What’s next for the property market will drive prices higher
But house price growth is needed to ensure new construction is economically viable again, a senior economist says.
ANTHONY Albanese’s landslide election win has paved the way for a property market price surge, according to a senior economist.
Opening up the 5 per cent deposit scheme to all first home buyers regardless of income will put around 80,000 people into homes each year.
Ray White chief economist Nerida Conisbee said: “This could mean the difference between needing a $200,000 deposit and requiring just $50,000—potentially saving years of saving time for aspiring homeowners.
The scheme removes the need for a 20 per cent deposit and avoids lenders’ mortgage insurance.
But the changes come with a warning.
“Economic fundamentals suggest this policy is likely to drive price growth in the short term,” she said.
“Productivity Commission research on first home buyer incentives consistently shows that measures increasing purchasing power, without commensurate supply increases, typically lead to price escalation in targeted market segments.
“With more buyers able to enter the market simultaneously and competing for the existing housing stock, upward price pressure becomes inevitable.”
Labor’s promise to build 1.2 million homes over five years— with 100,000 of them earmarked for first-home buyers—is another of the government’s policies that raises many questions.
“Australia has never achieved this volume in any five-year period, with the closest being approximately 1.1 million homes last decade—a figure achieved with significant foreign capital investment,” the senior economist added.
The problem is compounded by a construction industry faces major hurdles with costs rising faster than house prices, insolvencies surging, and it is taking longer than ever to finish a home.
As a result, the housing shortfall is already nearing 500,000 dwellings nationwide.
According to Conisbee, the equation that will kick-start the housing supply recovery is straightforward.
“House prices need to rise sufficiently to match or exceed construction costs.
“One of the key challenges plaguing Australia’s housing supply has been that building costs have outpaced house price growth, making it more affordable in most parts of Australia to buy an existing home than build a new one.
“As house prices accelerate under Labor’s policies, they will inevitably reach levels that make new construction economically viable again.
“The combination of Labor’s demand-focused policies, already-building market momentum, anticipated interest rate cuts, and global economic uncertainty points to one clear outcome: accelerating property price growth through 2025 and potentially beyond.
“While this presents affordability challenges in the immediate term, it creates the necessary economic conditions for substantial new housing development.
“This economic mechanism—though counterintuitive from an affordability perspective—represents the most reliable path to increasing housing supply and eventually moderating price growth through market forces.
“As prices rise to match construction costs, developers will respond with increased output, gradually addressing Australia’s critical housing shortage and setting the foundation for more sustainable affordability in the years ahead.”
