Health insurance hikes on the way + Australia's housing 'super cycle' unpacked

Hi everyone,

It’s been a busy week for political parties as they start their pre-season for the upcoming federal election. The usual political dirt is being flung in all directions as preparations for the official campaigns are in full swing.

This election will be fought on cost-of-living issues, so it will be interesting to see what will be served up to us. I will keep an eye on the implications.

Meanwhile, in this week’s newsletter:

• Inflation staying on track.

• How to beat the rise in private health insurance premiums.

• Why you should shop around for the best term deposit rate.

• The massive growth in Australia’s superannuation system.

• Is Australia in a housing super cycle?

• Our housing affordability compared with the rest of the world.

• Is the US housing bubble about to burst?

• ‘The Magnificent Seven’ are starting to lose some of their shine.

Inflation staying on track

The first inflation figure came out this week since the Reserve Bank rate cut - with the warning that inflation may not have been beaten. The January consumer price index (CPI) dipped 0.2 per cent primarily because of a slowdown in housing costs and a drop in holiday travel prices.

The headline monthly consumer price index rose at an annual pace of 2.5 per cent in January (the same as in December) but was slightly below market forecasts for a 2.6 per cent gain. Food, apparel and a partial roll-off of electricity subsidies contributed to the rise in the headline rate.

The RBA’s beloved “trimmed mean” inflation edged higher to an annual rate of 2.8 per cent in January but still within the RBA’s target band of 2-3 per cent.

Education costs rose 6.5 per cent over the 12 months to January, while financial and insurance services prices were up 5.3 per cent with health costs 4 per cent higher.

More encouragingly, prices for building and renovating a home fell 0.1 per cent in January and rose just 2 per cent from a year earlier - sharply down from the double-digit growth seen in 2022. This is the lowest annual rise in new dwelling prices since June 2021.

Rents still rose 0.3 per cent in January and were 5.8 per cent higher over the 12 months (slightly lower than the annual rise of 6.2 per cent in December) reflecting recent increases in vacancy rates across most capital cities. Rents had increased by 7.8 per cent over the 12 months to August 2023.

You would see this at the supermarket, but annual fruit and vegetable prices lifted 7 per cent. The ABS reported the reason:

“The increase in annual food inflation was mainly driven by fruit, with prices 12.3 per cent higher compared to 12 months ago. Berry prices remain elevated following poor growing conditions in mid-2024. Prices for avocadoes, mangoes and citrus fruit have risen recently due to lower supply during the summer growing season.”

Holiday travel and accommodation prices fell 5.9 per cent in the month to be 0.8 per cent lower over the year to January. Clothing and footwear eased 1.7 per cent in January with household furnishings and equipment 1.4 per cent lower.

How to beat the rise in private health insurance premiums

Millions of Australians with private health insurance could be paying more for their policies this year with a “perfect storm” putting pressure on premiums.

Health Minister Mark Butler announced during the week that he’d approved an average 3.73 per cent lift in private health insurance premiums as inflationary forces and tensions between hospitals, governments and insurers have weighed heavily on this year’s premium price negotiations.

The price hike will take effect on 1 April 2025.

“The cost of delivering care, paying staff, and powering hospitals has all increased over the past year. On top of that, old red tape and regulations fixing the price of medical devices like prosthetics have kept costs incredibly high in Australia,” he said.

We’ve also seen one of the country’s biggest hospital operators, Healthscope tear up its contracts with health funds over a funding dispute that could leave thousands of patients out-of-pocket.

All of these tensions are likely to have an impact on the cost of health cover this year.

It’s important customers be prepared as shopping for cheaper deals may be one of the only ways for some to avoid the sting.

Average health insurance premiums have increased just over 38 per cent in the past decade, but customers have not seen an annual rise of more than 5 per cent since 2016. Health insurance premiums must increase to keep up with the rising cost of healthcare; however, these annual increases must go through an approval process to ensure they are reasonable.

Last year, insurance companies, the Australian Prudential Regulation Authority (APRA) and The Department of Health agreed on an average premium increase of 3.03 per cent, which was below the level of inflation and wage growth at the time. This year it’s 3.73 per cent.

If you’re unhappy with how much your premium is increasing this year when you receive your updated policy information, run a quick comparison and see if another fund can offer similar cover or better value for a cheaper price.

While the headline average figure is what everyone talks about, we know that there can be huge discrepancies between insurers and policies. Last year, we saw increases as low as 0.27 per cent and as high as 5.82 per cent at individual funds, so doing some research can make a big difference.

Some health insurers will even allow you to pay for your policy a year in advance, which means you can effectively lock in last year’s cheaper prices for the next 12 months if you pay before April 1.

It’s time to shop around for the best deposit rates

In the two weeks leading up to the last interest rate cut, over 20 financial institutions had cut their term deposit rates in anticipation of the RBA move.

Some cut term deposit rates by up to 0.95 per cent. If you’re earning income from your investments, it is a huge blow to your income stream.

Some banks are moving faster to slash savings rates than mortgage rates, cutting by more than the 0.25 per cent RBA cut in some cases.

After the RBA rate cut NAB, AMP, BOQ, and ME Bank are cutting deposit rates by up to 0.35 per cent, while home loan rates will drop 0.25 per cent.

The power of superannuation

As I’ve written about before, I’m a disciple of former Treasurer Paul Keating. What he achieved in his term of office was nothing short of extraordinary.

Deregulating financial markets, floating the Australian dollar and introducing compulsory superannuation as a national savings scheme.

As a result, we’re the only OECD country where spending on government-funded pension payments is falling and will continue to fall. To put the significance of our superannuation system into perspective:

• Between 2001–2023, Australia’s cumulative contribution inflows reached 180 per cent of GDP (the value of our economy), the highest among OECD countries and well above the OECD average level.

• Australia is the only OECD country where spending on its age pension system is projected to fall, dropping from 2.5 per cent of GDP currently to 2 per cent by 2030. The average proportion of GDP spent on pensions across the OECD is 9.3 per cent.

• The proportion of Australians receiving the full age pension is projected to halve from 44 per cent today to 21 per cent in 2062-63.

• Australia has the 55th highest population but the fourth largest pool of pension assets - currently behind the UK, Canada and the US.

• Funds under management in Australia are currently $4.1 trillion, exceeding any single Sovereign Wealth Fund including Norway ($2.8 trillion) and China ($2.1 trillion).

Australia’s ‘housing super cycle’

Ray White chief economist, Nerida Conisbee, reckons Australia is on the path to a housing super cycle.

Interest rates, house prices and market cycles dominate headlines and conversations about Australia's housing market but, according to Nerida, they miss the bigger picture.

For decades, our housing market has been driven by much deeper forces: a persistent undersupply of homes, major demographic shifts, and fundamental changes in how and where Australians want to live. This isn't just another housing cycle - it's a super cycle that has been building for years, and it's now accelerating.

Unlike regular housing cycles driven by interest rates or market sentiment, a super cycle stems from deep structural changes that create lasting imbalances between supply and demand. In Australia's case, this transformation is being driven by shifting demographics, evolving living preferences, and persistent supply constraints.

Supply can't keep up with these changing needs. Last year, Australia completed 209,000 homes against a requirement for 220,000. A further problem is that the number of houses required every year is compounding as we continue to under deliver.

The construction industry also faces mounting challenges: rising business failures, declining productivity, and construction costs that are outpacing house price growth. The industry as it stands can’t deliver the number of homes required consistently. We need more people but we also need changes to construction techniques to make it more efficient. This can include the use of modular construction, less customisation of homes, and alternative building materials.

A critical factor is that foreign investment in residential property has hit a decade-low. This matters significantly because the last time Australia came close to delivering 1.2 million homes over five years (the current government target) was during a period of record foreign investment.

The fundamental question remains: where will the money come from to fund such ambitious housing delivery targets?

Not only do we need more homes for more people, we are also spreading out more, and most of our homes have been built for big families, containing three or more bedrooms. The household type that is set to see the strongest growth is ‘single person’ and households are getting smaller. At the same time, the house type with the strongest growth currently has four bedrooms.

This is leading to a lot of spare capacity in homes. Remarkably, 75.4 per cent of couples without children live in homes with two or more spare bedrooms. This disconnect between household size and housing stock points to a deeper structural issue in the market.

Australian cities face unique challenges in adapting to these changes. Compared to international cities like London and Singapore, where over 90 per cent of dwellings are units, Australian cities remain predominantly low-density. Melbourne and Sydney have just 34.6 per cent and 46.2 per cent units respectively, making it harder to meet changing housing needs efficiently.

Housing affordability around the world

Just following on from Nerida’s ‘super cycle’ analysis, there is always analysis on Australia’s residential property market and its affordability with many suggesting it is a bubble poised to burst.

So, I found this chart fascinating which shows the price-to-income ratio of homes across 33 countries and the change since 2015. It is based on data supplied by the OECD. The price-to-income ratio measures housing affordability by dividing nominal house prices by the net disposable income per capita.

It shows Portugal, Canada and the US experienced the steepest rise in the home price-to-income ratio and therefore the biggest deterioration in affordability. It was caused by strong housing demand, limited supply and investment speculation.

Sound familiar? A very similar housing environment to Australia. That’s why Australia’s price-to-income ratio rise was the seventh highest of the countries measured.

If you’re looking for a bargain when it comes to home values, Romania, Finland, and Italy recorded double digit decreases in their home price-to-income ratios. But I’m not sure whether their future looks any better.

US housing bubble about to burst

While the US has been through a housing boom, there are signs it could be turning down. According to property research group Reventure Consulting, there are now nine times more new homes for sale than the average number of homes sold per month - the highest since 2022.

In other words, it would take nine months for the current inventory of new homes on the market to sell given the current sales pace.

This ratio is more than two TIMES higher than in 2020.

In the past, there were only four periods when months of supply were higher than they are now with three of them being during economic recessions.

Meanwhile, the number of new single-family homes for sale has risen to 494,000 which is the highest since the 2008 financial crisis.

With supply (houses on the market) now far outstripping demand, the US property market has turned into a buyers’ market which will likely lead to falling prices.

‘The Magnificent Seven’ are losing some of their shine

Last year, the seven biggest US technology stocks drove the performance of global sharemarkets. But in 2025, they have lost some of their shine.

The combined market capitalisation of Apple, Microsoft, Nvidia, Alphabet, Meta and Tesla have experienced quite a bit of volatility with an average valuation of $US17.8 trillion. But that valuation has dropped 6 per cent since its peak in December or $US1.1 trillion.

Meta, Alphabet and Amazon have gained value but Microsoft, Nvidia and Tesla have had hefty pull backs.