme could have a more substantial impact on affordability. Targeted policies that address housing supply and affordability will be crucial in ensuring a fair, secure, and affordable housing market for all Australians.

Sources: NAB, CoreLogic

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