Building approvals are not keeping pace with demand in capital cities
House prices in Australian capital cities are poised to rise even further, with a worsening housing shortage over the next two years driven by population growth, according to non-bank lender Capspace.
Research by Performance Property for the private credit investment manager highlights the ongoing housing shortage, noting that building approvals are not keeping pace with demand in capital cities.
Tim Keith (pictured), managing director of Capspace, indicated a high probability of price increases for houses and units in Melbourne, Sydney, and Brisbane as these markets face greater undersupply over the next 24 months.
“Continued evidence of supply chain issues and the cost of construction means the unit and housing markets continue to be in an undersupplied position, with overseas skilled migration likely to help push demand for housing higher,” Keith said.
“Strong rental growth is still evident across the country for housing across most capital cities, with the current national vacancy rate sitting below 2%. As of March 2024, national dwelling approvals sit at 162,640 for houses and units. Performance Property’s analysis reveals that building approvals are simply not keeping up with population increases. We saw a direct increase over the last 12 months of 303,000 skilled migrants moving to Australia.
“This will put further pressure on rental markets nationally. Evidence of further increases to net interstate migration for Queensland and Western Australia are positive and that could make an argument for investors to get more exposure to these capital cities for further diversification.”
While property owners have benefited from rising prices, Keith advised investors to diversify their portfolios.
Economic data from the ABS shows household net wealth at a record $15.50 trillion in December 2023, with property assets at $10.50 trillion. Households also held record levels in equities, cash, and superannuation. Residential property accounted for 64.5% of net household wealth, up from 61.7% in December 2020.
Keith suggested Australians should diversify more of their household wealth into fixed income assets like private credit to reduce investment risk and achieve better income yields.
“The key driver of household wealth gains is rising property prices,” he said. “With such a large proportion of individual wealth tied up in the property market, it makes sense for investors to diversify into other asset classes, particularly those from which they can draw an income, such as investments in private credit via non-bank loans to companies.
“Ultimately, it is assets other than your home, particularly those from which you can draw income, that will support investors in everyday living and in retirement. So, other investment strategies should consider diversification into fixed interest.
“Private credit can deliver investors yields close to 10% per annum and investors understand their capital has protection based on the stringent loan process, lending and compliance policies, along with the security taken over borrower assets.”
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