The seven major property market trends in the 2020s
After a decade of price boom and busts, Australia’s property market will see big changes in the 2020s.
Property prices are likely to rise at a slower pace than they have in previous decades, mainly because interest rates cannot fall much further. Major demographic trends will be a driving force. Australia’s big cities will continue to grow and so will large regional towns. Public transport will become more important as congestion gets worse. Renters will become a more powerful political voice.
This article predicts the major trends that will shape the Australian property market in the 2020s.
Interest rates will remain low
Interest rates are likely to remain at very low levels in the 2020s. So it’s unlikely that there will be a property price correction caused by rapidly rising interest rates. But as rates can’t fall much further, they’re unlikely to be a major cause of higher prices over the next decade, as they were in recent decades.
The decline in interest rates in recent decades was a global phenomenon. Interest rates were pushed down by an ageing population, strong economic growth in Asia, high debt levels and lower rates of potential economic growth. These causes of low rates will likely persist into the 2020s, meaning global interest rates will remain low in the next decade.
In the short-term it’s likely the RBA will cut the cash rate further. If unemployment remains elevated, the RBA may implement unconventional monetary policy to push borrowing rates even lower. If this occurs, home loan rates will be well below 3 per cent by the early 2020s, with some borrowers paying close to 2 per cent.
Strong population growth will continue, but may be more spread out than in the 2010s
Rapid population growth will continue in the 2020s, which will underpin ongoing strong demand for housing.
Australia’s population is growing at a faster rate than almost all advanced economies. In the 2010s, Australia’s average annual population growth was 1.6 per cent. Faster population growth in the 2010s was mainly due to higher immigration. The government is forecasting that strong population growth will continue in the next few years.
Population growth was concentrated in Melbourne and surrounding regions, Sydney, and south-east Queensland in the 2010s (see table).
|Many Australian cities experienced rapid population growth in the 2010s, and this is likely to continue in the 2020s|
|City||Population growth, 2010 to 2018||Population in 2018|
|Gold Coast – Tweed Heads||18.9%||679,127|
|Canberra – Queanbeyan||14.8%||457,563|
|Notes: Estimated resident population at 30 June each year. Only Significant Urban Areas with a minimum 100,000 people in 2018 are included. Latest available data is June 2018. Source: ABS 3218.0.|
But these trends are likely to change in the 2020s. More migrants may move to smaller cities or large regional towns rather than Sydney and Melbourne.
The federal government is pushing for this to happen. It has created new regional skilled worker visas and is offering other incentives to migrants who move anywhere but Sydney, Melbourne and Brisbane.
Regional towns will continue to become more attractive to migrants as they grow. Policies aimed at encouraging regional migrations will be more successful if proposals for better transport connections between regional towns and major cities proceed. And if the mining sector continues to rebound, Western Australia and Queensland will attract more migrants.
Policies aimed at encouraging migrants to settle in regional areas have generally been unsuccessful. However, higher property prices in Sydney and Melbourne compared to other parts of Australia may now mean migrants will be more willing to settle away from the two major cities.
While strong population growth in the 2020s is the most likely scenario, population growth could begin to slow. The government has cut the annual permanent migrant intake to 160,000 from 190,000. International student numbers may plateau as universities reach capacity and changes to skilled working visas may mean fewer skilled immigrants. But any reduction in immigration will likely be modest. It is very difficult to significantly reduce Australia’s migrant intake without causing economic and social harm.
But even a minor reduction in population growth can have a big impact over a decade. If annual population growth of 1.6 per cent continues in the 2020s, then Australia’s population will be approximately 30 million by December 2029 (see table). If annual population growth slows to 1.3 per cent, then Australia’s population will be around 29.1 million at the end of the decade.
|Slightly higher rates of population growth make a big difference to population numbers in a decade’s time|
|Average annual population growth rate in 2020s||Average annual net overseas migration (approximate)||Estimated population at December 2029 (millions)|
|Note: assumption is that natural increase is 145,000 in the year to the September quarter 2019, and grows by 0.5 per cent each quarter (so reaches 178,000 in 2029), with net overseas migration making up the remainder. Sources: ABS 3101.0; Domain Group.|
Public transport will become more important and car ownership may start falling
Proximity to public transport in Australia’s major capital cities will become more important in the 2020s as cities expand and traffic congestion worsens. Car ownership may also start to fall as more people favour public transport and other forms of transport.
Traffic congestion has risen and is expected to get worse, despite significant investment in new roads. Infrastructure Australia forecast that the annual cost of road congestion will increase from $19 billion in 2016 to $39 billion in 2031.
This trend will strengthen in the 2020s and will spread to different age demographics, meaning car ownership rates may begin to fall. More city-dwellers will opt to use public transport, bikes, electric scooters, ride-sharing and car sharing services.
Sydney and Melbourne appear close to the population tipping point where car ownership falls as congestion and the cost of car parking makes car ownership less attractive (even as incomes keep rising). Currently, Sydney and Melbourne have higher rates of car ownership than other cities of comparable size, and a much higher rate of car ownership than mega-cities like New York, Seoul, London and Tokyo.
Greater demand for proximity to public transport will mean more medium-density dwellings and apartments will be built in established suburbs as these areas typically have the best access to public transport. New developments will need fewer car parks, which will improve affordability. Developments will instead need more space for share-cars and bikes.
More medium-density housing and larger apartments will be built in the 2020s
More medium-density housing and larger, family-friendly apartments will be built in the 2020s. These larger apartments will have three or four bedrooms and also more communal areas such as gardens or playgrounds.
When people consider the trade-offs between price, size and location, many say they would like to live in a medium-density dwelling, such as a townhouse or terrace, or an apartment, in a suburb closer to the city rather than a detached home in an outer suburb. But there is a substantial undersupply of medium-density housing and apartments within Australia’s major capital cities.
With Australian cities growing and congestion increasing, demand for medium-density housing in established suburbs will keep rising.
Developers, architects and builders are building innovative medium-density developments which will attract new buyers, and greater scale should help bring construction costs down. With limited land in and around CBDs, developers will need to look beyond city centres to build in the suburbs.
Detached houses may also become smaller due to rising land prices, smaller families and also environmental concerns. The average house size fell to a 17-year low in 2019, although houses are still 25 per cent bigger than 30 years ago.
New homes will be more energy efficient and better suited to a warmer climate
More energy-efficient dwellings that are better suited to the warming climate will be built in the coming decade.
Consumers will demand more energy-efficient, well-designed and smartly-oriented buildings.
Governments will also likely change building standards. A new National Construction Code was adopted in May 2019, but energy-efficiency requirements were not changed, with the “6 star” minimum standard for standalone homes remaining despite the warming climate (see graph). Building standards may also be changed in response to the apartment defects and flammable cladding disasters and the 2019 bushfires.
If tenants do gain more political power there may also be a requirement for landlords to meet higher minimum standards around energy efficiency and heating/cooling.
Tenants will become a more powerful political group
A growing number of renters will make tenants a more powerful political constituency, which will probably result in tenancy laws swinging more in favour of renters.
The proportion of households that are renting from private landlords has been trending up for decades. At the end of 1994, 18.4 per cent of households rented privately. By 2017, this had increased to 27.1 per cent. If the trend continues in the 2020s, 31.5 per cent of households will be renting privately by 2030.
The increase in renters is most pronounced among young and middle-aged households (see table). Rising house prices are probably the major factor driving this trend, but social changes, such as later marriage and further study, are also playing a part.
The rising number of middle-aged households renting means more people are now long-term renters. This is a big societal change as renting has typically been viewed as a stepping stone to buying (most renters want to own their own home when they can afford to buy).
|A lot more middle-aged households now rent privately|
|Proportion of each age group that rents privately|
|15 to 24||25 to 34||35 to 44||45 to 54||55 to 64||65+|
|Change, 1997-98 to 2017-18 (percentage points)||9||16||11||9||7||4|
|Notes: 65+ for 2007-08 is the average of 65-74 and 75+. Source: ABS 4130.0.|
The number of tenants will likely increase by more than the number of new landlords. It’s likely many new rental properties will be owned by existing landlords. Institutional landlords, such as “build-to-rent” developments, are also likely to own a growing share of the rental stock.
The growing number of renters will give tenants more political clout. Long-term renters are also likely to be even more passionate about improving conditions for renters. And as people become more politically engaged as they get older, a larger cohort of older renters will mean renters’ political voice will get louder (if recent trends continue, almost 40 per cent of 35 to 44-year-olds will be renting by the end of the 2020s).
A stronger political voice for renters will likely result in changes to tenancy laws. Changes could include renters getting more security of tenure (such as through the removal of no-grounds evictions and longer notice periods), renters being able to make modifications to their homes and dwellings needing to meet higher energy-efficiency standards. Some changes to tenancy laws are already happening, most notably in Victoria.
A larger cohort of older renters may also force the government to include some of the value of the family home into the age pension assets test. The current rules can create inequities, as asset-rich home owners can receive the full pension while some renting pensioners miss out.
Ageing Baby Boomers will need new housing
The housing needs of ageing Baby Boomers will change Australia’s housing stock.
The oldest Boomers will be in their mid-80s at the end of the decade, with the youngest around retirement age. Many older Boomers will need more residential aged care by the end of the 2020s. The Aged Care Financing Authority estimates that 76,000 new residential aged care places will be needed over the decade from 2017 to meet growing demand.
In addition, new dwellings that enable seniors to live independently for longer will need to be built, as well as existing homes renovated. These new dwellings could be townhouses and units with few stairs or elevators, accessible bathrooms and low-maintenance gardens. Planning rules will need to change to enable these types of dwellings to be built near where retirees live as there is a strong desire among retirees to “age in place”.
Governments will need to undertake reforms so retirees are not discouraged from downsizing. Possible reforms include abolishing stamp duty, including part of the home in the age pension assets test and changing planning rules.
Originally posted in https://www.domain.com.au/