What is the 2020s looking like for property markets? The last decade saw Australia’s property market experience price booms and busts.
According to Domain Research economist Trent Wiltshire, Australia’s housing market is unlikely to experience the same levels of price growth in the 2020s relative to the previous decade.
“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,” he said.
1. Interest Rates Will Remain Low
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.
2. Strong Population Growth
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. The government is forecasting that strong population growth will continue in the next few years.
More migrants may move to smaller cities or large regional towns rather than Sydney and Melbourne.
3. 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.
Greater demand for proximity to public transport will mean more medium-density dwellings and apartments will be built in established suburbs. New developments will need fewer car parks, which will improve affordability. Developments will instead need more space for share-cars and bikes.
4. 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.
With Australian cities growing and congestion increasing, demand for medium-density housing in established suburbs will keep rising with construction of these dwellings accelerating in the 2020s. Governments and councils are changing planning rules to enable more construction.
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.
5. 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 with Governments likely to change building standards.
6. More Renters
A growing number of renters will make tenants a more powerful political constituency, which could result in tenancy laws swinging more in favour of renters.
The increase in renters is most pronounced among young and middle-aged households with rising house prices a 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).
7. 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”