It’s like watching a rerun
Amid the long-standing calls for a big housing market correction, residential returns to recovery. Prices are rising broadly again, while rents are surging ahead. This cycle is being turbocharged by undeniable demographic drivers, specifically robust population growth.
Curb your enthusiasm
What is unusual this cycle, is the aggressive and persistent uplift in mortgage rates. Historically, rate cuts precede the turnaround in prices. This time, the strength of housing demand is generally outweighing the adverse drag of higher funding costs.
Full house versus empty nest
Without a doubt, the strength in housing demand is structural in nature. On the one hand, strong migration inflows and population growth – quite unlike many parts of the world – are driving urgent housing needs. On the other, personal living preferences (with more singletons and couples) are also adding to that housing requirement.
Arrested development
This demand uplift is occurring alongside a faltering supply pipeline, waylaid by higher input costs, higher funding costs and unseasonably wet weather. While feasibility is challenging, the sale opportunity is looking firmer upon completion.
Growing pains
With surging demand and lagging supply, we are looking at a sustained undersupply for much of this decade, notably concentrated in the major cities and more skewed towards higher-density apartments, which offer more affordable entry price points.
Home improvement
For investors, there is a sizeable and durable opportunity ahead in Australian residential, to address the urgent need for private and public housing, to enable the rapidly emerging multifamily rental sector, and to fund the diverse equity and debt capital needs of this substantial, multi-year home-building cycle.
