The 7 big trends reshaping the property market

02

Stepping stones

Naturally, not all aspiring homebuyers will be able to purchase family houses straight off the bat. As younger buyers enter the market, the transition from renting to the family home will likely become more prolonged.

“Most people can no longer afford their first home to be their 20-year dream home. It’s about working your way up the property ladder, maybe starting with an apartment, and then thinking about upgrading or progressing from that point,” says Carrie Fox, Head of Home Lending at Macquarie Bank. 

As this transition lengthens, buyers will become more accustomed to using smaller properties as stepping stones to their ‘forever home,’ potentially increasing the demand for apartments along the way. Others may choose to simply continue renting and use property as an investment vehicle instead.

“If first home buyers are finding their dream home out of reach, more of them might choose to enter the market as investors. They might continue to rent in a place that they would like to live or live with their parents, and buy their first property as an investment that might not suit their living aspirations,” says Fox.

03

New pathways

Fox expects many young people will start to think outside of the box to get onto the property ladder, embracing new forms of ownership in the process.

“We've seen these fractional ownership models have limited success to date, but it’s possible that some people will turn to more creative ways to get some exposure to the property market,” says Fox.

This might involve structured or unstructured arrangements, where friends buy a property together for example, although she warns these bring their own risks and without careful management can become problematic when situations change.

CoreLogic Head of Research Tim Lawless agrees these ownership types will become more prevalent in the coming decade, with different business models set to emerge.

“The paradigm shift is already underway and the typical structure of owning a home is evolving. Fractional home ownership and shared equity arrangements are already a feature of the market and down the track, we might even see synthetic trading or property derivatives show up in Australia,” he says.

These function as publicly traded property portfolios, allowing investors to gain exposure to real estate without having to buy a property outright.

Find out more: Three enduring insights for Australian home owners

04

Shrinking backyards

Population growth in Australia’s largest cities shows no sign of slowing down. As a result, the market will move further towards high-density living, according to Lawless.

In simple terms, this means more apartments.

“We’re already seeing a gradual shift towards densification, not driven by preference but more through necessity and the maturity of our markets,” says Lawless.

Worsening affordability has also played a role. As home deposits take longer to save and property values outpace household income growth, the Australian block has been shrinking.

“Nationally, we've seen the median lot size move from about 530 square meters back in 2007 to a recent low of about 370 square meters. That’s almost a third smaller in the space of just 15 years,” says Lawless.

Despite the constraint, Australians are reluctant to accept smaller homes.

“Lot sizes are definitely getting smaller but what’s interesting is that actual house sizes haven’t really changed so much,” says Owen. “People who are buying detached houses aren’t compromising on the size of their houses but the size of the land they are on and that’s a reflection of what developers are bringing to market.”

Given the choice between land and housing, home owners are decisively giving up on the backyard. With housing affordability unlikely to improve, Lawless says it’s a phenomenon that will persist.

As free space in cities shrinks further, new supply of housing will have to bend to city limits. Developers, Lawless says, will find higher yields by maximising the number of homes they bring to market and providing buyers with outdoor space elsewhere.

“There will be gradual acceptance of the trend with the onus then on developers to make sure there is communal green space in these estates for people to walk or take the kids out to play.”

05

Going green

Rising environmental concerns, greater government incentives, and regulation have the potential to improve the sustainability of new homes and encourage the retrofitting of existing ones. Homes that keep up may command a premium in market, while those that fall behind may watch as their value erodes over time.

“We’re only in the infancy of this today, but it’s inevitable that there will be a growing focus on energy efficiency and how we build so that it costs less to cool, to heat and to maintain,” says Lawless.

“It’s going to become a more pervasive part of policy, and increasingly made possible through technology and community aspirations towards more environmentally sustainable outcomes.”

Take the 2023 Federal Budget which committed to expand energy star ratings to include existing homes and set aside funding to support home upgrades.²

Other countries are further along. In the United Kingdom, the government has mandated energy certificates for properties on the market, established minimum energy standards on rentals and is working with financial institutions to incentivise improvements.³

“There will eventually be a premium paid for a home that has a certain star rating and it will become a medium to long-term consideration in the market,” says Lawless.

“While you can always retrofit at a cost, there are certain things like a northern aspect or lack of canopy cover for example that you can’t change but that have major energy implications.”

A growing emphasis on the household energy ratings for example, Fox says, will help turn buyers’ minds towards sustainability and the emissions profile of their property, and push building standards higher.

"Having insulation, double glazing, solar panels and no gas makes your home better for the planet, more cost efficient to run and in the long run, hopefully more valuable,” says Fox.

More broadly, Fox sees a growing desire in the market for higher quality information about properties and their environment.

“People increasingly want to understand the climate-related risks to their property: to know if they’re in a flood zone or near fire-prone hinterland, for example,” says Fox.

“That will become an important determinant to their purchase consideration, and for lenders’ risk profile as well.”

06

Urban sprawl

Growing climate concerns haven’t reset traditional property tastes just yet, with Australians still enamoured with homes close to the coast and bushland.

“We have done a lot of research on this and there doesn’t seem to be a preference shift away from these locations just yet, but they will change eventually, especially as the insurance premiums become prohibitively expensive,” says Lawless.

Shorter-term, the pandemic trend towards regional areas more broadly appears to be losing steam.

“There is going to be some stickiness with purchases in those lifestyle areas, but the boom in regional internal migration is probably over for now. Many of these areas have lost their affordability advantage. Those that continue to grow will be the ones that can provide the amenities buyers need – fast internet, appropriate schools, and healthcare – and are within a couple of hours of capital cities,” says Lawless.

Without those, some buyers will inevitably re-enter capital city markets.

“We’re already seeing a significant change in that market behaviour as some of the sea change tree change almost reverses. For some, it may not be living up to what they expected, maybe some people are missing connectivity, and want to return to a more engaging landscape,” says Macquarie National Head of Real Estate Domonic Thompson.

“Inner city markets in Melbourne and Sydney meanwhile have not only changed since the height of the pandemic, but they are now the complete opposite, characterised by high rents and low vacancy rates — and we've only just opened international borders.”

Thompson believes the tree change will still hold appeal long-term for those with appropriate career opportunities but notes that momentum has largely faded.

07

Rise of renters

Lifelong renters are expected to become more common, demanding changes to housing policy. As power shifts towards renters, the property mix will need to adapt as well.

“You’d have to believe we’re going to see lower rates of home ownership due to worsening affordability. That’s going to push rental tenancy reform, and we’re clearly already going in that direction as we incentivise more build to rent opportunities, which will involve longer rental tenures and security of tenure as well,” says Lawless.

He adds that as a result, there will need to be higher levels of government or community style rental accommodation.

But there is a different kind of property that could become commonplace in the Australian property market: ‘build to rent’ developments which are constructed exclusively with a view to rent out long-term.

“As millennials and younger generations increasingly stay renters, the build to rent segment and alternative housing providers are going to become central to avoiding a repeat of the rental strain we’re seeing at the moment,” says Owen.

Thompson suggests new models open opportunities to innovate and offer all kinds of services not currently seen on the market.

“They could buy utilities in bulk for example and provide them to all residents rather than providing a building in which to live,” says Thompson.

“That’s the future of real estate where the sector starts to really think deeply about how it can service and solve the broader needs of residents. There are going to be huge business opportunities for those who can do it well.”