In recent months, there has been plenty of talk of a housing boom in Australia. While some commentators think there’s plenty more left in this cycle before we run out of steam, others are warning that property prices are set to fall.
Who’s right? To find out let’s do a Q&A.
What’s happening to house prices?
Combined capital city home values increased by 10.6% over the last year. But growth around Australia has not been uniform, as can be seen from the chart below, with Sydney (15.6%) and Melbourne (11.6%) being the primary drivers for capital gains over the year.
Source: RPData
Why are prices rising?
One of the major drivers of this upswing is the effect of lower mortgage rates on housing affordability.
You see, despite what some claim, the current low interest rates have meant that despite home price growth, home loan repayments have fallen over the last few years, making homes more affordable thus pushing up prices even further.
Source: CBA
At the same time, our strong population growth is increasing demand for housing.
The following chart shows how a lift in the birth rate and particularly high migration levels mean our population is growing by over 400,000 people each year. This is a bit like adding another Canberra each year.
Source: CBA
Aren’t we building too many dwellings?
The RBA is counting on our construction sector to fill the economic void left by our slowing mining boom and this is exactly what is happening.
Low interest rates and strong demand has encouraged builders and developers to construct more dwellings. Much of this has been concentrated in apartments, units and townhouses where building approvals increased 40% over the last year, while detached housing approvals rose by a little under 20%.
The RBA is counting on our construction sector to fill the economic void left by our slowing mining boom and this is exactly what is happening.
Low interest rates and strong demand has encouraged builders and developers to construct more dwellings. Much of this has been concentrated in apartments, units and townhouses where building approvals increased 40% over the last year, while detached housing approvals rose by a little under 20%.
