Australian housing market grows by 43% in last five years

Breaking all records, in December 2021 the typical Australian house was valued at $920,000 and the total valuation of the residential dwelling stock was estimated to be $9,901.6 billion. Further, a staggering price growth of 43% in the last five years and a rise of 24%in the last one year has left everyone awestruck, leading to speculations of an expected housing boom! Interested to know how the housing market fared in the last five years in Australia? Have a look at the detailed analysis here. 

Smashing all the existing records, the median house price in prime capital cities of Australia reached seven digits in the month of December 2021. While the appreciation in property prices has been remarkable across the country over the past few years, annual price growth of 24%, as per data revealed by the Australian Bureau of Statistics (ABS), was still very shocking.

With residential prices rising substantially over the last five years, while on one hand realtors are envisioning the prosperous future of the Australian housing segment, on the other hand, few experts fear that if this trend continues, affordability will be compromised for the larger populace.

Summing up such turn of events and digging deeper into the residential data, Square Yards presents some key findings of how the Australian housing market unfolded in the last five years. Let’s get started!

Sneak Peek into changing Aussie residential market

As the world recovered from the aftermath of the pandemic, the realty sector was one of the fastest to get back on track. Thus, the Australian housing market in 2021 was also anticipated to remain positive and display a strong price growth. However, the crazy explosion of the property prices which followed was beyond everyone’s expectations. According to data of the Australian Bureau of Statistics, the national average median price was over $1 million mark, and the total value of residential dwelling stock was estimated to be $9,901.6 billion.

Though the growth of the property market has been remarkably significant across the country over the last five years, the shifting of dwelling values towards the higher end has made affordability more challenging. And this could not be better understood from the fact that the typical Australian house, which was valued at $686,700 in the year 2017, was now worth $920,000 as of December 2021- a whopping appreciation of 34% in five years.

However, this surge in prices of residential dwellings was not uniform across other housing markets in Australia.

How property price growth varied across regions?

There is no doubt that over the last five years, different regions have seen housing conditions changing at different rates. While the median home price in a few markets such as Sydney and Canberra rose by more than $0.4 million mark in the last five years. Whereas in the cheapest city of Australia- Perth, the property prices surged only by about $65,080.

As of December 2021, Sydney recorded an annual growth of 27% in property prices, while the property prices in Canberra and Brisbane rose by 29% each.  Surprisingly, leaving all these expensive cities behind, Hobart emerged as the hottest property market with a 30% annual appreciation in property prices in 2021.

Why did residential prices surge tremendously?

Even though certain parts of Australia, mainly the ones near capital cities, were seeing price appreciation even before the pandemic hit, the flexible work arrangements imposed by Covid led to many people reassessing their lifestyles.

Further, the combination of shrinking supply, historic low mortgage rates, fewer alternative options due to border closures, remote working, and lockdowns along with government support has resulted in a rapid increase in demand. This rise in demand, according to many experts lead to a huge surge in housing loans in early 2021, thus contributing significantly to the hike in property prices.

Impact of increased housing prices on affordability?

As dwelling prices rose substantially in Sydney and Melbourne over the last five years, it resulted in households dedicating a big chunk of their annual incomes towards paying the mortgages. While households in Sydney are spending the largest proportion of their annual incomes- close to 49.3% -for mortgages, an average household in Melbourne spends about 42.6% on repaying home loans. The disheartening trend in affordability was at large driven by these two cities where housing values have increased significantly.

Also, with housing prices rising at a much faster pace than household incomes in different capital cities of Australia, affordability has become more challenging for homebuyers. Approbating the same, the data of the Australian Bureau of Statistics (ABS) revealed that in 2021, in Sydney itself, the dwelling price to income ratio was around 10.8, which means that a typical dwelling in Sydney cost about 10.8 times more than the median annual household income.

Such statistics have of course destroyed any sense of housing being affordable for an average household. It is anticipated that the rapid surge in dwelling price can also prove to be a significant obstacle to entry for new home buyers and upgraders given the proportional low wage growth. With this, affordability in Australian housing might continue to weigh on demand in 2022 as well.

Way forward for Australia’s housing market

If housing prices continue to increase at the same annual rate as they have increased over the past five years, there exists a high probability that historic averages will play out in the upcoming years. Why? Because no matter how uncertain and unpredictable the housing markets had been, one trend that always remains certain is that the housing market moves through its cycles. With periods of growth, decline follows, and finally, steady value conditions emerge. Thus, such surge in values tends to smooth out the year-to-year volatility in growth rates in the long run.

Apart from it, there are likely to be other evolutions in the housing market and housing demand will be susceptible to changes beyond imagination, especially with Covid still very much in the picture. So, only time will tell how the Australian housing sector will unfold, but the next few years can certainly be expected to be an interesting ride!

Sifa Singh Sifa loves digging deep into datasets, churning out trends, and weaving stories around them. She is a firm believer that reliable and real-time data-driven stories have the power to change the world by bringing forward insights and solutions which can guide better decisions at all levels. Being a proponent of sustainable actions, irrespective of the domain, she aspires to include ESG in all her pursuits.
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