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Business Environment Profiles - Australia

Residential housing prices

Published: 12 December 2024

Key Metrics

Residential housing prices

Total (2025)

200 Index

Annualized Growth 2020-25

7.5 %

Definition of Residential housing prices

This report analyses the price of residential housing in Australia. This is measured by taking the average of the residential property price index produced by the Australian Bureau of Statistics (ABS). The index is an aggregation of an established house price index and an attached dwellings price index. The index measures the price change in all residential dwellings in Australia's eight major capital cities. The data for this report is sourced from the ABS and has an index base year of 2011-12.

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Recent Trends – Residential housing prices

IBISWorld forecasts residential housing prices to rise by 3.0% in 2024-25, to reach 200.5 index points. Price growth is expected to slow following the substantial hike seen in the previous year. The Reserve Bank of Australia (RBA) has raised the cash rate from its historical low to ease inflationary pressures in recent years. As banks pass on these rate hikes, borrowing costs have surged, disincentivising some new homeowners from entering the market and slowing activity in the residential housing market. Nonetheless, supply-side induced pressures, like escalating construction costs and labour scarcity, have continued to weigh on construction activity, exacerbating the price hike. The high borrowing costs also pose a barrier for construction companies and developers, who often rely on leverage to manage their cash flows or kickstart new projects, exerting further downward pressure on supply. Despite these increased borrowing costs, the RBA holding cash rate has maintained high levels of new loan commitments taken out by new homeowners in 2024-25. Many existing homeowners who have secured fixed-rate mortgage terms have been effectively shielded from the rising borrowing costs. This has eliminated the need for them to sell their properties, keeping house prices higher than they would be. This demand and supply imbalance is why high borrowing costs have not dampened house prices. Moreover, as inflationary pressures have gradually eased over 2024-25, the potential for the RBA to drop the cash rate early in 2025 will place upward pressure on residential housing prices.

At the start of the past five years, record-low interest rates have supported the continuous upwards momentum of residential housing price growth. Since July 2019, APRA no longer expects banks to assess home loan applications using the minimum interest rate buffer of 7.0%. Instead, they were allowed to use their floor rate or a 2.5% buffer. This reduction in interest rate buffer has made mortgages more accessible to borrowers. Additionally, many first home buyers returned to the residential property market over the period. Federal and State government initiatives to improve affordability for first home buyers, like the First Home Buyer Schemes, First Home Super Saver Scheme and First Home Guarantee have encouraged housing market activity and buoyed prices. Although residential housing prices came under pressure in the early stages of the COVID-19 pandemic, record low borrowing costs, pent-up buyer demand, and mortgage repayment deferrals offered by lenders limited adverse effects on the Australian housing market. These factors supported the record residential housing price growth in 2021-22.

Residential housing prices have kept an upwards trajectory throughout much of the past decade. This trend has been primarily due to consistent population growth, legislative arrangements and speculation among investors that residential prices will continue climbing. The re-opening of borders in February 2022 has propelled net migration in the two years through 2022-23, contributing to Australia's population growth and housing demand over the past few years. Favourable tax arrangements like the Capital Gains Tax (CGT) discount continue to support residential housing prices. The CGT discount enables investors who have owned an investment property for at least 12 months to pay CGT on only 50% of their capital gain earned during the ownership of the property. This regulation appeals to investors as they speculate housing prices will rise over the long term, allowing them to make sizable gains when selling the property, even with CGT in place. Furthermore, residential property investors have the option to gear their property negatively. This means that investors can use the net loss incurred on their investment property to claim a deduction on their tax return within the same financial year. Combined with CGT discounts, negative gearing strategies have solidified consistent demand for residential investment properties. Nonetheless, the government's adjustment of the foreign investment framework, which took effect in April 2024, has deterred some foreign investors. The high borrowing costs have also weakened demand among property investors, who typically count on rental income to offset these costs. This dampened investor demand has played a part in moderating the growth of housing prices.

Housing prices have grown over the past five years thanks to pent-up demand and housing supply constraints. In October 2021, the prudential regulator raised the serviceability buffer from 2.5% to 3%, making it more difficult for aspiring homeowners to secure loan approvals. This measure has also curbed increases in housing prices over the past few years. Overall, IBISWorld forecasts residential housing prices to rise at a compound annual rate of 7.5% over the five years through 2024-25.

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5-Year Outlook – Residential housing prices

IBISWorld forecasts residential housing prices to rise by 3.9% in 2025-26, to reach 208.3 index p...

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