The five biggest influences on the residential property market

The state of the economy is a major indicator for the performance of the residential property market. However, there are a myriad of other financial, social and political factors at play. Here, we look at some of the biggest influences on the residential property market.


The Reserve Bank of Australia (RBA) increased interest rates for the first time in 11 years in May. This was followed by additional increases in June and July, with further increases expected over the remainder of 2022.

With the Australian economy performing strongly and record low levels of unemployment putting pressure on wage growth, the RBA noted it was time to commence the reversing of the emergency interest rate settings put in place at the beginning of the COVID-19 pandemic:

“The increase in interest rates by the Board is a further step in the withdrawal of the extraordinary monetary support that was put in place to help the Australian economy during the pandemic.” (Source: RBA)

Cash Rate Target Graph

Cash rate target

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As a result of the rise in interest rates, there has been a massive increase in fixed-rate borrowing costs, with the typical three-year fixed-rate loan jumping from around 2 per cent one year ago to 4.5 per cent in June 2022.

The cost of living is steadily rising in Australia and around the world, impacting the prices of everything from food to fuel to flight tickets. The short answer to why is simple – inflation.

The Consumer Price Index (CPI) rose by 2.1 per cent in the first quarter of 2022 and 5.1 per cent annually (ABS). This quarterly and annual increase is the largest since the introduction of the GST more than 20 years ago. This is a result of countries emerging from COVID-19 restrictions, combined with Russia’s invasion of Ukraine which has further disrupted supply chains.

The rising interest rates and higher cost of living will impact borrowers’ ability to service loans, hence restricting their borrowing capacity – and, in some cases, the limit to which they can compete for properties.  

Consumer confidence

Sentiment is a powerful force and behaviour is influenced by perception. Regardless of how the economy is faring, or how fast the population is growing, if people believe the market is heading downwards, this will influence their behaviour.

The Australian Consumer Confidence Index fell in May 2022, amid a combination of surging prices and the prospect of faster interest rate hikes. (Source: OECD Data). Dampening consumer confidence tends to negatively impact the property market. 

Consumer Confidence Index Graph

Australian Consumer Confidence Index


The composition of a population – including factors such as age, migration patterns and population growth – has significant effects on the housing market. Major shifts in the demographics of a nation can have a large impact on real estate trends.

Projections from the Australian Bureau of Statistics (ABS) estimate that by the end of this decade, our population will be approaching 29 million. To accommodate this there will need to be an increase in dwellings, or there will be heightened competition for existing homes, which will in turn impact prices.

An additional factor that will positively impact the property market is the return of overseas students and migrants now that our borders are open. Similarly, it appears that the pandemic-fuelled “movement to the regions” mentality has continued, with highly sought-after areas around Central Victoria and the Mornington Peninsula still experiencing strong demand. According to the Australian Financial Review: “The housing boom is far from over in the regions, with prices in some areas expected to rise by another 20 per cent this year as demand continues to outstrip supply.”

Construction costs

Supply chain disruptions and a shortage of materials, coupled with more and more people wanting to renovate or extend their homes, has resulted in a surge in building and construction costs.

High material and labour costs – the likes of which drove ASX-listed home builder Simonds Group to a loss for the six months to December 2021 – could also cause builders to collapse, contributing to supply issues.

According to CoreLogic, this construction cost inflation could continue for another 12 to 18 months, ultimately impacting consumers’ hip pockets.

As a result of this, it is possible people may start to favour established housing or homes with smaller renovations needed, in turn underwriting some stability in the established home market.


An equally important factor to rising interest rates in slowing property markets is macroprudential or governmental measures. Following the macroprudential measures APRA introduced in 2017, and the Royal Commission into the finance sector, we witnessed how the tightening in the availability of credit negatively affected the housing market.

On the other hand, more recent policies by the Labor Government, such as the “Help to Buy” and “Regional First Home Guarantee” schemes, will serve to positively influence the residential property market by aiding eligible buyers to enter the property market.

After a long period of sustained growth in the post-GFC period – fuelled by lower interest rates, particularly during the pandemic years of 2020–21, which also saw a massive amount of government stimulus injected into the Australian economy – we are entering into a transition phase for the property market with a reversion to more historical clearance levels and a balance between buyers and sellers. With sustained high employment and the continuing reasons for people to transact property, we are confident the market will withstand this period of adjustment.