🚨 Australia’s housing downturn could get worse before it gets better, but the same forces causing pain today could create the next property boom.
I recently spoke with Mike Mortlock about what is actually happening beneath the headlines.
The Numbers Behind Australia's Housing Downturn
And there are some worrying numbers.
➡️ Investor lending fell 8.6% in the June quarter, with NSW falling around 15.5%. At the same time, lending to investors buying new property increased 21.8% year on year. Pasted text
➡️ Australia’s target is 1.2 million new homes over 5 years, but we’re currently around 30% behind the required pace.
➡️ Around 3,500 builders are going into liquidation each year, while construction costs have already risen enormously since COVID.
➡️ Builders that were operating on margins of only 8% to 10% were smashed when costs suddenly increased 20% to 30%.
Construction Costs Could Rise Again
And construction costs could now accelerate again.
Labour is being pulled into infrastructure projects and data centres, while higher oil and diesel costs are feeding into materials, transport and construction.
Some PVC related costs reportedly jumped around 30%, while diesel related costs may represent around 8% of total construction costs.
Prices Are Falling, but the Housing Shortage Remains
So we’re facing a strange situation.
Property prices are falling, construction is becoming less feasible, builders are struggling and Australia STILL isn’t building enough homes.
Migration Keeps Feeding Housing Demand
Then there’s immigration.
Even if migration falls significantly, housing demand doesn’t disappear overnight.
Many migrants rent for years before purchasing. Mike noted that migrants commonly don’t buy within their first 5 years in Australia.
So immigration could slow today while previous migration continues feeding housing demand for years.
New Homes Earn a Rental Premium
Rents are another major concern.
Mike’s research analysed around 180,000 rental listings and found newer properties attracted an average rental premium of approximately $65 per week, or roughly $3,500 per year.
That’s important because current policy is deliberately encouraging investors towards new housing rather than established property.
Why Holding an Investment Property Now Costs More
Meanwhile, investment buyers agents are facing serious headwinds.
Two businesses have recently entered administration, and Mike believes businesses heavily dependent on investment transactions could face further pressure.
Why?
An $800,000 investment property that might previously have cost around $150 per week after tax to hold could now cost around $400 per week.
That dramatically reduces the number of investors who can afford to buy.
The Paradox: A Downturn That Deepens the Shortage
But here’s the paradox.
All of this could ultimately make the housing shortage WORSE.
Less construction.
Fewer viable developments.
Builder insolvencies.
Labour shortages.
Migration still adding demand.
And existing migrants gradually moving from renting into ownership.
Will House Prices Fall Further?
Mike’s view is that Australian property could still decline further over the next 6 to 12 months, but he does NOT expect prices to be lower in 5 years than they are today.
Historically, even Australia’s major housing downturns have generally been around 8% to 9% nationally. Pasted text
Where Prices Should Hold Up Best
And the areas potentially best positioned to withstand this downturn?
Markets dominated by owner occupiers rather than speculative investors.
Because regardless of what investors do, owner occupiers remain the overwhelming majority of Australian property buyers.
Setting Up the Next Property Cycle
This isn’t the market to blindly buy anything.
The next 6 to 12 months could be painful. But the growing supply shortage could also be setting up the foundations for the next cycle.
Do you think Australian property has another 10% to 15% to fall, or will the housing shortage put a floor under prices sooner?
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I’m also a property investor with a $27m+ debt-free portfolio of residential & commercial property, generating over $300k+ net annual passive income.
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