A new federal government policy that lets first home buyers buy real estate together with their friends could drive up home prices, with values rising in every state capital last month.
The Australian property market is already recovering, despite ten consecutive rate hikes by the Reserve Bank in 2022 and 2023, with immigration set to hit a record 400,000 this financial year.
House prices rose in April in Sydney, Melbourne, Brisbane, Adelaide, Perth and Hobart, according to data from CoreLogic.
From 1 July, first-time buyers who buy a house with their friend are eligible for the First Home Guarantee.
Prime Minister Anthony Albanese’s Labor government is expanding the policy of his Liberal predecessor Scott Morrison, allowing a property newcomer to buy a property on a five per cent mortgage, with the taxpayer underwriting the balance of the usual 20 per cent deposit.
Housing Secretary Julie Collins announced on Sunday that first home buyers will be able to purchase a home or unit with a friend, sibling or relative, extending the rules beyond couples in a relationship.
A new housing policy that lets first home buyers buy property with their friend could drive house prices up with values rising in every state capital last month (pictured is a Sydney auction)
Despite the broader criteria, the number of places in the First Home Guarantee program remains limited to 35,000 per financial year.
But economist Saul Eslake, the director of Corinna Economic Advisory, said any policy that allows people with little savings to buy a home would boost demand.
“The mortgage guarantee scheme allows people to pay more for housing than they would otherwise because it means they don’t have to put down such a large down payment,” he told Daily Mail Australia.
“It increases demand.”
The first homebuyers have been able to access grants since Australia’s longest-serving Prime Minister, Robert Menzies, announced a program in 1964 to help young married couples enter the housing market.
“We have almost 60 years of history telling us that anything that allows Australians to pay more for housing than they otherwise would, results in more expensive housing,” Eslake said.
Property prices in Sydney rose 24.5 per cent during the pandemic as Reserve Bank interest rates hit a record low of 0.1 per cent, demonstrating how sensitive house prices are to “lower interest rates, more readily available credit, subsidies for first homeowners and other cash payments to first home buyers or to other home buyers.
In April, Australia’s most expensive major city, Sydney, had the largest monthly increase of 1.3 percent, bringing the median house price to $1,253,759.
Prime Minister Anthony Albanese (pictured) is expanding his Liberal predecessor Scott Morrison’s policy allowing a real estate newcomer to buy a property with a five per cent mortgage, with the taxpayer underwriting the balance of the usual 20 per cent deposit
This happened despite the fact that from May 2022 to March 2023, the Reserve Bank of Australia raised cash rates ten times in a row to an 11-year high of 3.6 percent.
Prices in Melbourne and Brisbane both rose 0.2 percent to $907,220 and $781,881 respectively.
Perth, Australia’s most affordable market, saw its average price rise 0.6 percent to $599,240, while Adelaide’s value rose 0.1 percent to $697,909.
Home prices in Hobart rose 0.4 percent to $692,361.
But they fell 1 percent in Darwin, to $573,534, and fell 0.2 percent in Canberra, to $946,463.
While housing prices fell in the territory’s capitals, they rose in every state capital, with immigration projected to reach a record 400,000 in 2022-23, surpassing the 2008 high.
It is also significantly higher than the forecast of 235,000 in the October budget.
Economist Saul Eslake, the director of Corinna Economic Advisory, said any policy that would allow people with little savings to buy a house would boost demand (pictured are houses in Springfield in Ipswich, southwest of Brisbane)
Net annual immigration is expected to grow by 315,000 in 2023-2024.
That means immigration would increase by 715,000 in two fiscal years, based on skilled migrants, family reunification and the humanitarian influx, along with international students.
Mr Eslake said strong population growth is likely to lead to single-digit increases in property values in 2023 and 2024, after the volatility of ultra-low fixed rate mortgages has petered out.
“While they’re not going to buy a house the week after they get to the country, they will do it as soon as they can,” he said.
The Commonwealth Bank, Australia’s largest home lender, now expects Australian house prices to rise by three percent in 2023 and another five percent in 2024.
Gareth Aird, head of the bank’s Australian economy, said strong population growth at a time when the national rental vacancy rate was one per cent would lead to increases in property prices.
Everyone needs a roof over their head. So more people means more underlying demand for housing,” he said.
‘But the supply of new homes is not keeping pace with the accelerating population growth.’
AMP chief economist Shane Oliver said Australia’s housing shortage crisis is likely to be exacerbated by labor shortages.
“As such, we are seeing a renewed increase in housing undersupply,” he said.
The big banks are divided on whether the Reserve Bank will lift interest rate hikes again in May, after the pause in April.
The Commonwealth Bank expects a 0.25 percentage point increase, bringing the cash rate to 3.85 percent, but Westpac, NAB and ANZ forecast no movement.