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Anne Flaherty: PropTrack economist’s predictions for 2023

While 2023 is likely to be a tough year for renters, signs are starting to emerge that the worst may be over for homeowners, according to PropTrack Economist Anne Flaherty.

She shared her full predictions for 2023 with Elite Agent, including what’s in store for both the rental and selling market, as well as the potential solutions the government should be looking at to increase supply.

Tough year for renters

Ms Flaherty said it would continue to be a tough year for renters.

She pointed to recent figures from PropTrack showing a more than 40 per cent annual increase in house rents in Katanning, WA, Port Broughton, SA, and Gatton, QLD; and a 35 per cent-plus increase in unit rents in Melbourne, Darlington and The Rocks, NSW, as evidence that the problem was widespread.

“I think what all of these areas have in common is that the demand for rental properties is exceeding the supply,” she said.

“It’s not just specifically regional areas and it’s not just specifically capital cities; we’re seeing a really broad range of suburbs where rents have seen extremely strong price.

“It’s really competition that’s driving the rents up for every rental property available.

“If you’ve got more renters competing, that’s just going to push the price up.”

PropTrack Economist Anne Flaherty.

PropTrack predicts rents will continue to rise for the rest of 2023.

“We’re predicting that rents are going to continue to rise this year off the back of new supply failing to keep up with our growing population,” Ms Flaherty said.

A large part of that was due to a severe lag in bringing new housing construction on line.

“Part of the issue is that you know, the speed at which new properties can be developed has slowed considerably because of you know, increased building costs, materials and labor shortages, and also higher interest rates are having an impact on supply as well,” she said.

But the exit of property investors from the market was also a concern, Ms Flaherty said.

“Another issue is that we’ve been seeing more property investors selling, so the share of all property sales by property investors has increased,” she said.

“And so, with fewer property investors in the market, that also has a significant impact on supply of rental properties.”

The exit of investors was due to a number of factors, including restrictions on investor lending enacted by the Australia Prudential Regulation Authority last decade as well as increases in land tax.

Some investors had also chosen to cash out of the property market while sale prices were rising and pandemic restrictions had resulted in an increased risk of vacancy, Ms Flaherty said.

Positive signs in the selling market

While 2023 was shaping up to be a grim year for renters, Ms Flaherty had better news for sellers.

There had been signs in recent weeks that auction markets had been stabilising, an indication of “normalcy” after a volatile year.

“I think that we are starting to see a bit more normalcy in the market,” she said.

“What occurred last year was just an absolute shock to so many people because, of course, the Reserve Bank had set expectations that interest rates were going to remain low for a long time.

“And then of course there was the shock of interest rates, not just suddenly increasing but you know, increasing so dramatically, so quickly… It caused a big upset and a lot of uncertainty.”

While more rises were anticipated, buyers and sellers had the end of the rate rise cycle in sight.

“Even if we do see one or two more rate rises it is expected that we’re close to the top of the rate rise cycle,” Ms Flaherty said.

There were also strong signs that buyer demand remained, with nervous sellers the biggest cause of the current market slowdown.

“We have seen a proportion of would be vendors who are nervous to bring their property up for sale and effectively that’s had the impact of reducing supply,” she said.

“If you think about it, the average buyer has had their borrowing capacity reduced by about 25 per cent but so far, the price falls that we’ve seen have been nothing close to that level.

“So I think one of the reasons why prices haven’t fallen as far as you might expect, given how much interest rates have increased, is to do with the fact that there are still buyers out there.

“There’s still sufficient buyer demand to help keep prices relatively resilient and minimise those falls.”

Ms Flaherty predicted that prices could begin growing again as soon as 2024.

“I actually think that we will see property prices returned to growth, perhaps in 2024, and I think that what we’re likely to see is that once interest rates hit the peak of the cycle that will create more stability,” she said.

A lack of supply and an increase in population would also help drive recovery.

“The fact of the matter is it’s the same story as with the rental market: the new supply pipeline has slowed substantially and our population is growing again,” she explained.

“It comes down to people need somewhere to live.”

Remove red tape to fix supply issues

Ms Flaherty said governments of all levels needed to enact changes to allow for developments to be approved faster and improve the current rental situation.

“I think that we definitely need to see a lot of the red tape that slows down the development process in Australia removed,” she said.

“I think the the actual development pipeline process for building new homes is very, very slow and tedious.

“And so by speeding up that process that would help to get more properties moving.

She also said that increasing density limits in areas well-serviced by public transport and other amenities could help.

Another idea that could help improve housing supply was providing better incentives to build-to-rent developers.

“Build-to-rent has been hailed as a potential solution to this problem, but Australia’s still quite far behind a lot of other countries when it comes to incentivising developers to develop more build-to-rent in Australia,” Ms Flaherty said.

“I think we are seeing some improvement in state governments trying to incentivise build-to-rent developers, but it’s still not enough.”

Focus should be on affordable housing

Ensuring affordable housing developers could see projects through from inception to completion should also be a priority for governments, Ms Flaherty said.

“I talk to developers on a near daily basis and there are a lot of development projects that are approved to go ahead that have been shelved, and they are primarily at the more affordable end of the market,” she explained.

“Often, in the current environment, it’s not that profitable unless you’re developing something higher end, or a more expensive product.

“So I think that where we could really see issues with supply is going to be at that more affordable end of the market.”

One way to mitigate this could be early government intervention in the process.

“I think that the government absolutely needs to step in to say, ‘Where are the affordable projects, what is hindering development?’, and working with those developers to try and get those projects to happen,” Ms Flaherty said.

She said that while the Federal Government’s Housing Accord was a step in the right direction, strong population growth meant it would be difficult to achieve the Accord’s goals.

“The fact that the government’s recognise that all tiers of government need to work together to address this issue, was really encouraging to see in the new Housing Accord,” she said.

“Having said that, I think that it will be really difficult for the government to realise that result.

“I think another issue is the fact that our population is on track to grow at a faster rate than government predictions… Even Chalmers (the Federal Treasurer) himself said our current forecasts are very likely to be below what actually happens in terms of population growth.”

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Jack Needham

Jack Needham was a Digital Editor at Elite Agent in 2022 & 2023