‘Buy property now’ as prices, costs are only going one way

With property prices high around the country and building costs not subsiding significantly any time soon, do prospective property buyers wait or act?

3D rendering of modern house with plan
Building costs remain high, with inflationary pressures continuing to add costs to new homes. (Image source: Shutterstock.com)

The cost of living and building has been steadily rising in recent years.

Economic fluctuations, market dynamics, and geopolitical factors all contribute to this trend, making it clear these costs are unlikely to decline anytime soon.

Consequently, individuals are urged to consider purchasing now, as property prices are expected to continue climbing.

Building costs have surged nearly 40 per cent over the past four years, posing a significant challenge to the Albanese government’s goal of constructing 1.2 million homes by 2029.

According to the Australian Bureau of Statistics, housing market inflation remains a key contributor to rising consumer prices. After mid-2023, building costs stabilised at a 5 per cent annual increase due to high demand for state government infrastructure projects, leading to higher prices for materials and labour.

Stephen Havas, Managing Director of residential building company Garth Chapman Queenslanders, noted substantial rises in material costs and regulatory changes resulting in an additional $70,000 to construction costs.

These rising expenses threaten to reduce demand and the viability of construction firms, potentially causing the government to miss its housing targets.

Several key factors contribute to the rising cost of living and construction expenses. Raw material prices have escalated due to supply chain constraints, increased demand, and trade policies.

Labour shortages in the construction industry have driven up wages and, consequently, overall project costs. Stricter building codes and environmental regulations further add to expenses. Moreover, incorporating advanced technologies and sustainable practices, while beneficial in the long run, increases initial building costs.

CoreLogic’s home value index indicates that rising costs have reduced the feasibility of new development projects, as reflected in monthly dwelling approval figures, which are running 38 percent below the decade average this year.

Many potential builders are hesitant to proceed given the uncertain cost landscape.

High costs deter inaction

Current economic policies and market conditions suggest inflation will remain a persistent challenge, keeping prices elevated.

As inflation continues, the cost of goods and services will likely stay high, affecting various aspects of daily life and construction.

While some supply chain disruptions may ease, new challenges are likely to arise, maintaining pressure on supply chains and costs.

These ongoing issues can include geopolitical tensions, logistical bottlenecks, and raw material shortages, all contributing to sustained high prices.

The Federal Government's recent stage three tax cuts, effective from 1 July 2024, aim to relieve cost-of-living pressures, offering an average annual saving of $1890 for 13.6 million taxpayers.

However, a potential interest rate hike could offset more than half of these savings for 3.2 million mortgage-paying households.

While the government promotes its economic measures, the Coalition criticises these as a “cost-of-living con job.”

With inflation unexpectedly high in May, economists predict the Reserve Bank of Australia will increase rates, adding $103 per month to the average homeowner’s mortgage repayments.

State-specific impacts include NSW homeowners losing 70 per cent of their tax cut savings due to higher repayments.

The tax cuts, initially proposed by the Coalition and modified by Labor, benefit low and middle-income workers more than high earners. Despite concerns these measures may fuel inflation, RBA Governor Michele Bullock suggests households might use the extra cash for repayments or savings.

Assets as inflation hedge

Given these trends, it is prudent for individuals to consider purchasing sooner rather than later.

Real estate and tangible assets often serve as a hedge against inflation, preserving value over time.

Investing in property could provide financial security in an environment of rising costs. As property values increase, early buyers have the potential to build significant equity, creating opportunities for their future.

Purchasing property now allows individuals to benefit from future appreciation, leading to potential wealth accumulation.

The cost of living, construction boom, inflation, migration, property values and affordability are all critical factors in property purchases.

History shows, however, that the key to long-term success in property ownership lies in staying in the market, making careful and affordable selections, and persevering through challenging environments.

By doing so, investors can reap medium to long-term rewards, as better-quality properties will eventually pay off.

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