Countless false presumptions and generalisations, dozens of deep-seated myths which aren’t supported by an ounce of evidence, and umpteen so-called ‘experts’ to amplify the misinformation. Instead of improving people’s knowledge, this new digital world spreads a plethora of poor-quality poison.
Very few things on this planet are more complicated than property markets. As a framework to help people have a greater appreciation for Australian real estate, Propertyology’s Head of Research, Simon Pressley, has parcelled up twenty (20) fascinating facts.
This information comes from Simon’s formal studies of Australian real estate history along with a lifetime of practical experiences investing in locations all over Australia.
1. ‘Big’ has nothing to do with ‘best’
The average annual capital growth rate for houses in Sydney NSW (population 5.3 million) over the last 20-years was 7 percent, while Hobart TAS (population 247,000) was the best-performed capital city with an average annual growth rate of 9.3 percent. Plenty of much smaller cities with outstanding capital growth rates include Wangaratta VIC (population 29,000 and 7.2 percent), Kempsey NSW (30,000 and 7.5 percent), Byron NSW (36,000 and 10.6 percent) and Gympie QLD (54,000 and 8 percent).
2. Population growth
Perth is Australia’s 4th largest city. During the decade ending 2020, Perth’s 19 percent population growth rate was greater than the national average (17 percent) and Sydney (18 percent), yet Perth’s median house and apartment values declined over that decade. Similarly, Gold Coast’s 25 percent enormous population growth over the same decade translated into a modest 31 percent growth in median house prices and only 14 percent for apartments. Conversely, other locations had strong real estate capital growth despite minor or no population growth. These include Newcastle NSW (71 percent capital growth from just 8.6 percent population growth), Bega NSW (94 percent from just 5.8 percent population growth), Burnie TAS (56 percent capital growth during a 2.6 percent population decline), Mildura VIC (50 percent from 6.6 percent) and Lismore NSW (82 percent from 1.3 percent population loss).
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3. Coastal versus inland
‘Tree change’ and ‘sea change’ are catchy terms for news stories, but there is no evidence connecting climatic conditions and other (highly subjective) lifestyle factors to real estate performance. Average annual capital growth rates over the last 20 years for inland locations such as Ballarat VIC (7.5 percent), Orange NSW (7.6 percent), Canberra ACT (7.9 percent) and Launceston TAS (9.1 percent) compare favourably to coastal locations such as Darwin NT (6.2 percent), Busselton WA (6.6 percent), Adelaide SA (6.7 percent), Port Macquarie NSW (7.1 percent), Fraser Coast QLD (7.2 percent) and Brisbane QLD (7.3 percent)
4. Houses versus apartments
Government decisions at the start of this century to significantly ramp up production of same-same high-rise apartment blocks has directly resulted in apartment capital growth rates being roughly half the rate for detached houses. Those who invested in apartments over the last 10-years saw roughly half the rates of capital growth in Sydney (4.9 percent) and Melbourne (3.9 percent) than what could have been achieved from investing in detached houses in large parts of Australia. Results are even more modest in Canberra (2.3 percent), Adelaide (2.1 percent), Brisbane (1.2 percent), Perth (zero) and Darwin (0.6 percent).
Australia has experienced four (4) recessions over the last 50-years. The evidence confirms that at least 2 out of the 8 capital cities plus oodles of regional locations produced double-digit house price growth during each of Australia’s recession years. There’s a significant difference between the broader national economy producing negative growth in 2-consecutive quarters (the technical definition of ‘recession’) and the economic performance of individual cities and towns.
6. Housing affordability
Despite being a contentious topic for many generations, first home buyer participate has (literally) never been higher. There were a whopping 1,039,500 first home buyers last decade, representing almost 10 percent of Australia’s 10.8 million total dwelling stock acquired over the last 230-years.
7. Sustainable growth
Contrary to the age-old suggestion that ‘…house prices can’t keep rising like that without wages growing just as much…’, the evidence suggests otherwise. Over the last 5 decades, the nation’s median house price tripled in the 1970s, increased by 158 percent in 1980s, 72 percent in the 1990s and by 146 percent in the 2000s. The leanest decade was the 10-years ending 2020 (48 percent growth) while house prices had already increased by 43 percent during the first 2.5 years of this current decade.
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8. Popularity and desirability
One of the biggest misconceptions in real estate is that ‘…people prefer to live in capital cities than regional locations.’ It is true that more people are born in capital cities, more overseas migrants first settle in capital cities, and that humans are creatures of habit. But when it comes to people making a conscious decision to advance one’s life through relocating, the evidence confirms that, every single year, more existing Australians move away from capital cities to regional locations than going the other way. During the 15-years that the ABS has published internal migration data, 266,648 (net) people migrated away from capital cities (that’s equivalent to the entire population of Geelong, Australia’s 11th largest city).
9. Capital cities versus regional locations
Those two useless terms have absolutely nothing to do with property market performance or risk – fact. Across Australia’s 8 states and territories, there are circa 400 individual regional townships of which roughly half have a population of 10,000 or more. The best-performed property markets in almost every year are among the 200 ‘regions of substance’ as opposed to the 8 capital cities. Property investors would be foolish to consider less than 100 percent of their options.
10. Rental supply
According to official Census data, the ratio of Australian households that rent has consistently hovered between 25 and 30 percent for the 70-years since the completion of World War 2. The total rental pool currently consists of 2.89 million dwellings funded by everyday Aussie property investors plus a further 280,000 government-owned dwellings (down from 395,000 dwellings 30-years earlier). 100,000 dwellings are rented through short-stay platforms such as Air BNB (just 3 percent of the total rental pool). A dire shortage of rental supply means that significant upward pressure on rent prices will persist for many years to come.
11. Interest rates
One of the biggest myths in property markets is that real estate values can’t increase when interest rates are rising. The history books show multiple eras when this occurred. The national house price tripled in the 1970’s at a time when the standard variable home loan rate increased from 6.5 to 10 percent. Home loan rates consistently increased throughout the 1980’s from 10 to 16.8 percent and house prices more than doubled in that decade. The most recent era was when house prices again doubled in just 6-years to 2008 while home loan rates increased from 6.3 percent to 9.5 percent.
12. Quarter acre-block
13. Double-digit growth
No Australian location has produced a longer run of annual double-digit growth to house prices than Darwin’s 7 out of 10 years ending 2012.
14. Rollercoaster markets
Property markets with the highest volatility are those with the least amount of economic diversity. The one industry (iron ore) town of Port Hedland WA is arguably the best example. With a population of just 15,000 people, Port Hedland spent 6-years with the highest median house price in Australia, peaking at $900,000 in December 2013 (well above Sydney’s then $670,000). Over the next 5-years it plummeted down to $200,000.
15. Australia’s most consistent
The unofficial ‘capital city’ of central Victoria, Bendigo has been so consistent that its worst calendar year property market performance over the last 30-years was a 1 percent decline in median house price. Bendigo’s average annual capital growth of 7.4 percent over the last 2-decades was superior to 6 out of 8 capital cities, including Sydney and Melbourne.
16. High inflation periods
Inflation grew from 5 percent to as high as 17 percent throughout the entire 1970s and 1980s, yet the national house price increased 10-fold over those 20-years. For much of the last 20-years, inflation in Australia hovered between 2 and 3 percent, although there was a prominent exception in 2002 when inflation increased by 6 percent and national house prices increased by 20 percent.
17. Homeownership rates
Nationally, 74 percent of all dwellings at the 2021 Census were occupied by the owner. Among the cities with the lowest homeownership rates were Sydney NSW (68 percent, due to affordability constraints), Darwin (65 percent, due to a more mobile workforce profile) and Brisbane QLD (also 68 percent). Examples of cities with very high homeownership are Fraser Coast QLD, Tweed NSW and Mandurah WA (all 80 percent) along with Baw Baw VIC (84 percent) and Bass Coast VIC (88 percent).
The global health pandemic was instrumental in driving a few permanent structural changes for Australian real estate, the biggest of which Propertyology describes as a Lifestyle Movement that may span an entire generation. Among other changes, we estimate that, this country with 10.8 million dwellings will have circa 2 million people that use ‘home’ as their workplace.
19. Rent growth
Property investors, whose actions determine rental supply, are huge creatures of habit and therefore are most active in big profile cities. Accordingly, the lower volumes of rental stock in less thought of locations is the primary reason for higher increases in rents. Over the last 10-years, the asking rent for a 3-bedroom house increased by 10 percent in Sydney NSW, 25 percent in Brisbane QLD and 57 percent in Hobart TAS. Mount Gambier SA (36 percent), Wodonga VIC (47 percent), Sunshine Coast QLD, Maryborough QLD and Dubbo NSW (all 52 percent), Coffs Harbour NSW (66 percent) and Launceston TAS (68 percent) are other good examples.
20. Flat patches and downturns
No location is immune to periods of poor property market performance, including Australia’s 3 largest cities. Over the 5-years ending March 2009, Sydney’s median house price declined by 8 percent. Across 9 very underwhelming years to 2019, Brisbane’s median house increased by just 18 percent and apartment values declined. And as recently as the 2-years ending July 2019, house prices in Melbourne (minus $134,000) and Sydney (minus $190,000) took a significant haircut.
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