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Australia
Opinion
Nicholas Spiro
Nicholas Spiro

The View | Why Australia’s resilient housing market is in a precarious place

  • Australia’s housing market epitomises the three themes that have characterised property markets globally: resilience, stress and affordability
  • Rising house prices and rents are driving inflation and contributing to tighter financial conditions, which then exacerbates affordability issues

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A woman runs with her dog through Elizabeth Quay in Perth in 2021. An acute rental affordability crisis –particularly in Perth, Brisbane, Sydney and Melbourne – has become a hot-button social and political issue. Photo: AFP
Nicholas Spiro

Residential property markets the world over are a smorgasbord of themes and trends. Three in particular have stood out since leading central banks began raising interest rates sharply last year.

The first is resilience. In the United States, a national gauge of prices has risen for seven straight months, hitting a record high in August despite the surge in the average rate on the 30-year fixed-rate mortgage – the dominant home mortgage product in the US – to nearly 8 per cent. Strong labour markets and tight supply in many economies have helped support demand, contributing to a faster-than-expected recovery in prices.

The second theme is stress. In Britain, the average rate on new mortgages rose above 5 per cent in September for the first time since 2008. In Hong Kong, mortgage loans for properties under construction in the first seven months of this year fell to their lowest level in 17 years. While markets are taking comfort from signs that the rate-raising cycle has run its course, borrowing costs will remain higher for longer, keeping property markets under strain.
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The third theme is affordability. Rents rose 12 per cent on average across the United Kingdom in August, the largest annual increase on record, according to Hamptons. The rental crisis is most acute in London, where rents rose a staggering 17 per cent, the 16th in the last 18 months in which tenants have faced double-digit increases.
This has sharpened the focus on the severe shortage of decent and affordable homes in many countries. The national housing agency in Canada – one of the most unaffordable property markets that experienced a swift rebound in prices this year – said last month that it will cost C$1 trillion (US$730 billion) to build the 3.5 million new homes needed to achieve affordability for everyone living in the country.
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No other leading housing market epitomises these three trends more strikingly than Australia, which was deemed by the International Monetary Fund earlier this year to be one of the riskiest property markets among advanced economies because of its high level of household debt and high proportion of floating-rate mortgages.

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