Challenges Ahead: Australia’s Growing Housing Gap by 2027

Is the great Australian Dream of owning your home in peril? Australia is facing a housing gap as 2027 rapidly approaches.

According to the Australian Bureau of Statistics, Australia could be facing a shortfall of 175,000 homes in the next five years. A remarkable 11% growth in the cost of new homes has been driven by an acute shortage of available homes in the market, leading to a surge in housing prices nationwide.

For investors, there exists an opportunity to fill the housing gap through affordable housing solutions such as the build-to-rent model. Armed with the right investment strategies, now is a great time to enter this market and provide much-needed solutions for the growing housing space.

Housing Trends in Australia

Australia’s housing market is currently characterised by a significant imbalance between supply and demand. Demand is continually rising due to factors such as a growing population, increasing urbanisation, and an influx of new immigrants.

Moreover, low-interest rates and the Australian government’s incentives for first-home buyers have further fueled this demand.

As a result, the average price of housing continues to rise – particularly in major cities such as Sydney and Melbourne – while rental affordability continues to be an issue for many Australians.

Investors have a significant opportunity, as rental yields coupled with capital growth make for a strong return on investment, even over a relatively short period of time.

Australian Housing Market Demand and Supply

Despite attempts to build more homes and apartments, Australia’s housing stock isn’t keeping pace with population growth or new immigration.

Apartment Approvals – July 2023

Source: Australian Bureau of Statistics

The Australian rental market is currently facing a significant challenge, with apartment approvals at levels last seen in 2012/13. Builders are struggling to keep up with the growing population, and this is leading to a shortage of supply.

History shows that the supply of apartments in Australia runs in a cyclical fashion, and what goes down must eventually come back up. While we may be experiencing an undersupply of apartments today, it’s reasonable to assume that this could soon turn into an oversupply as more buildings are approved and built.

In the short-term, investors can benefit from the current undersupply of apartments by purchasing properties in areas with strong rental demand, such as capital cities.

Impact on the Housing Market

Competition among prospective tenants will increase as approval to build new apartments declines, leading to higher rental yields for investors. This could make it difficult for first-home buyers to enter the market, further exacerbating the housing gap between demand and supply.

There is a current surge in demand for new developments with many developers looking to take advantage of the current situation.

The Victorian government plans to speed up planning decisions for developments worth over $50m that include affordable housing.

Developers are focusing on projects that can be completed quickly, with a focus on low-cost housing and apartments in areas with strong rental yields.

Investors should be aware of these trends and stay ahead of the competition by researching local markets for opportunities that may present themselves as developers rush to fill the gap between demand and supply.

Investment Opportunities – Is this the right time to get in the market?

As the population grows and more people are looking to enter or stay in the housing market, investors need to carefully assess their options and decide if this is the right time to invest.

Staying informed is essential in this rapidly changing housing market. With the current surge in demand and the shift in government policies, it is critical for potential investors to thoroughly understand these dynamics and adjust their investment strategies accordingly. There are excellent opportunities for investors who are prepared to adapt. Be proactive in researching local markets, understand the emerging trends, and position your investments in alignment with these developments. Remember, the most successful investors are those who anticipate change and act promptly.

Anticipated Rise in House Values – A Future Trend?

With interest rates predicted to be at their peak or close to it, leading economists expect interest rates to fall in 2024Top economists see end to rate hikes, predict house price recovery.

House prices are poised to rebound to record highs, once the interest rate starts to fall. This implies a potential surge in the number of buyers entering the market. As the economy recovers, property values are expected to rise even further due to a shortage of new housing supply. Therefore, smart investors can capitalise on this anticipated trend and benefit from potential long-term gains.

Bottom Line – Is it Worth Investing Now?

Acting quickly to invest in the housing market now could enable you to capitalise on future growth and reap the rewards in years to come. Before taking any action, it’s important to carefully assess both the risks and rewards that are associated with investing in property at this moment.

Ironfish’s full suite of research publications includes economic and demographic insights, key government policies and infrastructure, and property market data for top-performing property markets. With this information at your fingertips and access to off market opportunities, you can make informed decisions and maximise your investments. Whether you’re a seasoned investor or just starting out, Ironfish’s investor resources are designed to help you succeed.

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