Friday 28 July 2023

Sydney Housing Crisis Looms as Property Prices Begin to Rise Again and Rents Soar

After what seemed like endless months of Sydney property price drops and converse interest rate rises, it seems the tide has turned. There are a number of factors contributing to the shift in market sentiment, not least of which is the housing and rental crisis that looms large across our city. And the chief factor that has contributed to this crisis is demand heavily outweighing supply. 

Appearing before Senate Estimates, Reserve Bank governor Philip Lowe said housing supply was one of the biggest challenges facing the country. Currently there are 5.2 million people who call Sydney home, a number which is constantly increasing with immigration gaining momentum following the pandemic-induced immigration lull coupled with large numbers of people who made a sea/tree change out of Sydney (again induced by the pandemic) and are now looking to move back. By the middle of this century projections show Sydney will have 10 million inhabitants and if there is not enough property to house everyone now, things are only going to get worse. 

Building approvals have fallen to their lowest levels in a decade. The Australian Bureau of Statistics showed a decline for the first three months of 2023, and in NSW total approvals fell by 34% compared to the same quarter in 2022, but hardest hit were units and high-rises where Development Approvals dropped by a staggering 50%. Senior economist with the Housing Industry Association (HIA) Tom Devitt said “The first quarter of 2023 saw the lowest number of total building approvals since 2012 in NSW and nationally. 

Until more housing comes into the pipeline, it will mean more bad news for availability and affordability, according to Mr Devitt. "These approval numbers suggest this housing is not going to be built so this sort of conflict between demand and supply is only going to have negative implications. This imbalance will see the affordability and rental crisis deteriorate further."

Ongoing interest rates rises — in June 2023 the Reserve Bank of Australia (RBA) announced its 12th in 13 months — coupled with the increase in the cost of construction and labour supply are being blamed as the main drivers of the decline in approvals. "Over the course of the pandemic there's been an incredible increase in construction costs," Mr Devitt said. "Some of those constraints have eased recently, but now the number one constraint is labour, builders trying to get their hands on skilled tradespeople."

These concerns resonate with Brian Seidler, Executive Director for the Master Builders Association NSW. He says the ABS's data is "most unfortunate" for the industry. It's the cost of labour that will really challenge the industry and those that invest in the industry." According to CoreLogic, apartment prices in Sydney could soon outperform houses, again driven by the city’s tight rental market, supply issues and an expected surge in immigration.

Wicks Place Marrickville

These factors explain why investors and house hunters alike are flocking to buy apartments in new developments, as the scarcity factor is already weighing on the market. And it’s well-located, family-friendly apartments in Sydney's inner suburbs that are performing most strongly due to this increasing demand from investors and owner-occupiers (particularly First Home Buyers as rents are becoming untenable). Unit rents are not only surging (up 14.8% over the year to April), they’re growing significantly faster than house rents (8.4%).

If you are looking to purchase a property either as an investor or owner occupier, Cramer have an outstanding selection of properties in superbly designed, fantastically located, master planned developments, some very near completion.

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