Article | Intelligent Investment

Australia’s housing shortage: Effects of rising population, employment and incomes

CBRE’s leading property experts explore the ‘triple boost’ effect that will push home ownership even further out of reach for Australians.

March 4, 2024

Exterior architecture of a modern apartment building.

Those expecting 2024 to bring some reprieve to the nation’s housing supply crisis will instead be faced with more challenging news.  

“We've got four years of worsening supply situations,” says David Milton, CBRE’s Managing Director of Residential Projects in Australia.  

“That’s four years of decreasing supply and increasing demand. And then there'll be a four to five year lag period before we catch up. We're going to be in one of the most difficult markets for people who are looking for a home.” 

That observation from the ground reflects CBRE’s latest Pacific Market Outlook 2024 report which found that a rare “triple boost” event is sustaining this insatiable demand for housing. Specifically, it’s an event comprising of rising population, rising employment and rising incomes.   

“Collectively, this wealth effect will add circa $860 billion of income over the next decade, a significant proportion of which is likely to be directed towards housing and living,” says CBRE’s Sameer Chopra, Head of Pacific Research who led the report.  

To understand these findings and the health of the current real estate market, our leading experts provided their analysis on the resilience of residential assets, who the buyers are, and the rising demand for Australian luxury property.  

What the housing supply shortage means 

While housing supply and demand figures tell their own story, the flow-on effects to different stakeholders aren’t as obvious.  

“The pressure that this demand is going to put on rents will bring a lot of investors back into the market, particularly with talk around interest rates coming back down,” says Milton.  

“If interest rates drop, investors can buy with a long-term settlement knowing rents will be 25 to 30 percent higher. I think they'll flood back into the market.” 

On a broader front, Chopra says that the living sector’s growth buoyed by immigration will similarly push demand into other areas of real estate including commercial. 

“This growth will translate into incremental demand for 475,000 homes, 5.2 million square metres of industrial space, 2 million square metres of office space, 1.1 million square metres of retail space, and 13,500 hotel rooms.

Why is this? 

“For every extra one million people, you need four and a half million square metres of industrial space. Those people are going to spend in the region of $15 billion more in retail – clothes, whitegoods and more. It drives retail and you need the warehousing to support that." 

Australian property buyer sentiment 

Home ownership still stands as the great Australian dream, according to Milton. What's changed is that today’s buyers have different views on what they can afford and what they should be buying.  

“We're seeing an apartment market that continues to get stronger with owner occupiers, retirees, empty nesters and young families. That’s because there’s a lot more apartment developments designed to meet these groups’ needs. Similar to the rest of the world with high density living, there's going to be a lot more apartment living, and it will be the main choice for most buyers in the future.” 

Competition from overseas buyers is also adding pressure to the housing shortage. 

“Most Chinese money that's coming in is restricted to the more high-end market,” says Milton.  

“Although there's not anywhere near the number of high-end investors as there was from the 2006 to 2010 period. There's talk about returning overseas buyers, but it's not happening in great volumes, and I don't see that returning for a long time.”  

CBRE’s Pacific Market Outlook 2024 predicts two interest rate cuts this year followed by a further two in 2025. If the RBA decides to move in the opposite direction, buyers need to be aware of the potential effects. 

“If they hold rates, residential pricing and volumes will likely still creep up, but prices will be up low single digits,” says Chopra.  

“If they increase interest rates, volumes will decline and pricing will be flattish. Overall, we think there’s an underlying demand here which will drive prices up.  

“Interest rates are less about changing the behaviour of new buyers and more about changing the behaviour of current mortgagees. The pool of the current holders is much bigger than anyone new coming into the system.” 

Forecast for first home buyers 

Australia’s first home buyers don’t need to give up on settling in a major city; they just need to keep their options open, according to Milton.  

“I think there's a lot more opportunities with the increased empty ground railway stations and with the new growth areas like the North West and South West corridor in cities like Sydney. 

“There are great opportunities for more affordable apartments that are really well located to transport modes. The first home buyers we're seeing are starting to take a wider view on where they will buy their first home so they can establish themselves in the market. They're moving further away from the areas they grew up in to be able to buy a property.” 

With the expectation of greater immigration and population growth in Australia, experts like Milton are expecting more people to live and rent together in the future. 

Secure your dream home 

The CBRE Residential team is highly specialised in off-plan sales with one of the largest active database of buyers on hand. Contact the team to experience how our reach and extensive market coverage can help you find your next dream home.