FOUR Factors Driving AustraliaN Real Estate in 2023 

In a recent Forbes study, it was revealed that Australia's housing sector is burdened by some of the highest debt levels in the world, with a household debt-to-income ratio of 211%, more than double the 101% in the US and far higher than the UK’s 148% and Japan’s 115%. This impacts on how many people Australians can actually buy a home. This article looks at some key factors that affect the Australian real estate market, in particular market stress and housing affordability. These factors further include real estate prices, home availability, investment potential, changing demographics, interest rates and the initiation of new government policies and legislation.

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  1. Demographics

     Demographics is data that reflects the composition of a population, such as age, race, gender, income, migration patterns, and population growth. Any major change in demographics can impact home prices due to the age, income, and regional preferences of buyers. Major shifts in the demographics of a nation can also impact real estate trends for several decades. For instance, “Australia’s population has jumped more than 30% over the last two decades to the current 26 million. A big reason for this has been the much higher net immigration rate since the mid-2000s, which has fuelled demand for new homes” (Forbes). However, despite this increased demand, our rates of homebuilding have not really increased says Tom Devitt, senior economist at the Housing Industry Association (Forbes). As Prime Minister Anthony Albanese puts it: “Demand for social housing has increased almost three times as fast as the growth in population”. These statistics are often overlooked but they are nonetheless a significant baseline that influences how real estate is priced and the types of properties that are in demand See Article:  

2.Interest rates 

Interest rates have a major impact on the real estate market. The broad trend in Australian interest rates since the 1980s has been downward. More recently, interest rates on mortgages averaged 8% in 2000 and 2% during the pandemic. Such changes in interest rates can greatly influence a person's ability to purchase a residential property. That's because the lower the interest rate, the lower the cost of a mortgage. That's great for borrowers, but it can also create greater demand for real estate, which then pushes prices up. As interest rates rise, the cost of a mortgage increases, thus lowering demand and real estate prices. In other words, lower rates typically attract more buyers with lower mortgage rates but also expand demand which can drive up prices. It is therefore quite prudent to use a mortgage calculator if you're considering buying a home with a mortgage. This will allow you to compare shop and see how different rates of interest can affect purchase prices

3. Economy

The economy is another key factor that affects the value of real estate. This is generally measured by economic indicators such as the GDP, employment data, manufacturing activity, the price of goods and more.  Broadly speaking, when the economy is sluggish, so is the real estate market. It is a good idea to be aware of the cycle the economy is in before committing to a real estate transaction as this may change in positive and negative ways 

4.Government Policies and Subsidies Legislation

Some of the ways the government can temporarily boost demand for real estate is through tax creditsdeductions, and subsidies. These can both boost or hinder the demand for real estate. For example, the Housing Accord signed between state and federal governments in 2022 aims to construct one million new homes from 2024-2029.  It is also aiming to erect 30 000 new affordable rental homes over five years by establishing a $10 billion Housing Future Fund. However, legislation for this ambition plan is currently delayed in the Senate. Being aware of current government incentives such as this helps you identify changes in supply and demand while also assisting you when it comes to identifying potentially false trends 

Australia’s real estate market is influenced by a multitude of factors, each playing a significant role in shaping its dynamics. The key factors discussed here highlight the complex interplay between market stress and housing affordability. Demographics, with a population growth of over 30% in the last two decades, has also had a profound impact on the Australian real estate landscape. The increased demand for housing, fuelled by higher net immigration rates, underscores the need for responsive housing policies to meet the evolving needs of the population.

Interest rates, on the other hand, have followed a long-term downward trend since the 1980s, greatly affecting the affordability of homes. Lower interest rates can stimulate demand, driving up prices, while rising rates can dampen demand and moderate prices. Prospective homebuyers are advised to use mortgage calculators to understand how interest rates can influence their purchasing power.  Government policies and subsidies also play a pivotal role in shaping the real estate market. The Housing Accord and the Housing Future Fund represent ambitious plans to address housing affordability and supply, but legislative delays highlight the importance of staying informed about current government incentives.

In navigating Australia's real estate market, it is crucial for both buyers and investors to remain vigilant, considering its multifaceted nature. Demographics, interest rates, and government policies are just a few of the key factors that underscore the need for a comprehensive understanding of this ever-evolving landscape. By staying informed and adapting to changing conditions, individuals can make informed decisions that align with their financial goals and housing needs in this dynamic market.