AFR Article: Wednesday 16 June 2021. Page 13

The average price of a residential property in NSW surpassed $1 million for the first time on record in the March quarter, while the total value of Australian homes hit $8 trillion.

Australian residential real estate is now four times the size of gross domestic product and about $1 trillion more than the combined value of the ASX, superannuation and commercial real estate.

The total value of residential property lifted $450 billion, the largest rise on record according to the Australian Bureau of Statistics, and prices in capital cities rose 5.4 per cent to be up 7.5 per cent for the year.

‘‘Strong demand for housing was supported by record low interest rates, government initiatives and rising consumer confidence,’’ said Michelle Marquardt, ABS head of prices statistics.

‘‘Price rises were observed in all segments of the housing market, with growth in house prices continuing to outpace price growth in attached dwellings.’’

According to the ABS, about $7.9 trillion of residential dwelling stock is held by households, which means their balance sheets experienced a major bump over the March quarter.

The increase in the property market was particularly pronounced in Sydney and Hobart, which recorded a 6.1 per cent price increase over the quarter, followed by Canberra (5.6 per cent), Perth (5.2 per cent), Melbourne (5.1 per cent) and Darwin (4.7 per cent).

The increase in Sydney was the largest quarterly rise in the ABS residential property price index since the June quarter of 2015, with houses lifting 8 per cent over the quarter to be up 10.8 per cent over the year, compared with 2.6 per cent and 2.8 per cent respectively for units, apartments and townhouses.

While the Sydney median house price has been above $1 million for some time, ‘‘this was the first time any state or territory had seen the average price of dwellings rise above $1 million’’, Ms Marquardt said.

NSW now accounts for $3.3 trillion, or 40 per cent, of the total market.

The price of an average residential dwelling in Australia increased by $39,100 to $779,000 over the reporting period, while an additional 44,300 dwellings were added, lifting the national stock to about 10.6 million.

The Reserve Bank of Australia acknowledged the hot housing market in its monthly board meeting minutes, released yesterday, and said policy-makers needed to keep a close eye on lending standards.

This comes after a sudden return of investors to the market sparked concerns that the Australian Prudential Regulation Authority could step in with macro-prudential measures to curb a possible credit-fuelled boom.

The RBA tweaked its discussion around housing market conditions in its post meeting statement earlier this month, and explicitly called out the greater role investors are now playing in the booming property market.

‘‘Members noted that housing markets had strengthened further, with prices continuing to increase in all major markets. Housing credit growth had also strengthened, with strong demand from owner-occupiers, especially first home buyers.

‘‘Given the environment of strong demand for housing, rising housing prices and low interest rates, members agreed on the importance of maintaining lending standards and carefully monitoring trends in borrowing.’’

The central bank acknowledged that higher house prices would be likely to have a positive flow-on effect for household consumption due to the ‘‘wealth effect’’ of higher prices making people feel more comfortable about their finances.