21 March 2022|7 minute read
Our Aussie Progress Report explores the evolution of the Australian property market over the past 30 years – the life of an average home loan – and serves as a reminder to Australians to focus on their long-term goals.
This report delves into the highs and lows of Australian dwelling values, instigators of change in the property market, factors that have influenced purchasing decisions and where the housing market may be headed in the future.
Over the past 30 years, the Australian economy has been shaped by many significant events including major economic and financial reform, commodity booms, a global financial crisis, and most recently, the COVID-19 pandemic.
The Australian housing market delivered overall capital growth of 381.2% between December of 1991 and December 2021.
Australian house values increased 414.6% in the past 30 years, compared to growth of 293.1% across Australian units. 30 year annualised growth for houses and units were 5.6% and 4.7% respectively.
Over the past 30 years, there have been 7 periods of sustained increase in values at the national level and 7 periods of decline. Value increases over the course of these cycles have an average length of 41 months, with average cumulative growth of 34%.
Comparatively, periods of peak-to-trough declines have on average lasted 12 months, with an average fall in values of -4.3%.
The current national housing market upswing, which commenced in October 2020, has lasted 17 months to January 2022.
Source: Rolling annual change in CoreLogic Home Value Index of Australian dwelling values
The most recent upswing in the Australian housing market (from October 2020 to present) has produced the highest annual rate of growth in housing values for the past 30 years (with a peak of 22.4% in the 12 months to January 2022).
While it would be impossible to forecast property market performance for the next 30 years, there are several key trends that are likely to shape the market in decades to come. These include:
As has been the case over the past 30 years, housing market performance in the next 30 years is expected to be heavily impacted by the cost of housing finance, and by extension, the cash rate setting.
30 years ago, at the start of 1991, the cash rate was as high as 12% off the back of a high inflationary environment.
As of February 2022, a record low cash rate setting of 0.1% has been in place for 16 consecutive months.
The low cost of debt has created a strong rebound in economic activity, with unemployment falling to 4.0% in February 2022, its lowest level since August 2008.
With inflation and wages growth ramping up, there are increased expectations that the cash rate could be moved higher through 2022. This would mark the first lift in the cash rate since November 2010.
The onset of a global health pandemic in 2020 accelerated trends in remote work. This trend is thought to have contributed to sea change and tree change migration trends.
ABS internal migration data did show a slightly higher shift in migration from cities to regions toward March 2021, while movement away from regions has been more subdued.
Source: ABS internal migration data showing regional internal migration trends – rolling annual number of internal migrants
Rising average temperatures may deter buyers from areas with low tree canopy shade, and the increased incidence of extreme weather events have already contributed to higher insurance premiums in pockets of the market, which may make housing costs prohibitive for some prospective buyers.
The flip-side of strong capital growth in the Australian housing market and a low interest rate environment has been a worsening of housing affordability, particularly when looking at metrics around the deposit hurdle.
At the national level, figures produced by CoreLogic and the ANU Centre for Social Research and Methods showed the ratio of median dwelling values to household income had risen from 4.3 in December 2001, to 7.7 as of June 2021.
The Australian housing market poses many advantages which may be appealing as a foreign investment opportunity or migration destination in decades to come.
The strong and swift institutional response from the banking sector, the federal and state governments and the Reserve Bank of Australia demonstrates the lengths Australian institutions go to in the pursuit of economic stability amid a negative shock to demand.
APRA has also worked to ensure Australian banks remain well-capitalised in the event of a housing market downturn.
To celebrate Aussie’s 30th anniversary, CoreLogic has prepared a dataset that features suburb-level information about the change in property market dynamics between December 1991 and December 2021.
Data was gathered for 2,370 suburbs across Australia, with most of the coverage concentrated in the capital cities.
Suburbs of South Australia and the Northern Territory do not have comparable metrics going back to 1991, and so are not included in the rankings.
Sydney’s Vaucluse has maintained the most expensive, high end value between these two periods, with the top 25% of dwelling values starting at $980,478 in 1991. In 2021, the 75th percentile value across houses and units in the suburb was $8,625,930.
This is perhaps unsurprising given the geographic advantage of the suburb, which showcases views of the Harbour Bridge and Opera House to the west, and ocean cliffs on the eastern border.
Source: CoreLogic data showing the most expensive, high-end suburb markets in 1991 versus 2021.
Of the 2,370 suburbs analysed across Australia, the middle of this dataset was ranked between the 1,183rd and 1,188th places.
In 1991, the median dwelling value across Australia was recorded at $114,034. This has increased to $709,803 as of December 2021.
As of 2021, suburbs which typify the ‘middle’ of the market have seen average dwelling value increases of 406.9% over a 30 year period.
Source: CoreLogic data showing middle of the market median values in 1991 versus 2021.
The ‘entry’ level value is the 25th percentile valuation across dwellings in the suburb.
In both 1991 and 2021, the most affordable suburb markets across Australia were recorded in parts of Queensland and Western Australia.
Many of these suburbs are rural, regional areas, with values that are often heavily impacted by resource based projects and employment.
Source: CoreLogic data showing most affordable entry-level markets in 1991 versus 2021.
ABS migration data shows the combined eastern states population increased 50.1% (or by around 6.9 million people) between December 1991 and June 2021.
The eastern states accounted for 81.9% of Australian population growth during this period.
As the eastern states population has grown, increased housing demand is likely to have been concentrated in desirable coastal markets, particularly those in reasonable commuting distance to major metropolitan hubs, such as the Central Coast, the Sunshine Coast and the Mornington Peninsula.
Between March 2020 and December 2021, normalised remote work trends and a low mortgage rate environment have enhanced demand for coastal property.
While interest rates may be on the rise in the coming months, it’s important for prospective home buyers, homeowners and investors to remember that property is a long game. The growth of the Australian property market as explored through this report highlights this fact.
Whether you’re a first home buyer aiming to get a foot on the property ladder, or a seasoned investor looking to expand your portfolio, it’s important to have the right long-term strategy in place. Regardless of your property and mortgage goals, getting in touch with your local Aussie Broker is a great way to get started.