What Causes House Price Growth: Supply or Demand? 

The housing market can be one of the most complex and volatile markets in the world. You can have all the money in the world, but if you’re trying to buy a house, it’s not just about how much money you have. 

Supply and demand are the key determinants of house prices.  

But What Causes Supply and Demand? 

In this blog, we’ll explore both sides of the coin to help you understand why house prices grow or decline. We’ll also show you how to make sure that your property investment is set up to grow over time by having it follow an increase in demand for homes rather than supply. 

Supply vs Demand 

Supply and demand are the two factors that determine house price growth. Supply is defined as the number of available houses for sale in a certain area, while demand is how many people want to buy a house in that same area. 

Supply: 

The more houses there are for sale, the higher your chances of finding one you like! The supply of real estate can fluctuate depending on market conditions and economic events – some regions see increased housing inventory when there’s an influx of new home construction (or renovation), while other areas see fewer options as homeowners choose to stay put rather than move. 

Demand: 

Demand also plays a role in determining how much your house will sell for – and it’s not just about how many people want to buy property in your city or neighborhood. Some buyers may be willing to pay more if they’re looking for specific amenities (like proximity to public transportation or good schools) or are prepared to make renovations before moving in. Others may be willing to pay less because they want something smaller or older than what’s currently available on the market. 

How to Determine Supply and Demand 

 

Other Factors Affecting Growth 

The other factors that affect house price growth are the economy, the number of people moving into the area, the number of houses being built, and how many houses are being sold. The following sections further explain these five factors. 

  • The economy: When there’s a strong economy and good job growth in a city or town, people want to move there to take advantage of those opportunities. That drives up demand for housing in that area as well as demand for real estate services (like buying or selling). 
  • The number of people moving into an area: If there are more people moving into an area than leaving it, then demand will increase because more buyers are needed to purchase all these properties before they can move in themselves! This increase in demand leads to higher prices overall since supply isn’t keeping up with changes happening within this market segment at this particular moment in time. 

House price growth is affected by other factors too. These include the economy, population growth rates, building rates per year (or per quarter), and sales rates per year (or per quarter). 

The Lowdown on Supply vs Demand 

So, the fact that supply and demand are both important is pretty obvious. But what if you’re still unsure of how to apply them to your home or investment purchase? 

You can use the following rule of thumb: supply is more important than demand when it comes to price growth. 

What does this mean?  

It means that if there aren’t enough houses on the market, people will be forced to pay higher prices – even if they don’t want to! 

Let’s look at an example: Imagine you’re trying to sell your apartment in Sydney’s CBD with a $1 million asking price. You might get some interested buyers but none willing to pay full asking price (for whatever reason). So, what do you do? Lower your asking price until someone bites! This way you’ve maximized your options by meeting both buyer needs and seller wants – win-win! 

It’s not as simple as saying it’s either supply or demand that drives  house price growth. 

The answer to this question is actually not as simple as saying it’s just one or the other. While supply and demand are certainly two of the main factors that affect house price growth, there are many others that play a part too. 

Other factors include: 

  • Interest rates (falling interest rates will increase demand, while rising interest rates will reduce it) 
  • Inflation (rising inflation reduces affordability but can also encourage investors to buy properties) 
  • Geography (in some locations there’s higher demand because people have strong reasons to live there, such as good schools or proximity to work) 
  • Building regulations (stricter building codes in certain regions make it harder for developers to build homes) 

Conclusion 

 So, what drives house price growth? It’s not as simple as saying it’s either supply or demand that drives house price growth. There are multiple factors at play, and the market is complex. You could even say that supply and demand have an effect on each other!  

At Wealthology, we’ve guided hundreds of Australians to accumulate wealth via a property in many different cycles.  

We understand that if you want to make money in any market, you need to do your research before jumping in with both feet – no matter how tempting the investment opportunity may seem at first glance. 

Contact us today – email leonie@wealthology.com.au or speak to her directly on 0423 465 038.