Last Updated: 18th March, 2024

Homeownership is a sign of stability and a means of wealth creation for many Australians. But to make a good investment strategy that meets your financial goals you need to know what makes property values increase and decrease.

The property market is sensitive and is influenced by not one but a combination of factors. Here are some of the elements that influence the market most.

1. Interest Rates

One of the biggest factors affecting the price of property is interest rates. When interest rates fall, the cost of monthly loan repayments will go down, too. This will increase demand, making the price of property go up. Rising interest rates have the opposite effect.

A sustained period of low interest rates, driven by the policy of the Reserve Bank of Australia, was one of the key factors in the housing market boom of 2021. The Australian Bureau of Statistics found that residential property prices surged 23.7% in 2021.

2. Economic Growth

House prices are also highly dependent on economic growth. When the economy is growing, incomes tend to rise, which means people have more money to buy homes. It will increase the demand for homes buoying the property market.

Conversely, in a recession, unemployment increases. In severe recessions, many people will fall behind on their loan repayments and their homes might get repossessed. Fewer people will be able to afford a home and the sheer fear of unemployment might keep people out of the property market. In this situation, the demand for the property will decrease, pulling the market down.

3. Location

Geography is a huge factor in the housing market. For instance, even if national housing prices are falling, some particularly desirable areas might still experience rising home values. There are many factors that can make a location more desirable, including employment opportunities, quality schools and childcare, proximity to shopping, entertainment, and recreational centres, and easy access to hospitals, public transport and highways.

An example of this is the construction of the Western Sydney Airport. The Prime Minister’s office has announced that the airport is expected to create 60,000 jobs by the early 2030s. People in aviation-related services will primarily benefit; however, the facility will also create jobs in education and training, retail, catering, warehousing, administration, communications, and computers and information technology.

4. Demographic Change

Internal migration from other cities or states, immigration, and changes in family size and unemployment rates can all change the demographics of a place Such changes affect the property market.

For example, the size of an average household has declined in Australia. This could be attributed to people marrying later or having fewer children, an increasing divorce rate or more separations. When the average household size goes down, the number of households potentially goes up, increasing the demand for homes and, therefore, raising property prices.

With immigration, an increase in the number coming into the country from overseas naturally raises demand for housing. Australia has higher immigration than other countries in the region, which increases the demand for homes. The effect is most pronounced in Sydney, where housing is already short. This is an example of people settling where they expect to find the best job opportunities.

5. High Rents

When the cost of rent rises, more people may decide to buy a home as the cost of rent and home loan repayments start to converge. But paying high rent also diminishes the ability to save for a home loan deposit. So, the impact of high rent on the demand for homes is ambiguous.

Despite property prices going down in 2022, the rental market was rising. Rent in Australia was 9.8% higher in August 2022, year on year.

6. Buyers’ Confidence

Buyers’ confidence is a sign of how optimistic people are about the future of the property market. The demand for homes increases when home values are expected to rise, as more people will try to make the most of their money.

In 2021, buyers’ confidence in the real-estate market was high, and the largest number of people in more than a decade flocked to the housing market to invest.

Conversely, if potential buyers fear that property prices will fall, then there won’t be as many people taking out a loan to buy a home.

7. Availability Of Homes

An excess supply of stock will cause the price of homes to fall. While a shortage of stock will increase property values.

Housing supply is directly affected by population growth and construction in an area. Construction of new property in an area will potentially lower the prices of existing homes in the same locale.

8. Property Upgrades

Upgrading a home will add value to it, especially if it was an old home with outdated features. If you find old properties in emerging cities, then they can have great potential; since most property in such places is expensive, upscaling a low-cost old property can maximise profits. You can take out an investment loan to purchase the property and renovate it. This will increase the worth of the home, allowing you to charge more for rent and sell at a higher price.

10. Government Policies

Changes in the law can boost or hinder demand. Tax incentives, subsidies and deductions encourage people to invest in the property market, while strict government regulations, such as high serviceability buffers, will decrease demand.
Several nationwide government schemes for first-home buyers are available, to encourage people to get their first home; these put upward pressure on demand. The schemes are:

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