Albany’s Boom and the Shifting Sands of the Australian Property Market
A staggering 22.2% surge in property values in Albany, Western Australia, over the past year isn’t an isolated incident. It’s a flashing signal that the Australian property landscape is undergoing a significant recalibration, driven by affordability constraints, investor behaviour, and a surprising resurgence in regional demand. This isn’t just about first home buyers anymore; a complex interplay of factors is reshaping where – and how – Australians are investing in property.
The Affordability Squeeze and the Rise of Regional Centres
The core issue driving much of this change is simple: serviceability. As interest rates remain elevated, and despite expectations of cuts being pushed back into mid-2024, the ability for prospective buyers to secure loans is increasingly limited. This is pushing demand towards lower price points, and crucially, away from traditional hotspots like Sydney and Melbourne. While outer suburbs of capital cities are still seeing growth, the most dramatic increases are now occurring in regional centres like Mildura (18.7% growth), Tamworth and Gunnedah (13.4%), the Darling Downs (17%), and, most notably, Albany.
This trend isn’t merely about escaping capital city prices. Regional areas are increasingly offering a lifestyle appeal – and, importantly, employment opportunities – that weren’t as prevalent in the past. The pandemic accelerated this shift, and it appears to be sticking.
Investor Activity: A Decade-High and a Regulatory Warning
However, the story isn’t solely about first home buyers seeking affordability. Investor activity is booming, with credit to prospective landlords growing at its fastest pace in a decade. Currently, 38% of loans are going to investors – exceeding the 30% cap imposed by the Australian Prudential Regulation Authority (APRA) in the mid-2010s to curb risky lending practices. This surge echoes the conditions that prompted APRA’s intervention previously, raising concerns about a potential repeat of the interest-only loan boom that fuelled price inflation in Sydney and Melbourne.
This heightened investor interest is a double-edged sword. While it provides liquidity to the market, it also risks exacerbating affordability issues for genuine owner-occupiers. APRA is likely watching closely, and further tightening of lending rules to the investor segment is a distinct possibility.
The Return of Interest-Only Loans and Potential Risks
The increasing proportion of interest-only loans, particularly among investors, is a key indicator to watch. While offering lower initial repayments, these loans defer principal repayment, potentially creating vulnerabilities when interest rates eventually rise or economic conditions deteriorate. This is a pattern APRA will be keen to avoid repeating.
Inflation, Interest Rates, and the RBA’s Dilemma
The outlook for interest rates remains uncertain. Recent inflation data – with new house construction inflation up almost 45% since pre-pandemic levels – has pushed back expectations of a pre-Christmas rate cut. However, economists like Abhijit Surya of Capital Economics believe the Reserve Bank of Australia (RBA) will still have room to deliver rate cuts in the second half of 2024, as unit labour cost growth subsides and disinflationary pressures return in the goods sector.
ANZ’s Adam Boyton cautions that recent inflation figures were partly driven by one-off factors, such as increases in council rates and the end of electricity subsidies. The RBA will be carefully weighing these factors, alongside the modest easing in the labour market, when making its next policy decisions.
What Does This Mean for the Future of Australian Property?
The Australian property market is entering a period of nuanced change. The days of blanket price increases across major cities are likely over. Instead, we’ll see a more fragmented market, with regional centres continuing to outperform, and affordability remaining a key constraint for many buyers. The level of investor activity will be a critical factor to monitor, as will APRA’s response to the breaching of lending caps.
The shift towards regional areas isn’t a temporary blip. It represents a fundamental change in lifestyle preferences and work patterns. For investors, this presents opportunities to diversify portfolios and tap into emerging growth areas. For first home buyers, it means exploring options beyond the traditional capital city markets.
What are your predictions for the Australian property market in 2024? Share your thoughts in the comments below!
