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DATA: Home and Away

We would all love to have a crystal ball that predicts where and when the market is set to boom. Data analysis is the best crystal ball we’ve got – and Tim Lawless looks into it to answer questions from real estate agents. In keeping with this issue’s global theme he begins with a glance overseas.

The uncertain global economic outlook together with higher interest rates and the federal election has dampened property markets around the country.

How is the activity in global markets impacting on Australia?
Other major western housing markets appear to be stabilising after significant price falls. Based on the Core Logic House Price Index, US now seems to have stabilised after falling 39 per cent from peak to trough whilst UK (measured by the Halifax Index) and New Zealand (measured by Property IQ) house prices have shown a modest level of growth over the last 12 months. Global jitters still remain which is causing a greater deal of volatility in share markets and economic confidence. The uncertain global economic outlook together with higher interest rates and the federal election has dampened property markets around the country.

What is the outlook for the Australian property market over the coming months?
The last two months of RP Data – Rismark Index results have seen home value growth stall in a market slowdown that was predicated by higher interest rates, lower auction clearances and slowing housing finance. The scenario has not changed over the last month and home value growth to remained relatively flat during June.

Melbourne’s population is set to boom over the coming 30 years. What impact would this have on house prices?

There is no doubt that population growth is one of the primary drivers of housing demand. Over the 12 months to September last year the Victorian population increased by 117,900 – the largest annual increase of any state. About 70 per cent of this growth is centralised within the greater Melbourne metro area which is, of course, creating a very high level of demand for new dwellings. The impact on housing prices is likely to be further upwards pressure, however, we need to keep in mind that Melbourne has been one of the most strategic planners of any major capital. Provision for new housing and infrastructure improvements have been well thought out and building approvals in Victoria have been tracking much healthier than most other capital cities. This strategic management of population growth, together with natural demand inhibitors like affordability pressures are likely to see Melbourne housing prices maintain a consistent but sustainable level of capital gain going forward.

With housing supply bitterly low at the moment, what are your predictions for house prices in Sydney’s metropolitan area? What do you think will happen to Sydney house prices over the coming 12 months?

Housing supply remains a large problem in Australia’s largest capital city. The National Housing Supply Council has estimated that New South Wales is suffering the worst undersupply of any state, requiring 57,600 new homes to be built to overcome the current supply gap. Although Sydney home values have recorded a strong gain over the last year (home values are up by 12.1 per cent over the 12 months to March 2010), Sydney is the only capital city market that has recorded a sub 9 per cent year on year gain over the last ten years. The national capital city average annual compounding growth rate in home values between March 2000 and March 2010 has been 9.5 per cent with Sydney recording a comparatively paltry 6.3 per cent gain year on year. There are a wide variety of reasons why Sydney’s house values have increased at a lower rate over the long term including high taxes, poor infrastructure provision and affordability issues amongst the lower socio economic segments of the market. Unfortunately, these issues remain a pressing problem in the broader Sydney marketplace suggesting that the best growth opportunities will be found in those areas where transport infrastructure provides a reasonable level of connectivity and amenity to residents and where affordable housing is strategically located within a comfortable commuting distance from major working centres and transport options.

The Queensland government has announced that it will build three new cities in the state’s south east to take pressure off population growth. What impact will this have on property prices in Queensland? Do you think we will see other cities follow Queensland’s lead and erect new cities?
The approval of the three new satellite cities, which are capable of housing a total of 250,000 residents at Yarrabilba, Ripley Valley and Greater Flagstone within, is great news for the south east Queensland market place. Queensland was ranked as the having the second worst housing supply deficiency by the National Housing Supply Council, so any new major supply additions like these should be welcomed by the industry and the consumer market. What is most important is that we see a parallel infrastructure plan associated with these new developments which are all located in the city outskirts where transport facilities and the normal amenity such as schools, health care and social facilities are not currently widely available. Without the addition of these important infrastructure upgrades the result is likely to be further congestion on existing roads and erosion in the quality of life for those people seeking out affordable housing that is poorly serviced.

The announcement also sheds some doubt on achieving current infill targets that have been set in south east Queensland. Infill development takes place within existing suburbs in an attempt to limit urban sprawl and reduce the requirement for vast transport networks and wide spread public services by developing medium and high density housing along transport spines together with a mix of commercial and retail space. There still needs to be focus on balancing urban sprawl with strategic densities in close proximity to the city.

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Tim Lawless

Tim Lawless is the Research Director at CoreLogic Asia Pacific. Tim has been in the Australian housing market industry for more than 20 years with a focus on research.