Australia's housing downturn has gathered pace, but according to Ray White chief economist Nerida Conisbee (pictured), sharply rising construction costs mean a dramatic national price decline remains unlikely, even as higher interest rates continue to weigh on borrowing capacity and buyer confidence.
Cotality's Home Value Index recorded a 0.7% national fall in dwelling values in July and a 1.9% decline over the quarter, with houses hit harder than units, down 0.8% for the month and 2% for the quarter, compared with 0.5% and 1.4% respectively for units.
Conisbee said the premium end of the market, most exposed to higher rates and reduced borrowing capacity, has been softening for some time, but weakness is now spreading.
"Brisbane has moved into decline, Adelaide softened in July and Perth has edged lower over the past three months," she said. The more affordable end of the market, long supported by first-home buyers using the five per cent deposit scheme, is also losing some of that support as investor demand cools following recent budget changes.
Despite the broadening downturn, Conisbee said replacement costs would limit how far prices can fall nationally, since established homes cannot stay materially cheaper than new supply for long without construction activity stalling.
"This is important because existing homes cannot remain materially below replacement cost across the market for long. When established housing becomes cheaper than delivering new supply, projects stop stacking up," she said.
ABS data shows house-construction output prices rose 2% in the June quarter, the largest quarterly rise since September 2022, and 5.9% over the year. Nationally, the cost of building a new house is now 51% higher than at the end of 2019, with costs more than doubling in Western Australia and rising 69% in Tasmania, 65% in South Australia and 61% in Queensland. Even Victoria, the smallest increase among major states, is 35% higher.
That comes despite some economists earlier suggesting the immediate fuel-driven cost impact might be more contained — reporting a real-world rise closer to 1% rather than the 10% some had initially feared — though the broader run of quarterly cost increases Conisbee points to has persisted regardless.
Conisbee said the effect is likely to be even more pronounced in the apartment sector, where longer build times, higher financing costs, and complex compliance requirements are pushing many affordable projects out of viability altogether.
"At current costs, very few genuinely affordable developments are viable. The projects that proceed are increasingly premium developments aimed at wealthier buyers, rather than the lower-priced supply needed by first home buyers," she said.
Conisbee said the pattern is likely to continue as the downturn plays out, with fewer new projects proceeding and demand pushed back toward established housing.
"Replacement costs will not prevent larger falls in individual suburbs or properties. But nationally, they place a powerful limit on how far prices can decline," she said.
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