Australians are still investing most of their wealth in residential real estate despite lower returns compared to the stock market.
In the September 2024 quarter, the value of residential dwellings rose by $156.3 billion (US$96.86 billion) to over $11 trillion.
This is significantly more than the combined value of the stock market ($3.3 trillion) and superannuation funds ($4.1 trillion).
More than half of a typical household’s wealth is held in housing, whether in their home, an investment property, or both.
During this period, the number of residential dwellings rose by 53,100 to 11.2 million, and the average value rose by $9,300 to $985,900, a rise of 4.9 percent.
Yet, accounting for capital gains and rental income, property generated an average return of 8.3 percent last year, while shares on the Australian Stock Exchange (ASX) netted 11.4 percent, outperforming 2023 by 7.5 percent.
Shares in the tech and financial sectors did even better, rising 49.5 and 28.2 percent, respectively, across the year.
In practice, residential property investment is a simpler passive income stream for families or individuals, who may not have the expertise to delve into the stock market or other investment vehicles that carry greater risk. Investing in technology can be even more specialised.
While property has outperformed equities in six of the past ten years, CoreLogic economist Kaytlin Ezzy says some volatility and periods of “booms and busts” are normal parts of long-term investing.
“Regardless of asset type, time on the market has beat timing the market,” she said.
Homelessness, Affordability Still Major Issues
The rise in the number of dwellings is not keeping up with homelessness, however.The number of people unhoused at the last Census was estimated to be 121,000, up from 116,000 in the previous count.
Housing affordability also remains a major issue.
In the September PropTrack Housing Affordability Report, just 14 percent of homes were ranked as affordable for a median-income Australian household—the lowest share since records began in 1995.
This figure has plummeted from 43 percent just three years earlier.
The situation is even worse for low-income households earning $50,000 a year—they can afford only three percent of homes.
There is some good news for renters, though, with price growth expected to continue to slow.
Following falls during the COVID-19 pandemic, rents rose sharply in 2022 and continued increasing in 2023, but slowed in 2024, with CoreLogic’s rental index showing a 4.8 percent rise in the year to December.
A return to normal levels of migration, and an increase in household size as people returned to sharehouses in a bid to split costs, could ease demand for rentals, Ezzy said.
“Outside of the usual seasonal uptick through January to March, we would expect to see growth in rents continue to lose momentum in 2025,” she said.
A potential fall in the appeal of property investment comes as the nation works to produce 1.2 million new homes by 2029, with high insolvency rates amongst building companies amid soaring construction costs.
