Why real estate profits can come later than expected

Don’t bank on your house to double in value this decade a long-term analysis suggests.

Rising real estate values have underpinned Australians’ wealth for decades, but the common claim that prices double every seven-to-10 years is a myth, a new analysis has found.

Two of the last three periods of property prices doubling took at least 11 years, and the current climb since 2020 also is on shaky ground. Prices may be up, but at less than 44 per cent since the pandemic, they need to remain strong for prices to double within a decade.

Property analyst John Lindeman has tracked the performance of house prices since 1901 and found an erratic history of performance.

In the first half of the last century it typically took two decades for house prices to double, followed by quickfire gains in the middle of the century, before price growth slowed again, he found.

“Australian house price growth has averaged 7 per cent per annum since federation,” Mr Lindeman said.

This growth rate translates to prices doubling every decade, but this average was boosted by surging values between 1968 and 1986.

“The rate of price growth was enhanced first by the post-war baby boom and high numbers of overseas arrivals, followed by high rates of inflation,” said Mr Lindeman, CEO of Property Power Partners.

Between 1987 and 1997 prices took 11 years to double, and between 2004 and 2019 they took 16 years, the analysis found.

Metropole Property Strategists founder Michael Yardney said the idea that home values double every seven to 10 years is a popular real estate myth that gets repeated frequently.

“And while it’s rooted in historical trends, particularly from the 1970s, 80s and 90s when inflation was high and property values grew strongly, it’s too simplistic and doesn’t hold up in today’s more complex market,” he says.

Mr Yardney said averages gloss over the booms and busts, and “prices don’t rise in neat increments”.

“While some properties might double in under a decade during a strong cycle, others might take 15 or even 20 years,” he said.

“If inflation remains under control for the rest of the decade, I see property values continuing to rise but more slowly, and it may take longer than 10 years for prices to double.”

But Mr Lindeman thinks there’s a chance that this decade could put the decade-to-double price thesis back into the frame, saying that if the growth rate over the next five years is the same as it was for the past five, prices will double in the decade from 2020 to 2029.

REA Group senior economist Angus Moore said there has been a big divergence in Australian price growth since the pandemic.

“Perth, Adelaide and Brisbane have seen prices up 85 per cent, 84 per cent and 83 per cent, respectively,” he said.

“Given prices in these cities have already nearly doubled, it’s likely they will have done so by the time the decade is out. In contrast, Melbourne prices are up just 16 per cent in the past five years.”

Mr Moore expects to see slower home price growth over at least the next year.

“The reason for that is that housing affordability is at its worst level in at least three decades,” he said.

“Based on our data, a typical income household has never been able to afford a mortgage on fewer homes than they can today, which is a headwind for home prices.

“In good news, that picture is starting to improve as interest rates fall. How far and how fast rates fall, and where they settle, will be one of the key factors behind what happens to home prices from here.”

Mr Moore said Labor’s housing policies will allow some first-home buyers to get into the market sooner and create some demand.

“That will push up prices in some segments of the market where first-home buyers are focused, but it’s unlikely to have a big effect given first-home buyers are not a large share of the market,” he said.

Mr Yardney worries that Labor’s policies will “unintentionally worsen the already critical supply-demand imbalance”.

“Policies like the 5 per cent deposit scheme or the expanded Help to Buy scheme are well-intentioned, but they largely stimulate demand without addressing the real issue: lack of supply,” he said.

“We’re facing a housing crisis driven by a combination of strong population growth and an undersupply of new dwellings. Builders are struggling with costs, labour shortages, and delays. Even with government initiatives, we simply won’t build enough homes fast enough to meet demand.

“So, unless supply is meaningfully increased, we’ll continue to see upward pressure on prices, especially for established homes in desirable locations.”

Metropole Property Strategists CEO Michael Yardney

Mr Yardney said the “Australian property market doesn’t exist”, and instead comprises hundreds of smaller property markets that each behave differently.

“Each capital city is segmented by geography, demographics, local economic drivers, supply pipelines and then also by different types of property – houses, apartments, and townhouses,” he said.

“Even within a city, different suburbs — and even streets — perform differently. A-grade properties in tightly held inner suburbs typically grow faster and are more resilient in downturns, while outer suburban house-and-land packages may underperform long term due to oversupply or poor infrastructure.

“Having said that, over the last few years the best-performing property markets have been the cheaper end of the housing markets due to affordability.

“Property isn’t a get-rich-quick vehicle — but for those who play the long game, it’s still one of the most reliable ways to grow intergenerational wealth.”

Originally published as Why real estate profits can come later than expected