Reasons why housing costs are so high and six reasons to sell in the current market
Brisbane is now the second most expensive capital city in Australia to buy property. Sydney is still the most expensive property market but Brisbane recently overtook Canberra and Melbourne to hold second spot. Australia’s capital cities are among the least affordable on the planet for home buyers.
The recent 20th annual edition of the Demographia International Housing Affordability report has documented the deterioration of housing affordability over the past 20 years across 94 major markets in eight nations (Australia, Canada, China, Ireland, New Zealand, Singapore, United Kingdom and the United States).
It is no surprise the Demographia report found that “because housing is usually the most expensive element of household budgets, the deterioration in housing affordability has been the principal driver of the present cost of living crisis affecting the middle and working classes.”
Governments in Australia maintain they care about the cost of housing and sympathise with the electorate. However, the Demographia report provides hard evidence that government policies are actually making the housing crisis worse, with suburban land use restrictions being one of the primary causes of reduced affordability.
The two main winners when house prices are extremely high are government and the banks. Banks sell debt. The higher the debt – the higher the banks’ profits – assuming net interest margins remain the same.
Governments generate significant income from housing, as illustrated in the case study below.
CASE STUDY – GOVERNMENT COSTS FOR $800,000 NEW HOME IN SOUTH EAST QUEENSLAND
When you add up Government costs and policies that directly affect housing affordability, the costs are sometimes more than 25% of the total cost of a new home. For example, on a new four bedroom home that sells for $800,000 in South East Queensland the government costs could include:
- Suburban land release policies (directly impacting supply and land costs by as much as $150,000 per lot)
- Infrastructure charges (often more than $33,000 per lot on a 4 bedroom home)
- Stamp Duty ($21,850 on a 4 bedroom home valued at $800,000)
- GST ($40,909 on a 4 bedroom home sold at $800,000 incl. land cost of $350,000)
- TOTAL GOVERNMENT COSTS = $245,759 (30.7% of total cost)
In addition to government costs when the property is purchased, the owner will also pay ongoing government costs each year, such as:
- Land Tax
- Rates
- Water Charges
- Income Tax – if the property is a rental property and is positively geared
- Capital Gains Tax – on sale of the property
Clearly, government can do a lot to reduce the cost of housing.
Other Reasons For High Housing Costs
Higher interest rates and rising rents have fed into the cost of living crisis. In addition to this, the Australian Government has contributed significantly to inflation with record immigration driving up demand for housing. Building costs have risen by more than 30% since the onset of the COVID pandemic in 2020, whilst building approvals have fallen to levels not seen since 2012. Thousands of home builders have gone broke since 2020, and builders are competing with state government infrastructure projects for resources.
Housing policy across the country has been poorly managed for more than 20 years and there has been significant lack of investment in affordable housing.
All these factors contribute to higher housing costs.
What are the main reasons for home sales in the current market?
Whilst we live in a changing economy, with uncertainty about the future direction of interest rates, we are seeing property owners sell their homes and investment properties quickly and achieve a really positive outcome. Increasingly, we are seeing homeowners who have owned their properties for less than 4 years who are selling and making hundreds of thousands of dollars when they sell.
There are many different reasons why people need to sell their homes. Whatever the market conditions are, there is no need to wait if you need a quick sale. There are huge advantages to engaging a real estate agent who knows how to sell a house in an upward or downward-trending market.
The six reasons why home owners are selling their property in the current market are:
1. Demand & Supply Imbalance
CoreLogic data shows national property prices increased by 8.0% across FY2023-24 to reach a median value of $794,000.
This growth was driven by a shortage of available homes relative to demand. 13 interest rate rises in 15 months and cost-of-living increases since 2022 have barely had an impact on buyer demand.
The imbalance is likely to remain for some time, for the reasons set above, including lower building approvals, high levels of immigration, and the volume of properties listed for sale being 35% lower than the 5 year avaerge.
The mismatch between supply and demand has also significantly impacted rental markets, where rents have risen by 8.5% nationally over the past year, with much higher increases in some locations. Rising construction costs and higher interest rates contribute to the upward pressure on rents.
Because rents are so high, many tenants are trying to escape the rental market and buy their first home. For many rental households, rents have hit an affordability ceiling, which is forcing people to buy rather than rent, or move into share accommodation.
More investors are turning their focus towards the property market, with the Australian Bureau of Statistics (ABS) recently reporting that, in April 2024, home loans to property investors rose 5.6% to $10.9 billion. One of the major drawcards for property investors is the upward trend in property prices.
So if your family is outgrowing your current home, or the time is right to sell your investment property, the current market presents a good opportunity to capitalise on this demand.
2. Downsizing
If your children have left home, or you are about to retire and want to free up some equity, you might consider downsizing. This has several advantages:
- You can release equity to do the things you’ve always wanted to do, such as travelling or maybe helping your child onto the property ladder.
- You can move to a smaller home in the city if you’re tired of suburbia.
- You can enjoy more free time in a property which requires less maintenance.
What you do with your money is up to you, but in a tighter housing market where demand outstrips supply, there are plenty of opportunities to sell for a great price and move onto the next stage of your life.
3. Debt
High debt instigates a large number of property sales. As lending conditions have become much tighter, debt reduction and consolidation has become important to many homeowners.
Property prices in Brisbane and surrounding regions have hit record highs, and the current market presents an excellent opportunity to sell your home for a great price and eliminate or reduce debt.
Many current buyers have pre-approved finance and are ready to buy in today’s interest rate environment.
Selling your home to reduce debt offers several key benefits:
- Debt Reduction: Provides immediate financial relief by paying off high-interest debts.
- Lower Monthly Payments: Reduces monthly financial obligations, freeing up cash flow.
- Increased Financial Flexibility: Allows more freedom to pursue other financial goals.
- Simplified Lifestyle: Leads to a more manageable lifestyle, especially if downsizing.
- Reduced Financial Stress: Alleviates the stress associated with carrying significant debt.
- Better Investment Opportunities: Proceeds can be invested in higher-return opportunities.
4. Desire for Lifestyle Change
More and more people are choosing to move to Brisbane, the Moreton Bay Region, and rural and coastal areas to enjoy a more environmentally friendly, slower-paced lifestyle (that perhaps also involves a career change). This gives buyers and sellers a whole new start. Another key advantage for buyers moving out of the city is that house prices are more affordable than in major cities like Sydney, Canberra and Melbourne.
5. Divorce
Sadly, this is one of the more common reasons for people needing to sell a house in any market.
By selling the home, divorcing couples can achieve a fairer division of assets, simplify their separation, and move forward with their lives more effectively
If the current market conditions are favourable, selling the home can maximise the return on investment, providing both parties with more financial resources post-divorce.
Selling during a market upswing can also prevent potential losses if the market declines in the future
6. Death
This is something that is obviously difficult to predict. You might be interested to know that if you inherit property from a deceased relative or friend in Australia, you can avoid capital gains tax if you sell within two years.
Choose an Agent Who’s Weathered Many Property Cycles
In today’s tighter property market, having an experienced agent is crucial. A seasoned agent knows how to market a house effectively, turning current market conditions to your advantage. Choose wisely: the right agent will take the time to understand your unique situation and leverage their extensive knowledge to generate interest and secure the best possible price and timing for your sale. Their expertise in navigating various market cycles ensures that you achieve your goals, regardless of the circumstances.
Can we help you with your property needs?
If you need help with selling your home or investment property, please get in touch. Our team has more than 100 years’ combined experience in property sales and marketing and we’re here to help.
