Australia's Housing Crisis Gets Worse!

Alright, so you’ve seen the title and probably the thumbnail, and you’re thinking: Oh my God, here we go again—more FOMO.

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What I’m about to share with you are some cold, hard facts, and sometimes the truth needs to hit hard. That’s exactly what I plan to do because the reality is, if you don’t start making moves soon, owning a home in Australia might slip out of reach.

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I don’t make the rules, but if you're interested in hearing my thoughts, keep reading.

Growing Challenge of Housing Affordability in Australia

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Now, the reality is quite grim. 

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The idea of a fair go in Australia or the dream of owning your own home is slipping away—and it’s slipping away a lot faster than most people think. 

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Yes, you could go out and blame migration or the evil investors. There are so many things we could blame. 

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However, I want you to keep an open mind as we go through this article, because what I want you to focus on is:

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Everything within your control, you should control. 

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Everything outside of that is pretty much white noise. So, what I do on a day-to-day basis shouldn't really affect you. You should protect your energy and time and execute with speed. 

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You need to focus on what you can do right now to ensure that this doesn’t happen to your family.

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In a report published on October 11, it was revealed that:

What we can see is the light green (representing houses), and then in dark green, we’ve got the combined capitals for units. 

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We can also see this rapid increase in rents more recently. 

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There are a couple of factors at play here, which I’ll share in a bit, but we are seeing a bit of a tapering off now. 

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What most people are hoping for is that this is temporary. 

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While we think it’s temporary, it does mean that rents will stay at an elevated pace. 

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What we could see is a little more leniency around rents and how quickly they’ve grown if we start seeing interest rates cut, which would be a good thing. A big factor that plays into this is Australian net overseas migration. 

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What we can see is this period between the 1940s and early 2000s, where we had normal immigration levels—this is what we want to see. 

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However, since then, we’ve seen higher levels all the way up until 2019–2020. 

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Then we shut off our borders, and what we’re seeing now is the rubber band effect. I've spoken about this when it comes to inflation and interest rates: when something becomes volatile in one direction, chances are you’ll see the opposite effect quickly. 

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Between 1910 and 1920, we saw a sharp drop-off only to see a big rebound later. 

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Now, we’re seeing numbers a lot higher, especially after 2020, when things got locked down and our borders closed. Since then, we've seen the highest numbers of immigration come into Australia. 

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What’s even more alarming is that the projected numbers are a lot higher than the normal immigration we used to see. It's very hard to predict where we’ll end up in the next 20 or 30 years, but it’s safe to say that with the appeal Australia holds for people overseas, demand isn't falling off anytime soon.

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The same report added that:

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Image Alt Text: A screenshot from Ravi’s youtube video showing a report

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The world’s largest commercial real estate group, CBRE, projects that Australia’s rental crisis will continue as population demand outstrips supply. 

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CBRE projects Australia’s population will grow by 3.6 million to 31 million by 2034 from the current 27.4 million. 

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Mind you, when you think about the projections experts had for Australia's population in 2024, we've surpassed those numbers a lot faster. So if we’re looking at these new projections, yes, it’s going to be bad, but what are the chances we see this number a lot sooner than 2034? I think it’s highly likely.

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A big problem when it comes to the rental crisis is that yes, we have demand, but supply is going the opposite way. 

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We have low levels of supply, not just for houses—which is basically in the toilet—but also for apartment living. 

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Now, before you jump online and buy an apartment somewhere because you think it’s a good investment, think about the risks involved in purchasing a unit. 

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I’ve got a couple of units in my own portfolio, but they’re very carefully selected. They're not in buildings with 200 units, they're definitely not in areas with multiple towers, and they're properties that are completely unique. 

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The biggest issue people face when investing in or buying units is: how do you know it’s not defective? How do you know there aren’t problems with it? 

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Over the last 10 to 15 years, we’ve seen plenty of issues because bigger developers are all about churning and burning. They build cardboard cutouts, literally cubes, and then sell them for inflated prices. Based on affordability, people can only afford these things. 

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What you can see here is the high-rise apartment approvals chart.

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Despite many being approved, we’re still seeing the number decline year on year. That’s concerning because if we’re in this position now, what does it look like in the next five years?

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What's crazy to see is that West Australia, in grey, is pretty much at the lowest levels it's ever been at. 

If you look at New South Wales, where we have the highest levels of approvals, you'll see that decline pretty much from 2016 all the way through to now, and it doesn't look like it's stopping anytime soon.

Now, a major reason we still see property prices continue higher and higher is because inflation, to a certain extent, is baked into the property. 

When you buy a property, you're not just buying a house to live in. You're buying something made of materials like bricks, tiles, and other building materials, which are all becoming more expensive over time because they are hard assets. And with currency becoming less valuable, these material costs go up.

When you look at a graph like this, you're seeing that the cost of construction is increasing, so you have to think about the replacement cost of a house. 

If you purchase a property for, say, $500,000—yes, you can still find these if you're struggling to find investment properties at that price (and I’m talking about houses and townhouses in good locations)—then definitely reach out to us at Search Property. We move at a speed a lot faster than most.

If you purchase a property for, say, $500,000, and you get both the land and the house, think about how much it would cost to rebuild a house like that. 

If you think it’s still around $200,000, you’d be out of luck. 

The cost of building a house is increasing, putting further pressure on existing stock—not just from a capital growth perspective but also from a rental growth perspective.

This is especially with interest rates so high, you don't have as many people going out there, getting approvals, holding loans for a long time, or even being able to get approved for a loan. 

To add to this mess, you’ve got company insolvencies pretty much at an all-time high, particularly in the construction industry. These include both small and large construction companies.

You can simply Google "Construction Company Collapse" and see so many results over the last few years. It’s just not viable for many developers to build anymore. 

People who could borrow 24 months ago can't borrow now, and unfortunately, that puts pressure on stock.

This also puts pressure on larger companies that have taken out debt. We’ve seen increases in interest rates happen so quickly that it’s impacting them hard. 

Recently, our Prime Minister got into some hot water for purchasing a house for something like $4 million. I’m not going to go into whether I think it’s a good or bad idea. 

What I can comment on is one of the worst things I’ve seen in policymaking and promises: the housing target.

The government said they would build 1.2 million homes. That’s the target. We need 240,000 new homes every single year. 

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However, I said, when they first announced it, that they’re probably going to produce a lot less than normal instead of hitting all-time highs—and that’s exactly what we’ve seen. 

The target is 240,000, but the actual numbers being produced are closer to 180,000. Every year we miss that target, it means we're kicking the can further down the road.

Now, what would make sense is, if you can’t meet your supply goals, maybe you should slow down your demand—in other words, immigration. 

Maybe slow that front down a little. But no, you can’t do that, because then the Australian economy would collapse. 

We’ve pretty much already experienced a per capita recession. Without all these people coming into the country, we’d be looking at an economy that wouldn’t have a soft landing but a hard crash.

I’d say the Reserve Bank of Australia (RBA) and the government have managed this quite well overall, but there will always be collateral damage. Some people are making more money than ever before, yet they feel poorer than ever before. 

That’s the reality of inflation—it erodes all debts. With interest rates likely coming down in the next 6 to 12 months, they've chosen a path: let's inflate the economy, print more money, and maybe high inflation is less of a concern than a hard landing over the next 36 to 48 months.

As I mentioned earlier, the Australian dream of owning a home or having a "fair go" in Australia is deteriorating. 

What we see is that in 1981, the numbers (in blue) were much higher, while in 2001 (in red), they declined. By 2021 (in purple), they've dropped even more, particularly for people aged 25 to 45. It starts to shift a little more after that age, but overall, it's a lot harder to own a house now than it used to be.

Despite what people say about interest rates being so much higher back then, the reality now is different. This means you need to start making moves sooner rather than later. 

If you choose to take this advice—and it’s free advice, not even advice at this point, just common sense—then take accountability for your actions. Use your money wisely, save it, invest in assets, protect your wealth, and keep repeating the process.

If you think this is all FOMO and no one should be buying property, you’re most likely going to let me know in the comments below. 

However, the reality is, those comments do nothing for your own bank balance.

So, I urge you to move with speed and work with the right team. 

If you need help, there's always the opportunity to contact the best buyers agency in Australia, which is Search Property. 

I hope you guys enjoyed this one. I’ll catch you guys in the next one.

Thanks, guys!