Australian house prices grow at the fastest rate in the world

Australia has taken top spot as the country with the highest rate of annual price growth in 2021.

According to Knight Frank, Australian house prices grew by 17.5 per cent in real terms over 2021, beating out other countries such as Turkey (17.3 per cent), the Czech Republic (16.4 per cent), New Zealand (15.7 per cent), and Slovakia (15.4 per cent).

Worldwide, house prices increased by 10.3 per cent on average in 2021.

Turkey led the house price index in nominal terms with prices up 59 per cent in 2021, however, with inflation running at 36 per cent at the end of 2021, Australia edged ahead in real terms.

Whether tracking nominal or real prices, the top five performers remained the same, with Turkey, New Zealand, Czech Republic, Slovakia and Australia all seeing the strongest growth last year.

Knight Frank Australia Head of Residential Research, Michelle Ciesielski said demand for Australian property was incredibly high in 2021.

“With compounded savings throughout the pandemic in what is still a relatively low interest rate environment, the stability of residential property as safe haven continues to appeal and is one of the reasons why Australia has seen significant growth in values over the past year,” Ms Ciesielski said.

According to Ms Ciesielski, Australian house price growth might begin to slow after seeing such strong growth.

“We’ve now reached a point where the Australian housing market has become fatigued after riding significant growth in values on the back of an economic rebound, and is now be grappling again with global uncertainty, a natural disaster and an upcoming federal election,” she said.

Despite some headwinds, there are still a number of factors that will see demand continue to remain strong, Ms Ciesielski noted. 

“We can’t ignore the fact that we are facing a rental crisis in our cities and regional areas of Australia, with delayed construction in what has already been a diminishing pipeline of newly built homes, a lower number of local and international investors adding to the rental pool, and a likely increase in the skilled migrant population who also increase the demand for rental properties,” she said.

“So despite the economic headwinds on the horizon, the current imbalance between demand and supply in Australia’s mainstream residential markets for at least the next three years, could result in further growth in prices of up to 8 per cent by the year’s end.”

According to Knight Frank, real price growth moderated from 6.2 per cent in Q3 to 4.7 per cent in Q4, for the first time since the start of the pandemic.

Almost half of the countries and territories tracked by the index registered annual price growth above 10 per cent in nominal terms, including the US and UK.

If you had purchased a home in the US at the start of 2021, you would have seen its value increase by US$64,500.

The 10 markets that have witnessed the strongest increase in house prices since the start of the pandemic are largely developed markets where governments stepped in to support economies, and in some cases, housing markets via mortgage holidays or subsidy programs.

Only three markets saw prices decline in 2021 – Malaysia, Malta, and Morocco.

Looking to the future, Knight Frank noted the crisis in Ukraine would lead to weaker global economic growth, tempering the outlook for international house prices, while it might also reduce the number and speed of interest rate hikes that some central banks were pricing in only a few weeks ago.

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Rowan Crosby

Rowan Crosby is a freelance journalist specialising in finance and real estate.