Property Industry Weighs In On the 2022 Residential Market

Australia’s white-hot housing market has seen massive value gains during the past 12 months as record low interest rates and an acute shortage of homes for sale fuelled a sales frenzy.

Thanks to the federal government’s HomeBuilder scheme, a huge volume of homes are currently under construction across Australia as buyers continue to opt for detached housing—which increased by 24.6 per cent in 2021, outperforming the 14.2 per cent lift in national unit values—helped along by the increasing adoption of hybrid home-office working policies.

House prices in regional markets have surged twice as fast as their capital city counterparts during the past year with big coastal centres close to capital cities attracting the most metro movers.

The pandemic has also provided a catalyst in kick-starting and accelerating build-to-rent supply as non-existent international arrivals and investors push many developers of traditional build-to-sell apartments towards the nascent sector that doesn’t have to deal with the retail sales processes and also boasts faster construction times.

While prices have risen at the fastest annual growth rate in 30 years, they have recently started to cool, with the big four banks, along with a number of the country’s top economists, tipping prices will peak towards the second half of 2022 as higher borrowing costs and fatigue sets in and weigh down buyer demand.

To learn more, The Urban Developer has turned to some of Australia’s leading property experts for their thoughts on the year ahead.

“The south-east Queensland property market has proven to be a winner throughout the pandemic. And with our resilience and lifestyle offerings now in the spotlight, we expect this to only continue into the foreseeable future.

“Given both the strength and growing pressures the industry is experiencing, we also anticipate a higher level of creativity in projects coming to the forefront.

“Those that have maintained controlled growth and structure, are well capitalised, and, importantly, are able to think outside the square and adapt quickly will succeed throughout this next phase of the cycle.”

“The [residential] property market continues to provide compelling opportunities for experienced developers who know where to look and how to successfully deliver their projects.

“Developers should be continually and carefully reviewing their building contingencies as costs increase and other factors impact timing and project progression.

“I would suggest all developers place more value on the input they get from the expert consultants they work with, particularly in the areas of valuations, legal and cost-based quantity surveyor reporting.”

“The pandemic-driven shift in lifestyle priorities gave buyers more confidence in the regions, and government stimulus reduced barriers to entry. We aren’t expecting this to slow down any time soon, and we will continue to deliver projects where the market is strong—especially the likes of Geelong, Gisborne and Ipswich.

“In 2021 we made our first acquisition in Queensland, which will allow us to cater to a market we believe is on the cusp of further growth. It’s a state we are actively looking for opportunities in.

“We also saw strong demand across our medium-density projects—two of which sold out in 2021—as buyers motivated by proximity to the city and amenities, as well as competitive pricing compared to established housing, drove a surge in interest and underpinned our confidence in the sector.

“Providing affordable land and houses will see us through the highs and the lows of the market as affordability becomes a bigger and bigger challenge for the Australian property market.”

“It does look like price growth will continue, although it is unlikely to be at the same rate as 2021 partly due to the introduction of finance restrictions and, with the end of lockdowns, the number of properties for sale has increased.

“International borders reopening will have a big impact on rental levels, particularly once migration starts up again while construction costs should start to moderate towards the middle of next year.

“Finally, northern migration is likely to continue. South-east Queensland is doing well at the moment and with jobs growth, open borders and the coming Olympics, strong demand for housing looks set to continue.”

“Work-from-home, the new norm, means people want different land and housing options. They want more services and amenities close to home. People also now appreciate their local communities more. We should expect developments that are more responsive to these ideas.

“At the same time, many people are more climate conscious and want better-designed homes and communities. With immigration numbers down, and unlikely to boost sales again for a couple of years, the industry needs to find more responsive design solutions that tick off these prime concerns of affordability and sustainability.

“They are actually a good opportunity for the industry to show some creativity and responsibility. The answer is in more clever and responsible design. The beauty of this is that it’s driven by the market rather than just feel-good motives, which means it’s much more likely to happen.”

“Build-to-rent is emerging as an asset class at a much faster rate than I think anyone really expected.

“What we expect to see in the lead up to the likely federal election next year is significant announcements around high population growth and migration settings from 2023 onwards.

“This demand side stimulus in the face of still subdued levels of new supply driving rents upwards will embolden capital to push even harder into the sector from 2022 onwards.”

“The pandemic has highlighted, exacerbated and brought to the fore the importance of social and affordable housing in our society. Lower debt costs and the favourable lending environment, together with other stimulus measures has put home ownership—and rental prices—well out of reach for many people, key workers in particular.

“The exodus to the regions—and those wanting a second or third residence—also put significant pressure on housing supply in these areas.

“Regional areas will also reform their planning frameworks to accelerate new supply. Where we were once looking at increasing heights and densities around transport nodes in the cities—this will continue of course, new residential and employment lands in the regions are now also a focus of significant importance.”

“Over the last two years we have seen investors completely priced out of the market in Sydney and Melbourne.

“In Canberra investors can enjoy the same rental returns on a $500,000 apartment as they would on a $1 million investment in Sydney.

“I expect investors to continue looking at Canberra as an investment opportunity throughout 2022 and interest rates will play a significant part in maintaining the momentum in the Canberra market.”

“The pandemic has created a ‘perfect storm’ in Australia; a combination of substantial housing affordability issues, drastic forecast undersupply of new units as a result of failed and stalled build-to-sell developments plus significant population growth forecasts.

“This gives the build-to-rent sector a bright and important future for the growing number of Australian renters, not to mention it offers a far superior standard of living when compared to the private rental experience in Australia today.”

“The year 2022 will see a resurgence back to the apartment sector as the gap between the housing market and higher density is too high to ignore.

“House prices will slow as affordability thresholds start to be breached, though we expect the outer suburbs to outperform in terms of percentage growth. Coastal destinations will continue to be in high demand as the interest rate cycle remains highly accommodating.

“The benefits of negative gearing and the constraints of capital gains tax is likely to see the investment market remain buoyant as equity gains achieved over the past two years.

"Tight rental markets and the expectation of continued capital growth will see 2022 being another positive year for both developers and vendors alike.”

“From the rise of build-to-rent to the demand for touch-free amenities and the way housing is constructed, property has changed forever. Build-to-rent will be a big focus for us—in the next five years I foresee it becoming 40 to 50 per cent of our business.

“After reflecting on our environmental impact this year, sustainability and carbon-neutral developments will be a big focus for us next year—it’s something we feel we have to do for the next generation, and something we owe the world.

“The housing market is hot, and this will continue as people prioritise what’s really important—a home. People have invested more, and will keep doing so, as they reflect on the space they spend the most time in, and areas like the Gold Coast will continue to witness unprecedented demand as Australians finally embrace our own domestic coastline once more, so I don’t think we’ve come close to the ceiling on our coastal location market this year.”

“Many of the structural shifts associated with the pandemic will stay with us— for example, the move of some people from the cities to the regions—but with the world now learning to live with Covid, 2022 is likely to see the re-emergence of traditional drivers of activity.

“Rising mortgage rates, squeezed affordability, and potentially some further tightening of lending rules from APRA will dampen house prices, as they always have.

“And assuming the borders re-open, migration will also become a driver of activity once again; this will be particularly true of construction activity, rents and unit prices in inner Sydney and Melbourne.”

“The Australian economy may have grown 4.4 per cent in 2021 but [our] economists expect another solid lift of 5.1 per cent in 2022, underpinned by household spending and business investment.

“Economic activity will also be well supported by infrastructure activity.

“Australian home prices could grow by a further 7 per cent in 2022, supported by still-low interest rates and a return of foreign migrants to Australia.”

“Looking forward it would be safe to assume that the level of demand for new housing will reduce after two years of stimulation, the level of future demand will be well below current levels of activity.

“Additionally, the rise of peri-urban and regional markets will mean that more of the traditional metro housing demand will be spread across other minor markets.

“A major implication arising from the way governments have responded to the pandemic will be higher lending rates in response to higher inflation. This combined with high property prices may introduce a period of flat-negative price growth during the next one to two years.”

“The pandemic has shaped Spyre's decision to get back into land with one of our purchases this year a 40ha acquisition in the gateway to the Bass Coast in Victoria.

“We also saw the need to seek a pipeline of stock in and around Brisbane with our southern state immigrants not all moving to coastal destinations, therefore catering for more apartments for the working community in beautiful locations.

“Spyre is confident in the Brisbane market looking ahead, as this year we saw a 30 per cent spike on top of the steady interstate migration occurring prior to the pandemic.”

“There is mounting pressure in the construction sector with the rising cost of raw materials including steel, riot, concrete and cabling.

“In addition, there are major constraints on imported materials and appliances, with shipping container backlogs, delays and rising costs in transportation.

“The increases in construction costs will see prices pushed back to the consumer on all products across the property sector. If there is one benefit with this rising cost of construction, it may slow demand which could delay or at least slow down any interest rate rises over the next 12 months.”

“Resilience, flexibility, patience and leadership are always rewarded, and the experience of the pandemic reminds us of this.

“As devastating as the pandemic has been around the world, one of the positives of this experience is an obvious ‘flight to lifestyle’ that will continue to benefit regions like south-east Queensland.

“We remain optimistic and expect the momentum that has developed during the past 12 months to continue into 2022 bringing ongoing growth. Although, the impact of skilled labour shortages, unsustainable escalation of construction prices, and the real prospect of interest rate increases are likely to become more evident.”

“Communities, authorities and developers will continue to look to regenerate and emphasise the steady development of villages within our capital cities that have in more recent times struggled to gain traction.

“This is due to the demand in the wider community valuing convenience within proximity to their homes, a close village atmosphere and sense of belonging. Examples include Double Bay, South Melbourne and St Kilda.

“Fortis will continue to trust that great property in great locations will continue to see strong demand despite market cycles. We expect to see a continued and very strong demand for our 2022 residential projects launching in Point Piper, Darling Point and Rose Bay.”

“There is a good chance that the pandemic has broken the back of a 30-year trend towards lower inflation and lower interest rates.

“It has already boosted inflation in 2021 dramatically by boosting demand for goods and constraining supply, but more fundamentally, it has led to ultra-easy monetary and fiscal policy, which point to higher inflation over the longer term.

“For 2022, this likely means higher mortgage rates and combined with a deterioration in housing affordability this will mean slowing and then, by the end of 2022, falling home prices. For the year as a whole we expect home price growth of just 5 per cent, but with prices falling 5-10 per cent in 2023.”

“I think 2021 lockdowns induced by the Delta variant will see a resurgence in regional, lifestyle areas in the short term, particularly those that are within reasonable distance to the CBD.

“We saw this off the back of extended lockdowns in Melbourne last year, so it makes sense that this trend may repeat to some extent in early 2022.

“Overall, this trend is expected to be short-lived as affordability constraints, higher advertised stock levels and tighter credit conditions weigh on housing demand more broadly. 2022 is expected to see much softer growth than in 2021.”

“The rise of average house prices during an extended period of closed borders and net-migrations loss in Victoria has been unimaginable, but we are hopeful that the next two years will herald the return of some normality.

“We also expect to see further pressure on the housing market, as Victoria welcomes an influx of residents back into the state.

“Without a lot of the multi-residential supply of the last few years, a wider acceptance of build-to-rent is now inevitable and will hopefully be supported by all levels of government as a way to deliver high quality, healthy and sustainable places for people to live.”

“There is a real crunch coming to our capital city apartment markets in the coming years.

“In a report by Urbis, commissioned by the Property Council of Australia, it is predicted 2024 apartment supply will be 20 per cent of 2018 levels.

“We need to be seriously looking at supply, particularly as immigration returns, and working alongside the government to introduce levers that will bring more apartments to market.”

“Population growth is likely to be a government focus in 2022 and beyond, achieved by bolstering the migration intake.

“The foundational logic is that creating a ‘Big Australia’ through a big population is a way to sustain higher economic growth and build Australia’s skilled workforce. Job ads are at the highest in 13 years, with severe shortages in certain areas as a result of closed international borders.

“The return of overseas migrants, international students and particularly skilled highly-paid migrants, will add to demand for housing. Australia is also likely to see a continued shift of residents across state borders or into regional markets.”

“The emergence of the build-to-rent sector is expected to fill part of a shortfall in apartments, with delivery of approximately 5800 apartments in the two years to 2023, before delivering a further 11,000 apartments in 2024.

“Qualitas expects further momentum to occur in the build-to-rent sector over 2022, particularly with regard to a number of sizeable private developers entering the space as they activate projects that have been in planning and design during the course of the pandemic.

“As international borders reopen and existing supply of apartments is absorbed, Qualitas believes robust rental growth will emerge toward the back end of next year, which will further underwrite the activation of build-to-rent projects.”

“The opening of interstate and international borders will have a positive flow-on effect, but I also anticipate there will be some slowing down in the residential sector because of the pull forward of supply and demand due to this stimulus.

“It’s important to remember, however, that in 2019 the market was coming off a low-base, so any slowdown from 2021 figures should be viewed in context of a market ‘normalisation’, rather than a downturn.”

“We have worked incredibly hard to retool our pipeline with an exciting mix of residential and commercial developments, both in metro and regional areas.

“I expect a return of investors and the continued push of rightsizers, but more seeking price points that allow them the option on multiple residences that work with their lifestyle.

“The five-day work week may diverge into a seven-day, three-quarter split as people pick and choose where they live, how and when they work, with more acceptance from employers.”

“The success of sales within Jewell Station Village tells us that buyers are becoming more conscious of the lifestyle they want to live and want sustainable, well-designed developments in vibrant locations that are close to amenity and green spaces.

“The huge price growth we have seen during the past 12 months created a ‘fear of missing out’ for a lot of buyers in the market and we believe the buyer demand will continue to be strong into 2022.”

“As the world opens up again to international travel and migration, I think a huge opportunity exists to tap into international students coming to Australia as well as expats returning home from Hong Kong, the UK, the US and other corners of the world.

“We’ve already seen a number of sales to parents buying prime-located apartments for their children close to universities.

“Investors have also returned to the market—those looking to take advantage of current prices before demand increases when the international borders open again.”

“As borders open back up the economy will begin a steady revival as overseas investment trickles back into the Australian property market. But to supercharge the economy, the government must spend first on infrastructure to activate new neighbourhoods and business precincts.

“The pandemic kept people from travelling and boosted their savings and along with record low interest rates, it gave them more borrowing power at the mortgage table.

“The pandemic drove home the chronic supply problem in Australia, with some of the largest property price rises ever seen. Lesson learnt; build the infrastructure so we can build the houses.”

“The continued strengthening of the Brisbane market off the back of a declining Melbourne market.

“The relocation of capital and people from Melbourne to Queensland has been an unusual feature of the last 12 months as usually it is Sydney based.

“My prediction is that Brisbane, the Gold Coast and the Sunshine Coast will continue to strengthen at the expense of Melbourne thanks to the hype around the coming Olympic Games and they will start challenging as Australia's second largest economy.”

“Looking ahead, the pandemic, WFH, protests and associated geopolitical issues, I feel, will continue to bolster property prices in the regional areas as people aim to decentralise and reassess parts of their life and values.

“We will also continue to see the increase in greener and more sustainable buildings as the increased effects of climate weigh into our decision making and customer demand.

“I believe the Queensland property market in particular has more to give yet, largely due to our open spaces, relaxed lifestyle, amazing weather and the future prospects of the 2032 Olympics from an investment standpoint.”

“The pandemic has shown the benefit to investors of needs-based living sector investments which offer strong demographically driven growth but are simultaneously defensive assets as well.

“The year 2022 promises to be a big year for build-to-rent as investment capital heightened interest will be met by the delivery of true purpose-designed and built build-to-rent product to the market across Australia for rental customers across the country to enjoy.

“Next year will be a game changer for renting in Australia which will help define market expectations from rented properties for years to come.”

Related: Property Industry Weighs In: 2022 Commercial Market