Australia | Mar 22 2010
By Chris Shaw
Last year proved to be an excellent one for Australian housing prices, ANZ Banking Group noting median price growth of around 11% was recorded in 2009. The gains reflected a combination of improved affordability from government incentives for first home buyers and low interest rates, along with solid demand stemming from improving economic conditions and sentiment.
Even though first home buyer incentives are now being reduced, the bank's property and financial system research senior economist Ange Montalti expects Australian house price growth will continue to be supported by a number of factors.
These include strong economic conditions, as strong growth in Asia should mean increased demand for Australian commodities and so push up income levels. The Queensland, Western Australian and Northern Territory markets should be major beneficiaries of this in Montalti's view.
Migration should also continues to be supportive, as evidenced by net overseas migration of 285,300 in 2008/09 being the highest on record. This is pushing up prices as new dwelling completions continue to fall short of underlying demand, further tightening rental markets.
While prices should continue to increase, Montalti expects price growth will moderate in 2010 given the partial withdrawal of first home buyer incentives and higher interest rates. These factors will cause affordability to deteriorate, so reducing demand in his view.
With respect to the individual states, Montalti notes New South Wales performed largely in line with national figures in 2009, recording price growth of 11.4%. He expects ongoing population growth will see a renewed tightening in the rental market, ensuring ongoing rental growth and a deterioration in purchase affordability. Established house prices and affordability are expected to remain at a premium to the national market as a whole.
The Melbourne market outperformed Sydney in 2009 in delivering property price growth of 15.6%, driven by strong population growth and the incentives offered to first home buyers. Montalti notes the market has since cooled as the Reserve Bank of Australia (RBA) has lifted interest rates given a resulting decline in affordability to pre-GFC (Global Financial Crisis) levels.
Total building approvals in Melbourne rose strongly in the second half of 2009 and a continuation of this trend is seen as necessary to avoid any housing shortage from ongoing population growth. As with Sydney Montalti notes the Melbourne rental market is already tight.
Queensland was hit hard by the GFC as Gross State Product fell to 0.3% in 2008/09 from an average of 5.3% over the previous five years. A corresponding rise in unemployment saw a cooling in house prices of 5.8% from peak to trough.
With a combination of strong population growth and still subdued levels of building approvals Montalti expects Queensland housing market fundamentals will tighten further this year. So too will rental markets in his view, a trend he expects will strengthen further in coming years.
In contrast to Brisbane, house prices in Adelaide remained firm through the GFC, though growth in 2009 was below the national average at only 6.2%. This reflected a weaker upsurge in demand from first home buyers compared to other markets and relatively modest population growth.
Montalti notes South Australia actually has a housing surplus at present, so average median prices in Adelaide are expected to grow by below the national average this year. Rental growth should also run below the national average in his view.
As Chinese demand for commodities grew in 2009 so too did Western Australian housing prices, the state delivering price growth of 7.1% last year. While much of the demand came from the first home buyer segment ,Montalti suggests the stronger economy should see a general improvement in the Perth housing market in 2010, with investors and upgraders taking over from the first home buyers.
Property prices in Hobart continue to surprise on the upside, with 2009 seeing residential property prices growth of 12.1% despite unemployment increasing from 4.6% to 5.4%. With Australia's lowest median house price, the Tasmanian market has been largely shielded from price falls.
Strong gains in private building approvals last year bode well for future supply and should meet demand, an outcome Montalti expects will keep price gains moderate in Tasmania moving forward.
The Canberra market returned to solid growth in 2009, with dwelling prices gaining by 14.7% for the year. Continued gains are expected from a combination of strong growth in public sector employment and high average incomes, though Montalti expects interest rate hikes by the RBA will temper gains somewhat as affordability will decline.
Solid increases in private building approval numbers in recent years means Canberra will be one of the few cities in which underlying demand won't exceed new housing completions in his view.
Darwin dwelling prices more than doubled between 2005 and 2009, meaning the GFC had little impact on the housing market. In 2009 alone prices grew by 16.6% and Montalti expects further gains from the combination of strong population growth and high incomes.
Insufficient dwelling completions compared to demand are adding to the pricing pressures, so with strong income growth and better than average affordability he sees price gains as sustainable. The rate of growth should come down in 2010 though given an expectation of higher interest rates.
