A 2022 post-election guide to the housing market

Pete Wargent, CEO and Co-Founder of BuyersBuyers, outlines the three main property fundamentals driving the market and what property market participants should consider when buying and selling this year.

1. Housing demand

Immigration set to return

A lack of immigration has resulted in less population growth than we’d normally expect. It will take time for border movements to normalise fully but, as Pete goes on to say, “Even a return to 1½ per cent population growth equates to an increase of nearly 400,000 per annum, in turn creating a huge demand for housing at a time when construction costs are sky high and stock levels are extremely tight.”

“We expect the population growth rate to return to its recent ‘normal’ of around 1½ per cent, or perhaps a little lower, which adds significantly to housing demand.” 

Until then, there is pressure on the new government to do what they can to encourage immigration levels to return to normal levels quickly. “It’s likely that the new government will look to increase the number of skilled migrant workers to address labour shortages, and residency may be offered to temporary visa holders to boost permanent settlement,” says Wargent, “The new government will look to increase the number of skilled migrant workers to address labour shortages.”

What does this mean for property market participants?

“Australia has been seen as a popular, wealthy, and safe destination for migrants over recent decades, and despite cost-of-living challenges, the new government should comfortably be able to fill an increased migration programme,” Says Pete.

Australia is now competing with Canada, the UK and other education hubs to become an education destination of choice for bright students from around the world, especially those from India. 

“It wouldn’t be a surprise to see population growth returning to above 350,000 per annum fairly quickly, and a million new people every 3 years requires a great deal of investment in housing.”

2. Housing Supply

Rental vacancies

Rental vacancy rates remain at around 1% as employment surged to a record high. In many places around Australia, the levels they are at indicate a crisis. “Asking rents for houses have jumped 10 to 20 per cent over the past year, and more in some regional locations. It’s not yet clear how the new government will plan to tackle this from a policy perspective. A vacancy tax may be effective, but could be considered a radical move for a newly formed government.”

Materials

Building approvals, however, are falling away sharply due to the cost of materials and construction. As a result, many dwellings under construction may not be completed in a timely manner. It doesn’t look great for supply over the next couple of years, despite the ALP’s affordable housing fund proposal.

Stock for sale

In terms of homes on the market, more vendors have listed properties this year. But there’s still been caution. Stock levels around much of Australia remain tight and well below their 5-year average across the capital cities.

3. Cost of living challenges

The third fundamental driver of the housing market post-election is inflation and the impact on the cost of money. Supply issues from overseas have seen our headline inflation rate jump to over 5%. 

“The Labor Party campaigned with an agenda to increase real wages, particularly for lower-income workers, and also to bring down consumer prices,” says Wargent. 

Interest rates

The markets expect the cash rate target to increase over the remainder of 2022. Naturally, housing market participants remain wary. If the cash rate continues to rise, the upper end of the housing market is likely to be most impacted, less so on the cheaper or lower end of the market. 

Housing market policies

The specific housing market policies outlined by the ALP are not likely to be major drivers of the market in themselves. Homeownership is likely to be in focus. The ALP’s proposed Shared Equity Scheme is set to be capped at 10,000 places per annum. Unless that is changed or there are widespread first-homeowner grants rolled out across the country, that won’t be a market mover.

Final thoughts

Housing market demand is more likely to be driven by employment and wage growth than anything else. At the moment, we’re seeing employment and job vacancies at record highs “There’s a genuine prospect that the unemployment rate can fall toward 3 per cent over the year ahead,” says Pete. “The challenge will be whether that can be sustained as interest rates rise, but overall the labour market fundamentals are presently in a very strong shape. As immigration returns at a time of limited supply, we can expect any price reductions in the market to be limited.”

Thank you to our contributor Pete Wargent from BuyersBuyers