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Nowhere but Up: Housing Costs Climb as Australia Fails to House its Growing Population

Whether a person is looking to buy or rent, chances are it’ll cost significantly more compared to just a year ago.

The cost of renting a home hit a new high in June, with the median advertised rent on rising 3.2% across Australia’s capital cities and 3.9% across the regions over the quarter. Rents are now sitting 10.3% higher in the cities compared to 12 months ago and 8% higher in the regions.

The Aussie cities continuing to see price records tumble

Buyers are likewise facing higher prices, with PropTrack’s latest national Home Price Index climbing 1% over the quarter and 6.6% over the year ending June.

Nowhere has the cost of housing risen more rapidly than in Greater Perth, where in just 12 months median advertised rents have jumped by 18.2% and the median price of a home has risen by 22.5%, the equivalent of around $131,000.

Why are rents and prices rising faster in some markets?

While prices are up in most markets, some locations have seen significantly bigger jumps in housing costs than others. To understand why, we need to look at population growth versus the supply of new housing.

The number of people living in Australia increased by 651,300 in 2023. The current average household size of 2.5 people implies the need for an additional 260,500 homes. Last year, just 172,900 homes were built. A national shortfall of 87,600 homes.

But this shortfall has been more pronounced in certain markets.

Across New South Wales, just 63% of the new homes needed to match population growth saw construction completed in 2023. The figure was similar in Queensland.

Why the Housing Accord target of 1.2 million homes is unlikely to be achieved

Victoria and South Australia fared better, with 75% and 86% of the new homes needed delivered, while Tasmania and the ACT were the only markets to see the number of new homes built exceed what was needed to accommodate population growth.

Unsurprisingly, Hobart and Canberra were also the only capital cities to see rents fall over the June quarter and display little change year-on-year. What’s more, property price growth has also been more subdued in these cities, with prices down 2.1% in Hobart over the past 12 months and up just 0.6% in Canberra.

This is in stark contrast to Western Australia, where just 47% of the homes required to match population growth were completed over 2023. This has resulted in a significant under-supply of homes which has caused both rents and home prices to surge above the levels seen in any other capital city or regional market.

Unfortunately, population growth is predicted to continue to exceed the number of new homes completed over the coming years, with new dwelling approvals and construction starts sitting at a decade low. This is expected to intensify competition among buyers and renters looking for a home.

Source: Anne Flaherty, Economist PropTrack – 3 Jul 2024