The property market segments poised to explode post-election

The Albanese government is basking in its electoral success, and since housing has been centre of the political debate for the past few years, they’re probably thinking they’ve got their approach about right given the size of its victory.

Electorally that may be true. But chances are their housing policies will come under serious scrutiny within a few months.

Theoretical debates may flare in Canberra, but it’s the fundamentals of the market – factors like supply and demand, the cost of a mortgage – that will determine what happens on the ground.

And what we’re seeing on the ground is a market set for buoyant trading conditions.

Investors and home owners will be the biggest winners, while first homebuyers are the ones most likely to be disadvantaged.

For those wondering how it’s likely to play out, here are some sign posts to look out for and judge where we are in the property cycle and how your market is likely to develop over the next year.

Interest rates

The cost of money is still the most influential factor in the Australian market.

Currently, most analysts are predicting at least two rate cuts this year with the potential for a third. That will be the elixir the market needs.

Cutting interest rates increases the budget a homebuyer or investor can afford and that leads to more spirited bidding, greater house price growth and more properties being listed on the market for sale.

The speed at which rates decline is the key part of this equation to watch. If the RBA remains conservative and slow to cut, the market will lift at a modest pace.

If we get three cuts, as many are predicting, I expect most cities on the east coast will enter a price boom.

Sign Post: Two or more interest rate cuts.

Affordability vs prestige

With interest rates likely to fall this year, an interesting dynamic has been added to the largest metropolitan markets. 

Over the last two years, affordable markets have been the big movers.

We can see that in the outperformance of markets like Perth and Adelaide compared to their east coast cousins.

We can see this dynamic at work within metro areas. In the big cities, it’s been units and affordable outer suburban houses that have performed better than those in glamorous harbour side areas or in Melbourne’s ‘wealth belt’.

It’s also been a factor propelling many regional areas to outperform metro areas, especially in Western Australia, Queensland and New South Wales.

But a lower interest rate environment could see all that change around. That, at least, has been the experience over the last three decades.

There has been questioning by some on whether that mechanism has become subdued given the big jumps in real estate prices over the last two decades or so.

But if it plays out as before, as I expect it will, the best sign to see if we’re headed for a boom will be in auction clearance numbers.

If by August we see headlines highlighting eye-popping auction results, it will be the top 35 per cent of properties driving the market forward.

From that point on, cashed up and equity rich buyers will be the market’s engine, with the buyers of affordable homes struggling to keep up.

Sign Post: Auction clearances top 70 per cent in Sydney and Melbourne.

Housing affordability

It was one of the great conundrums of the election; while many people were looking for answers to housing affordability, the political process seemed determined to deliver fluff.

Solving Australia’s housing affordability crisis requires a series of policy changes, including tackling investor incentives and first home buyer grants that distort the market, boosting productivity in construction and serious reform to Australia’s antiquated approach to urban planning.

Each of these topics generate feisty opposition the government doesn’t seem to have an appetite to tackle.

As we can see from these metrics, the ability of young Australians to buy a home has been dramatically impacted over the last few years and these factors don’t look set to diminish much in the next few years.

Australia’s affordability sore will continue to fester. I expect that by the end of the year, housing affordability and the system’s intransigence to reform will once again dominate the political-media sphere.

Sign Post: Percentage of first time buyers falling.

Units vs houses

It’s a well-worn mantra: houses always outperform units in price growth.

There are good reasons why this has been true, including Australians’ love of a home with a garden and that houses have a higher proportion of land value in their sale price.

Having said that, the rise of apartment living continues apace. The 2021 Census found 29 per cent of Australians now live in a unit or townhouse and more than half a million people live in a high rise apartment (complexes of nine storeys or more).

The most likely reasons around continued strong performance for units are based on affordability and the desire of many younger Australians and downsizers to live in or near the city.

So, will houses resume their leadership over apartments across Australia?

They probably will. But at the same time, there’s a growing cohort of people who want to live in units closer to town or are only prepared to pay the price of an apartment or unit.

We can see this in recent figures that show, for instance, Brisbane units growing in value by 13.2 per cent over the last year and Perth units recording 12.9 per cent growth.

Maybe, just maybe, units will come to share the price growth leadership with houses.

Sign Post: Unit median price growth matching or exceeding house median price growth.