Quarterly states and territories chart pack: Spotlight on state housing markets

March quarter states and territories chart pack: April 2024

In brief

• The Australian housing market has been defying gravity over the course of the latest monetary tightening phase. Housing affordability is at a record low.
• The strength of the Australian housing market has been exacerbated by the surge in post-pandemic migration.
• Growth in dwelling prices and rents has been mixed across states and territories, reflecting varying degrees of population growth, available supply and affordability.
• Slow growth in supply and elevated housing demand will likely keep pressure on prices and rents over the next year.

One of the ways the Reserve Bank reaches its inflation target is via asset prices and the wealth channel. Higher interest rates lead to falls in asset prices – such as housing and equities – as borrowing costs rise and demand for these assets falls. People feel less wealthy and ultimately reduce their consumption and investment.

Typically, asset prices fall when monetary policy is tightened. But the Australian housing market has been defying gravity in the latest tightening phase, which began in May 2022. There have been differences across the states and territories in the growth in dwelling prices and rents, reflecting varying degrees of population growth, available supply and affordability.

In the established market, demand for housing has been exceeding supply for some time, creating an imbalance which is putting upward pressure on dwelling prices and rents. According to CoreLogic data, national dwelling prices have risen by nearly 9 per cent over the year to March 2024.

The strength of the Australian housing market has been exacerbated by the surge in overseas migration after the pandemic, with nearly 860,000 additional people having arrived into Australia since borders reopened in February 2022.

On the supply side, there was a surge in building approvals during the pandemic thanks to government stimulus grants. However, supply chain issues and labour shortages led to a blow-out in build times, as the completion rate lagged, and construction firms suffered under fixed price contracts.

More recently, interest rate hikes have had a negative impact on housing finance, and dwelling approvals are now at their lowest level since 2012. Elevated construction costs and long build times have also impacted buyer sentiment for new dwellings.

Perth leads the pack on house prices

Across the states and territories, the movements in established house prices have been varied. Perth was a standout with prices rising 19.8 per cent over the past year. Western Australia has the strongest population growth in Australia – at 3.3 per cent over the year to September compared to 2.5 per cent nationally – while also having comparatively lower dwelling prices. A lack of building and reduced industry capacity following the mining boom has negatively impacted supply.

Brisbane comes in at second place with prices rising by 15.9 per cent, followed by Adelaide at 13.3 per cent, with both these cities benefiting from strong population growth and lower prices relative to Sydney and Melbourne.

Meanwhile, dwelling prices in Sydney and Melbourne, which typically see the strongest price growth in the country, rose by 9.6 per cent and 3.2 per cent, respectively. Across the country, total property listings remain close to a record low and outside of the pandemic period, the lowest since early 2010.

Renters across Australia feel the squeeze

Renters are also facing financial pressure as the surge in population growth and a decline in the average household size since the pandemic, creates strong demand.1 The growth in rental stock has slowed in recent years, in particular in apartment construction.2 This has pushed the national rental vacancy rate to its lowest level on record at around 1 per cent, and above its long-run average of around 2.2 per cent.3 Rent inflation, as measured by the Consumer Price Index (CPI), has surged higher, rising by over 7 per cent in annual terms in the December quarter 2023.

Perth and Adelaide have the lowest rental vacancy rates of the capital cities, sitting at 0.4 and 0.5 per cent respectively. In third spot is Brisbane, with a vacancy rate sitting at 0.9 per cent. Canberra has the highest vacancy rate at 1.5 per cent, which is higher than its long-run average of 1.2 per cent.

Reflecting the tight rental market, Perth rents (as measured by the CPI) rose by the fastest pace in the December quarter, at nearly 9 per cent over year – growth rates not seen since 2009. This was closely followed by Sydney, with rents increasing by 8.5 per cent over the year, and Brisbane at 8.4 per cent. Meanwhile, rents in Hobart fell by 0.4 per cent. In a positive sign, asking rents, which are a lead indicator for the broader pool of rents measured by the CPI, look to be easing.

Where to from here?

Hopes of a return to a more balanced housing market across the country look some way off. Building approvals are around decade lows, despite strong population growth, while builders continue to deal with supply constraints impacting the current pipeline of work. Net overseas migration is expected to slow but remains close to a record high. There were 145,000 arrivals in the September quarter, the second-highest quarterly number on record.