Is the 18.6-year property cycle relevant in Australia? This blog delves into the realities of housing supply and demand, revealing why this popular theory might not hold true. Learn more about making informed property decisions on the evolving market conditions.
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Real estate is simply a game of supply and demand.
If you were to strip back all of the metrics, that's what it comes down to.
What we're finding is the numbers that are coming out regarding supply are getting worse and worse every time they get reported.
So when people think about whether this is the top of the market because property prices are so unaffordable, this is where they need to come back to.
You’ve obviously got to understand all the metrics involved—lead and lag data—but at the core of it: Supply and demand is key.
When you couple this with where consumer confidence is, being at record lows, you'll understand that we are so far from the top. That’s why it's important to:
If you're interested in what my thoughts are, definitely keep reading.
I've just realised that at some point, I'm going to become an uncle and hopefully I'm not giving that sort of rubbish advice to my nephews whenever that day comes (haha!).
However, if you want to avoid your own uncle and make your own decisions where financial freedom can actually be attainable today, then definitely go and book a discovery call with my Search Property team.
You may also view our brand new website where you'll find so much more information about:
Now, housing supply has crashed to a decade low. Let's find out what that actually means…
The supply of new homes will crash to the lowest level in over a decade by 2026, worsening housing and rental affordability and leaving the federal government far short of its goal to build 1.2 million homes by mid-2029.
Across capital cities, 79,000 new homes will be finished in 2026, a drop of 26% compared with last year due to:
If you're wanting to live in a house, and you want to live in a metro city, a capital city where there's high-density living—then it's almost going to become impossible over the next couple of years.
This is why investing the right way can make such a big difference.
How many people do you actually know that bought a house 5 years ago (maybe even 10 years ago) and their lifestyle hasn't dramatically changed? It's almost like they've just kept up and now they're finding themselves with no choice.
However, at the end of the day, they don't feel materially rich. That’s why, if you were to:
You can have the best of both worlds where you'll have the choice to:
I'm a big fan of buying Apartments. But if you're interested in what my thoughts are around supply and demand when it comes to houses versus apartments, definitely go check a YouTube video I did on this topic here.
The slump, predicted by industry lobby group the Urban Development Institute of Australia in a new report, will ratchet up house prices and rents, both of which are already at record highs.
Based on its forecast, the industry will need to double its capacity and build an “eye-watering” 300,000 homes between 2026 and 2029 to meet the 1.2 million target.
We know that's not going to get hit. We also know that if 300,000 new homes actually come into effect in 2026, the 18.6-year cycle will be perfect because it will have predicted the next crash. You have a large amount of supply come in, and if the demand isn't there for it, we're screwed.
However, when I see numbers regarding the supply and how much infrastructure is coming relative to the amount of demand we have, I start questioning if the 18.6-year cycle will actually play out here in Australia.
As we know, it's based on Western economies and serves as a rough guide, but we could be off by a couple of years. If you think the peak is in 2026 and you simply don't purchase because you think the peak is there, what happens if the peak isn't until 2028?
This is a big concern I have when people look at a cycle and say: “it's going to repeat every single time.”
Things change…and yes, cycles often rhyme, but to a large extent, we need to look at localised economies, because there will still be growth and there will still be areas where you can continue building your wealth in.
“If Australia is facing a housing crisis now, then what it might be facing in a years’ time may need a stronger adjective,” said Colin Keane, who helped compile the report.
“Once again, governments failed to see the urgency in ensuring adequate levels of active supply and associated development capacity,” he said.
Westpac Chief Economist Lucy Ellis said the weakness in building construction had nothing to do with zoning and building approvals but was due to “a large backlog of properties that have been approved but are yet to be completed.”
Now, this is very important because the reason why these have been approved and not completed is: Interest rates pretty much what felt like overnight, went up by like 300%
This is a key pivot in how people were actually able to purchase and go ahead and proceed with building a home.
In addition to all of that:
So while their supply and cost of goods went through the roof, they couldn't increase the final cost to the customer. This is why we've seen so many construction companies go under.
If you had a fixed fee contract, you pretty much had builders and construction companies go bust because:
If you had someone who had variable cost pricing, then you would have all those extra costs flow onto the client.
But if the client is now faced with higher interest rates and their borrowing capacity reduces, they're unfortunately stuck as well, so nothing gets built.
To compound everything, you then have councils with:
This then has a further backlog, which is why you can use today's data as a cheat sheet for what happens to property prices over the next 18 to 24 months at least. Every month, we fall further behind with construction numbers and approval numbers that you can almost guarantee that supply will not be coming into the market anytime soon.
Now again, this is very different compared to high-density units and apartment blocks. As I've said previously, they can go out, get an approval, put up 100 to 200 new homes in the same spot. But if you had to get approvals and construction for 100 new homes, actual houses, or dwellings, it's going to take so much longer to actually execute.
“There are a range of issues in the production and cost of production of housing at the moment, including the demand from other parts of the construction sector,” Dr. Ellis said.
Baron Joey Chief Economist Joe Master said the 1.2 million target was “aspirational…we've never been able to build that many homes.”
I came out on my YouTube channel when they announced this and I was like: You've never built this many, yet now, all of a sudden, during one of the toughest times, you're going to be able to just blow all the records out of the water and build all these homes.
Honestly, it did sound aspirational and almost ludicrous at the time. But again, I'm not a politician. I don't get involved in that stuff. I stay in my lane, and my lane is wearing a black T-shirt, writing this blog, and talking to you guys on YouTube.
Now, to a certain extent, the housing crisis may have been avoided if we didn't have so much immigration coming into the country.
Let me explain…If you simply:
That's the natural market forces playing out, because on the flip side, you also didn’t have that many people wanting to buy a home because they simply couldn't afford one.
So you had people just saying: “well, I have to rent something,” and even when it came to renting, the rental crisis wouldn't have been that bad if you didn't have so many immigrants coming into the country.
Now, on the flip side of all of this:
You needed the immigrants to come into the country; otherwise, the economy right now would be up sh*t creek.
I don't know how to put this more eloquently, because the reality is: that is the only reason we've really avoided a recession here in Australia.
If you think about the per capita recession, we're already in one and have been for months, which doesn’t really get spoken about because “the official recession number” is still positive.
So when you look at a graph like this—annual population growth versus dwelling growth,
What can we find is that it’s all been sort of okay for the last 10-15 years, until post-2020, where everything has just been volatile.
What you've seen is a massive rise in the red, which is the dwelling-to-population ratio during the time home builder packages were introduced and that came straight back down, and is pretty much at record lows now.
When you compare that to the actual black line, which is population growth, we saw it completely drop off because we had the shutdowns. Now we’ve opened up the borders and we've had so much population growth off the back of immigration coming in.
You could also argue that: “Yes, immigrants coming into the country have helped the construction industry, because they can come in and help with the labour shortages we also experience.”
But the reality is: There’s so much more demand in the space relative to what's being actually built.
After reviewing everything I can when it comes to researching for a blog like this, I've come to the conclusion that: Nothing can really be fixed overnight; a lot of this takes time.
That’s why real estate is something that people invest in because they say: “Well, it's a long-term game, but it also moves super slowly,” and that is actually the key to building wealth long term.
Why? Because people like you and I, we invest with emotions and unfortunately, with emotions and the volatility that can come in certain markets, we often make the wrong move.
Think about crypto for example:
You simply go in and buy, then it drops by 30% overnight, and you’re like: “I’m going to sell because it’s pretty much going to zero,” only to then have it followed by going up by 300%. At that point, you're like: “Well, it’s probably going to go up by 1,000%, so let me buy again,” and then it drops again by 30%, and now you’re completely wrecked.
This is not what you see in real estate and that's why so many rich people park their money from their businesses or high incomes into real estate, because they can say: “Well, I don't mind if it drops by 3% this year because next year it might grow by 5%,” and overall, the trend is your friend until the very end.
This trend points one way, which is going up, and when you see the numbers that are coming through with supply, and understanding that interest rates are probably going to be lower this time next year, you can understand where the demand on the sidelines is just waiting. When they come in and you see that supply is not there, we can only see one thing happen: Prices going up.
I would take caution by just listening to this 18.6-year cycle theory, which has obviously gained a lot of popularity.
Yes, it could still well and truly play out, but I'm sceptical, especially when I see numbers like this. It’s almost like a cheat sheet into knowing where prices will be over the next 3 years.
I hope you guys have taken some value from this blog.
If you have, share this with someone because they should also get the value.
I'll catch you guys in the next one.
Thanks, guys!
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