What factors are proven to influence house prices?
Understand the leading considerations that affect the property market and property values in Australia.
Numerous factors can influence the property market, more so property value. People generally buy real estate with the intention of seeing it increase in value.
So, what are the factors that can affect house prices?
Location is, arguably, the greatest determinant of property value. In fact, it’s something that motivates investors to buy more than the actual property itself.
Home buyers consider the following locational factors:
Jobs that are available in the region or are set to be produced
Infrastructure opportunities to enhance the community and living requirements of residents
Access to amenities within the location (i.e., schools, retail precincts, healthcare, recreation facilities, public transport, and more)
People are motivated by convenience. Therefore, it comes as no surprise that property prices increase when surrounding locational factors support convenient living.
The Reserve Bank of Australia (RBA) is the leading government body responsible for promoting monetary stability in Australia. They influence banks and their interest rates. As per monetary policy, when the RBA announces a new cash rate, it causes banks to change their interest rates. This cause-effect influences economic activity which further promotes inflation.
Thus, when rates are low, it encourages a greater number of people to consider buying property. This then creates inflation and causes property prices to rise.
You just need to consider what’s occurred in Australia since the RBA cut its cash rate in late 2020. The nation experienced significant decreases to interest rates, causing more people to look at buying property. This resulted in the average house price increasing by 20% last year.
We explain the process of monetary policy in greater detail in this blog: “What does the low cash rate mean for the Australian economy?” It’s recommended you give it a read to learn more.
Supply and demand
Further to the above two factors, supply and demand also influences property values. When the demand exceeds supply, it drives property prices upwards. For that reason people bid higher prices to secure property.
The types of people buying real estate within a location can affect house prices. For instance, you’ll generally see locations popular and designed around growing families are valued higher. On the contrary, it’s not uncommon to see lower house prices in regions where there are people on the lesser end of the socio-economic ladder.
The economy and wage growth
Like interest rates (above), the economy and wage growth can affect the property market. These factors are intertwined with one another. When the economy experiences periods of growth it affects employment and wages. Furthermore, rising employment rates and wages leads to an increase in desirability around buying property.
The RBA is owned by the Commonwealth of Australia. As explained, previously, they influence banks on how they determine mortgage interest rates. Additionally, they’re responsible for Australia’s monetary policy.
How else can the Government influence house prices?
The government can affect the supply and demand of real estate. When they offer housing or financial incentives this can lead to a more people wanting to utilize them. Just like the First Homeowner Scheme and Home Builder Scheme (from 2020).
The Government can also bring infrastructural and investment opportunities to locations. This drives more people towards it.
How a property presents itself can influence its value. As they say, first impressions matter. If a property is new or has had recent upgrades to enhance its aesthetics it can cause its individual price to rise, especially in comparison to other homes in its location.
For more information
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