Homes & Relocation Detail
Australian property market review
Jo-ann Hodgson looks back on how the Australian property market performed in 2007 and sees what this year has in store for those looking to get a foot up on the ladder
Australian property prices reached record levels in 2007 and while the market is likely to experience a slowdown in price increases this year, concerns regarding affordability will remain strong. Returns on residential property in Australia have accelerated significantly over the last few years, January's ANZ Australian Property Outlook reports. This, it states, is "underpinned by a sharp tightening in the housing demand/supply balance that is driving both rents and house prices higher."
Indeed, increased demand from inter-state migrants and international immigrants, coupled with a weakening and shortening of supply has significantly bolstered property prices in all major Australian cities. "Remarkable growth in net international migration (178,000 over the year to June) and steady reductions in the number of people per household have boosted the underlying demand for housing to 185,000 in 2007–08," ANZ reports.
Despite pessimism in the global economic market following the US sub-prime mortgage crisis, faith in the Australian market remains strong. This is partly due to the country's close links to the Asian market. The ANZ report states that Asian growth has "effectively decoupled from the US," and with the Australian economy having grown by 4.3 per cent in 2007 to September, aided by growth in household spending and gains in business investment, the knock-on effect for those with investements in the country's property market can only be a positive one. A tightening labour market, strong gains in employment and wages and income tax cuts have also combined to create a strong property demand pool.
However, with property prices up by 18 per cent in some centres, vacancy rates at an all time low and house completions declining, affordability issues urgently require addressing by policy action. "Difficult affordability conditions for new home-buyers and renters will deteriorate significantly further unless appropriate policy action is taken," states the ANZ report. "A dramatic tightening of the residential market is forcing up house prices and rents and difficult conditions for first-homebuyers are being exacerbated by rising interest rates. House completions are forecast to decline to just 140,000 over the coming two years. Consequently, by 2009–10 we project a record housing shortage of nearly 200,000 homes."
Skill shortages in the building sector also raise concerns over the capacity of the residential building industry to deliver the 200,000 plus houses annually required to address the demand/supply imbalance. Many are now calling for policy action to focus on the lower end of the property market and on renters, and although Labour's National Affordable Rental Incentive Scheme is a step in the right direction, this alone is unlikely to tighten the gap between new housing supply and demand.
New South Wales
While still lagging behind most other Australian capitals in terms of price growth, Sydney's median house price rose by between 5.2 per cent and 7.3 per cent over last year to September. The vacancy rate fell to a 19-year low of 1.4 per cent in September and the NSW economy is now growing at a steady pace. However, NSW home building approvals have slumped to an all-time low and with last year's interest rate increases, coupled with those expected this year, the state is likely to experience a critical shortage of housing, causing deterioration in affordability.
Victoria
Melbourne's home sales outstripped all other capitals in 2007 and house prices increased to 17.8 per cent over the year to September. The state's residential vacancy rate also fell to a 25-year low of 1.4 per cent in September and advertised rents increased by 27 per cent over the year. The boom has been due, in part, to supply dramatically outweighing demand and strong economic conditions attracting increasing numbers of international migrants to the area, although slowing of the state's economy and further interest rates could see growth slow in 2008.
Queensland
House prices and advertised rents were up 18 per cent during 2007 to September, with Brisbane's property market bouyed by a rampant state economy and a healthy labour market. In contrast to the national trend, the state's building industry is also performing well, with residential building approvals now at a 13-year high.
South Australia
Despite a slump in South Australia's economy, Adelaide's housing market has performed strongly in recent years. The state's gross state product growth fell to just 0.8 per cent in 2006/2007, the weakest of all Australia's state and territories while weakening relative employment opportunities saw a net interstate population exodus of 3,5000 within a year. However, this gap in demand has been filled by international migrants; the net number of such incomers having grown from 2,500 in 2002 to 13,200 in 2006/07. This demand has translated into house price increases of 16.2 per cent, the lowest rental vacancy rate of all the state capitals, at 1.1 per cent and a 22 per cent increase in advertised rental rates.
Western Australia
General economic conditions in Western Australia remain among of the strongest in the country. Since house prices in WA grew by almost 50 per cent in 2006, it was little surprise that growth slowed to just 2.8 per cent through 2007 to September. Affordability continues to be a pressing concern in the state.
Tasmania
Tasmania's gross state product posted 4.5 per cent growth last year to September, boosted by a strong manufacturing sector and employment growth. The strength of the state's economy was mirrored by it's property market performance. House prices rose by 11.6 per cent last year and residential vacancy rates remain stable, near historical lows of 2 per cent.
Northern Territory
Strong economic growth, gross state product having averaged over 5 per cent per annum since 2004–05, healthy employment conditions and significant increases in the territory's annual population have meant that the Northern Territoriess residential market has remained tight. Median house prices have more than doubled over the past five years and this, combined with interest rates, is raising issues of affordability.
Australian Capital Territory
House prices in Canberra rose 11.2 per cent last year to AUS$460,000, significantly higher than the national average. However, thanks to the strong government administration and defence sectors, disposable incomes in the territory are high repayments on the average mortgage make up only 24.9 per cent of disposable income, much lower than the national average of 36.9 per cent.
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