Australian Property Forecasts from REA’s Chief Economist

Recently Buxton Real Estate Group CEO, Marcus Williams sat down with Cameron Kusher, Director of Economic Research with REA Ltd Group ( Few people, if any, could provide a more informed picture of the Australian property market or better predict what we can expect. The result is a must read for home buyers, property investors and renters.

Improved Consumer Confidence

 In Australia we love our property.  The value of residential land and dwellings make up more than 50 per cent of our household assets. It’s our biggest source of wealth and, for those with outstanding debt on a mortgage, their biggest liability. No wonder that consumer confidence has taken a hit in recent years.

As Cameron explained: ‘In 2022, interest rates started increasing every month and that caught people off guard. Last year, interest rates continued to rise, but they weren’t increasing every single month. By the middle of last year, people thought that maybe that was the end of the hiking cycle. Now that didn’t come to fruition.’

This year, though, Cameron predicts an easing off, or indeed some relief. ‘In 2024, I think, there’s a lot more certainty. If there are to be any changes, it looks like that would be an interest rate cut.’

 While Cameron concedes that interest rates are not expected to ever return to the record lows enjoyed in recent years, any decrease will boost consumer confidence.

Continued Increase in Immigration

‘Over the last financial year, we saw the population of Australia increase by about 625,000 people.’ Cameron likened that to adding another Tasmania to our population, and more than 83 per cent of this boost came from immigration.

‘Most of that was a catch up because international borders had been shut,’ Cameron added.  ‘The expectation now is the rate of immigration is going to slow. Even so, with the Federal Government making some changes to the migration system, immigration numbers going forward are still going to be higher than the long-term average.’

Closer to home, interstate immigration to Victoria also was adversely impacted by COVID. ‘It’s still slightly negative,’ Cameron reflected, ‘and even though work from home is becoming more prevalent, in a lot of instances you still need to be in Sydney or Melbourne to further your career.’ Given that the cost of housing in Sydney is so high, Cameron predicts that many are probably going to choose Melbourne, mainly on the proviso that it’s cheaper to rent, and you might actually be able to afford to buy a house or an apartment in the not-too-distant future.

Unresolved Rental Crisis 

Migration to Australia rebounded but we’re shrinking in terms of rental property supply. As Cameron explained: ‘The number of available properties we had for rent in January was down six per cent from a year ago.’ Even more concerning is that a year ago was the lowest number of properties we had for rent in January ever.

Diminishing numbers of available rental properties is not just due to demand. Another factor concerns land tax increases. Cameron said that we’re seeing a large number of investors trying to sell out of their properties in Victoria. Anecdotally, he referred to people who live in Victoria investing in WA and South Australia. That’s because you don’t have the same taxes, it’s cheaper, rental returns are better and prices are growing at a faster pace. 

That said, ‘Last year’s rents in Melbourne increased by about 15 per cent,’ he added. ‘If it’s not too much of a financial strain, it probably does make sense to hold that property. But you’ve got to look at your own finances and see.’

Property Price Rises

A popular expectation is that property prices double every ten years. Cameron agreed that those kinds of increases are  unrealistic. He added that if you go to places like Perth, it takes 18 years to double in price, Brisbane was about 15 years. ‘So it’s not a hard and fast rule.’ 

Cameron cited that property prices in Melbourne should increase this year by between one and four per cent. ‘This is pretty similar to what happened last year,’ he added. Regional property prices went through the roof during the pandemic but now the market is flattening off. ‘Those that are still doing all right are closer to the capital cities. You can still live in Geelong and commute to Melbourne if you need to. The same with Ballarat and Bendigo. It’s the areas further afield where we are seeing less demand.’

Boost in first home buyers

According to Cameron we are likely to see more first home buyers. That’s because the state of the rental market is going to drive them out, in search of the certainty that comes with home ownership. He made mention that ‘for a new home, you can still access those first home buyer incentives from the Federal Government’.

Cameron also referred to the regional towns like Bendigo and Ballarat, with long but good commutes on the V-Line trains. ‘And some of these big regional towns have really good employment prospects as well,’ he added.

The Evolution of Stamp Duty

Cameron said that generally no one likes stamp duty so some form of alternative annual land tax makes sense now. In terms of ambition, the ACT has been going down that path for over 20 years. ‘They are doing reasonably well,’ Cameron emphasised. ‘It’s just taking its time. The previous coalition government in New South Wales was talking about it. However, following a change of government they have since walked away from that reform.’ While Cameron agreed that this is an important reform to tackle, he acknowledged that politically it’s a difficult one to get through.

Low Building Approvals a Challenge

The Federal Government wants to build 1.2 million homes. That said, the number of building approvals for houses and units over the last 12 months is the lowest they’ve been in more than 10 years. It’s an issue, compounded all the more by migration ramping up, property prices being high and not enough housing to go around. Cameron said that as a nation we need to start delivering these homes.

Higher Costs of Construction

Cameron pointed out that new constructions typically have a premium over existing housing and people are comfortable paying that. ‘But at the moment the premium is much wider than it usually is.’

The war in Russia and Ukraine, where a lot of timber comes from, has contributed to the rising costs. While the escalation in those prices is now slowing, Cameron said that material costs just from the producers, so no retail mark up, have increased by about 33 per cent.

As Cameron added: ‘Given how tight margins are on development and construction, it’s very unlikely prices will come down.

Commercial Property is Mixed

In commercial property investment, strip retail in some parts of Melbourne has come back really strongly.

‘I’d still be a little bit cautious about some of the office opportunities,’ Cameron advised. While premium prime grade office space is really in high demand, some suburban and lower grade offices are much harder to lease.

‘Things like industrial and medical, some strong opportunities there,’ Cameron mentioned, adding that investors really need to understand what’s happening in the market.

Globally some influences

We are not an island so Australia can be affected by global trends. ‘There’s talk about the US potentially bringing down their interest rates later this year and some thinking that maybe we’ll follow suit,’ he explained. ‘So obviously the broader international economic environment can really impact us here in Australia.’ 

That said, Cameron cautions about doing analysis based on what’s happened overseas. ‘There are all sorts of different tax treatments of property. The level of debt around property is very different as well. The supply of property is very different.’

Long term growth expected

I think we’re going to see a lot more periods where interest rates are rising and falling now,’ he concluded. When looking ahead towards 2025, 2026 and beyond, Cameron said we could actually see some reasonably strong growth. In summary, Cameron pointed out that if we look historically the upswings in prices tend to run a lot longer that those downturns in prices do.

More about our guest speaker

Professionally, Cameron Cusher lives and breathes property data; including behavioural data, transactional data, listings data and so much more. After studying property economics at university, he consulted to developers, cemented his reputation at CoreLogic (formerly ROP data) and for the last four years has headed research at REA, leading a team of five economists and several analysts to provide insights for this country’s largest digital property company. To watch the full 30-minute interview between Buxton CEO Marcus Williams and REA’s Cameron Cusher click on the link.