The Surprising Factor Driving Up Australian Home Prices

Just over a quarter of a century ago, Australia fell in love with the Kerrigans - the fictional “battler” family that took centre stage in “The Castle”.

The much-loved film tells the story of how Daryl Kerrigan (played by actor Michael Caton) and his family fight to save their home (supposedly located on a toxic landfill site next to a runway) from being forcibly acquired for an airport expansion. 

They, of course, win the fight and get to stay in their “castle” forever. 

The irony is back in 1997, when “The Castle” was released, Australians weren’t nearly as wedded to staying in their “forever home” as the movie would have you believe.

People tended to move around as their circumstances changed.

Couples would move to a bigger house as their family grew, or they’d buy a new place closer to work or their kids’ schools.

“Empty-nesters” would downsize from large homes on quarter-acre blocks to what used to be called “villa units”.

What’s surprising is that Australian homeowners are now, on average, far less mobile than they were back in the late 1990s.

Trading Places - not so much

Research from Domain shows that over the past ten years, Australians have been moving less and that this has been one of the factors helping to keep property prices high.

As people move less from existing dwellings, there are fewer real estate listings available for a growing pool of buyers.

This phenomenon has happened at a time of strong population growth and while the annual number of new home completions has been falling. 

“The recent downturn (in property prices) would have delayed selling decisions, however, the trend towards longer tenure has been consistently increasing over the past two decades, long before the most recent price falls”, according to Domain in its recent “Tenure and Profit” report.

Rival research company PropTrack agrees.

“Over the past 10 years, despite a strong rate of population growth and a significant increase in the number of dwellings in the country, there has been an ongoing declining trend in the number of new listings coming to market,” says PropTrack’s Director of Economic Research Cameron Kusher. 

Why aren’t Australians moving?

Investment bank Jarden believes it knows one of the main reasons people are staying put.

It points to the spiralling costs associated with moving - not the price of the new property or the cost of getting removalists in - but charges like stamp duty, solicitor fees and listings costs.

Research by Jarden shows that those costs have grown at five times the speed of income growth over the past twenty years. 

If you take an average home in Sydney, the costs associated with buying it have soared from approximately $20,000 to more than $100,000 - more than a five-fold increase.

At the same time, CoreLogic figures show the median home price in Sydney has only tripled.

Therefore the “transaction” costs are growing faster than the impressive property price growth we’ve seen in the Harbour City since 2000.

In Melbourne, “transaction” costs have blown out from $15,000 to $80,000 while in Brisbane, those charges were approximately $7000 two decades ago and are now closer to $50,000. 

If you look at the chart above, comparing the way property transaction costs have soared in Sydney and Melbourne, one thing stands out - by far the largest transaction cost is state government-imposed stamp duty.

That increase in people staying in their dwellings longer coincides with stamp duty revenues collected by the state and territories exploding from $12.43 billion in the 2010/11 financial year to $23.97 billion in 2020/21 - when there was a pandemic housing boom.

Economic purists say stamp duty is a “regressive” tax, and argue it should be replaced with the option of paying an annual land tax - like the scheme that was introduced in the final days of the Perrottet government in New South Wales and ended by the Minns administration in July this year.

And why aren’t older Australians downsizing?

While all states have quite generous stamp duty concessions for first home buyers, it’s saving for these “transaction” costs - which might explain why more older Australians aren’t moving, even if the home they live in is becoming increasingly unsuitable for their lifestyle.

“Demographics have seen the share of prime-age upgraders aged 30 to 50 shrink, while at the same time, the share of over 65 long-term holders has increased”, Jarden’s chief economist Carlos Cacho says.

And that phenomenon of older Australians being unable to downsize without incurring significant costs is having a major impact on the housing supply. 

Australian Housing and Urban Research Institute (AHURI) research shows that 7.4 million households have more bedrooms than they need.

"There (are) something like 13 million empty bedrooms in Australian households, so there is capacity to make better use of the housing stock," AHURI’s Managing Director, Michael Fotheringham, told ABC News.

The fact remains that until Australians are not penalised for moving house by state governments, the growing trend of staying put for longer may help to keep a floor under home prices.

As Proptrack’s Cameron Kusher explains, “The best way to not have to incur these costs is to not buy and sell; of course, circumstances sometimes mean people need to buy and sell properties, but it is beneficial to do so on a less regular basis”.