Treasury Analyses On Housing Supply
Treasury
AI summary
Treasury analysis from February 2025 projects housing price growth will soften through 2025-26 as cash rate changes, declining net overseas migration, and affordability constraints moderate demand. Nominal capital city housing prices were forecast to increase 4.6 per cent in 2024 and 6.3 per cent in 2025, while real prices were expected to rise 1.1 per cent and 3.7 per cent respectively—significantly below post-COVID growth rates. The analysis notes dwelling investment will remain subdued in 2024-25 due to weak building approvals but expects recovery in 2025-26 as population growth, moderating construction costs, and declining interest rates support investor activity and new supply. Treasury anticipated rental pressures would gradually ease as new housing comes online and households consolidate demand.
Document text
Hide extracted text (2,148 chars)
FOI 4216 Document 3 T Australian Government The Treasury # MCPD extra insights Why did housing prices rise while rates were high? 10 February 2025 s 22 # Housing market outlook - Housing price growth is expected to soften over 2025 and stabilise 2026 as expected cash rate changes, slowing net overseas migration and affordability constraints weigh on prices (Chart 5). - Median bank expectations suggest nominal capital city housing prices will increase by around 4.6 per cent in 2024 and around 6.3 per cent in 2025. Real capital city housing prices are expected to increase by around 1.1 per cent in 2024 and around 3.7 per cent in 2025. - This is well below the recent annual growth rates recorded since covid and suggests that affordability challenges may contribute to easing price pressures as households adjust demand for established houses. - The cycles for housing prices and dwelling investment are highly correlated (Chart 6). - Dwelling investment is expected to remain subdued in 2024-25 as weak levels of building approval drive weak activity. Approvals are expected to continue to trend upwards as strong population growth, moderating construction costs and declining interest rates support a recovery in investor activity and in turn drive a pickup in dwelling investment in 2025-26. As new supply comes online and households continue to consolidate, rental pressures are expected to gradually moderate. Why did housing prices rise while rates were high? 3 Chart 5: Capital city housing price forecasts  Source: CoreLogic, Treasury, ANZ, Commonwealth Bank, Westpac, NAB Note: Nominal and real forecasts are conditioned on median bank dwelling price forecasts and MYEFO CPI forecasts. Chart 6: Real capital city housing prices and dwelling investment  Source: CoreLogic, Treasury, ABS, ANZ, Commonwealth Bank, Westpac, NAB Note: Real housing price forecasts are conditioned on median bank dwelling price forecasts and MYEFO CPI forecasts. Dwelling investment forecasts are as at MYEFO 2024-25, truncated for volatility. Why did housing prices rise while rates were high?