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Australian Property Market: Decade In Review [2010-2019]

Australian Property Market: Decade In Review [2010-2019]
May 15, 2020 Simon Pressley

Australia commenced the twenty-tens with widespread floods and ended it with some of the biggest bushfires in Australian history. In more ways than one, it was a decade of contrasts.

The Prime Minster back then was Kevin Rudd, Geelong (AFL) and Melbourne Storm (NRL) were the reigning premiers, and Ricky Ponting was the Australian cricket captain.

The decade started in the shadows of the Global Financial Crisis – widely referred to as the single biggest global economic downturn in the history of mankind. And it ended on the dawn of COVID-19 – widely referred to as the biggest ever health pandemic.

Social observer, Hugh Mackay, described the twenty-tens as a decade for decline in institutional trust (politics, churches, banks, big business, media, and trade unions) alongside low wage growth and social fragmentation.

It was a decade of major technology advancements. It produced an expansion of wireless and internet networks, a shift towards cloud computing, and evolution through the internet of things.

At the start of the decade, maybe 20 percent of people had a smartphone. By the end of the decade pretty much every Australian aged 15 years or more had one, and the phone app was a less popular function than email, camera, calendar, Safari and umpteen social media apps.

It was a decade that saw more Australians gain a stronger appreciation for engaging skilled professionals, as opposed to the many shortcomings of fumbling away as a DIY.

In real estate, this meant that approximately 60 percent of property transactions were financed via a mortgage broker and there was greater appreciation for engaging a skilled buyer’s agent.

By the end of the decade, Core Logic had valued Australia’s 10.3 million residential dwellings at $7.2 trillion.

From the start to the end of the decade, median house prices had increased from $530,000 to $972,000 in Sydney, they declined in Perth ($494,000 to $489,000), they almost doubled in the regional township of Goulburn ($230,000 to $427,000) and were very consistent in locations like Bendigo ($235,000 to $360,000).

 

Economy

The phenomenon known as the Asian Century was in full force during the twenty-tens. China became a global super-power and the world’s largest trading partner. India also undertook enormous urbanisation.

From the supply of city-building commodities such as iron ore, coal and gas, through to Australia’s world class agriculture, its universities and the diverse range of tourism options, the Australian economy was a huge beneficiary of globalisation throughout the twenty-tens.

The national economy was consistently solid with annual growth in GDP in the mid two-percent range in most years so, but it was not as good as the two previous decades.

This was reflected in the subdue wage growth – below 3 percent per annum from early 2013 right through the rest of the decade.

Money was cheap though. After starting the decade at 3.75 percent, the RBA cash rate peaked at 4.75 percent in 2010 / 2011 and then progressively fell to end the decade at 0.75 percent.

The Australian stock market had the usual peaks and troughs, but overall was solid with the ASX 200 increasing by 38 percent over the 10-years.

Unfortunately, it seems to suit the human race to believe what they want to believe.

This can lead to people gravitating towards information that supports what their subconscious wants, which often is not in their best interests, especially financially.

For example, who doesn’t want the property market of their home city to perform well?

So, when a hometown hero investor conducts what they consider to be “research” – which really means “reading all kinds of stuff online” – they feel more comfortable when they come across something positive about where they live.

An online report containing details about planned and proposed infrastructure projects in one’s hometown often is all the confirmation that one needs to reinforce their confirmation bias. The report gives them all of the information they need to support why it’s a good idea to buy an investment property that’s a short hop, skip and jump from where they live.

Little do they realise that every year gone by also had an infrastructure project list, but the property market of their hometown didn’t always perform well. No one location always performs well and there are many (many) factors more important to future property market performance than infrastructure projects.

A recent set of population figures or a very general report with a local real estate professional (unsurprisingly) talking positively about their local market are other common feeders of a confirmation bias.

There were 20 percent more jobs in Australia by the end of the decade. Victoria produced the highest increase (27 percent) and South Australia the smallest (7 percent).

The contrasts continued with Western Australia and Northern Territory both having a golden period at the start of the decade followed by a weak streak for much of the second half of the decade.

Conversely, Tasmania experienced a recession in the early part of the decade, yet it ended 2019 at the very top of CommSec’s State-of-the-state’s economic report card, while South Australia and Queensland were consistently underwhelming.

Investment in airport and highway infrastructure combined with the roll out of broadband internet created an improved connectivity between capital cities and numerous regional towns and cities.

As for the individual sectors of Australia’s economy, the biggest expansion by job volumes was Health Care (partly a reflection of an aging population) and Mining.

The graphic below contains some interesting messages in respect to economic changes within each state and territory over the last decade.

Population

Australia’s population increased at one of the fastest paces in the developed world, from 21.6 million to 25.3 million.

Melbourne’s 10-year population growth (an increase of 25.8 percent) pipped Brisbane’s (21.5 percent) and Perth’s (19.6 percent).

But the award for Australia’s biggest population growth rate during the twenty-tens goes to the Queensland regional location of Sunshine Coast (27.3 percent).

From the start to the end of the decade, Mandurah, Maitland, Gold Coast, Geelong, Canberra, Ballarat, Bendigo and Darwin all had a higher rate of population growth than Sydney (18.2 percent).

Dwelling Supply

The volume of residential dwellings in Australia increased from 8.8 million to 10.4 million.

One of several big shifts in Australian real estate over the last decade was increased dwelling density.

43.7 percent of all residential dwellings approved in Australia over the 10-years ending 2019 were attached dwellings (apartments and townhouses), which was a significant increase on the 31 percent in the previous decade.

5 out of 8 capital cities had more apartments than houses approved during the decade – Canberra (70.9 percent), Sydney (65.9 percent), Melbourne (52 percent), Darwin (51 percent) and Brisbane (50 percent).

At the other end of the spectrum, Hobart (20 percent apartments), Perth (26 percent) and Adelaide (34 percent) still favoured detached houses.

With the exception of the likes of Gold Coast, Newcastle and Wollongong, the traditional quarter-acre block (or bigger) remained the dwelling of choice in large parts of regional Australia.

Property Markets

With the overhang of the GFC, Australian property markets were largely unspectacular in the first half of the twenty-tens.

Initially driven by a big influx in international investors followed by a lift in service sector jobs, Sydney’s 46 percent median house price increase was the best of the capital cities over the 5-years ending 2014.

The second half of the decade exposed Perth and Darwin’s unhealthy reliance on mining, leading to a very weak property market. Hobart was the clear capital city standout with a 51 percent increase in median house price along with a 39 percent increase in rents.

Housing affordability constraints, long commute times to work and a preference for inner-city lifestyles combined to create a huge increase in demand for apartment living in Australia’s biggest cities, particularly during the first half of the decade.

While there was no shortage of apartment buyers, a strong supply-side response, concerns with construction integrity and same-same design resulted in vastly inferior financial performance of apartments compared to houses.

There was no movement in apartment values in Brisbane and Perth over the 10-years, while the rates of apartment price growth in Sydney, Melbourne and Canberra was only half that of detached houses.

Outside of Australia’s eight capital cities, there were numerous regional towns and cities whose property markets performed well in the twenty-tens.

In the first half of the decade, a 35 percent increase in the median house price in Goulburn, Newcastle, Bendigo and Wingecarribee was more than double the rate of growth in 6 out of 8 capital cities.

Wollongong, Kiama, Geelong, Lake Macquarie, Bathurst, Dubbo, Baw Baw and Shellharbour also outperformed 7 out of 8 capital cities over the 5-years ending 2014.

Australia changed during the second half of the twenty-tens. While housing affordability constraints and over-supply were creating challenges for big city property markets, there was a growing appetite for less stressful lifestyles and detached houses that people could still afford to buy.

Regional locations that offered this plus employment opportunities and connectivity to big cities through highway / airport expansions were in high demand.

Accordingly, Australia’s best performed property markets over the 5-years ending December 2019 included Victoria’s Macedon Ranges, Mitchell, and Bass Coast, Noosa in Queensland, New South Wales’ Snowy Monaro, Shoalhaven, Orange, Bega Valley and Nambucca, while the property market in Launceston was also strong.

Housing Finance

While it’s always better to be late than never, Australia started to implement online property settlements towards the end of the decade. Although, despite the endless possibilities which come with technology, the process and time taken to make loans available for property buyers did not improve.

Logic would suggest that, if the nation’s population grows by 3.7 million during the decade, an extra 1.6 million dwellings are added, and interest rates are significantly lower than the previous decade, there would ordinarily be a significant increase in the volume of property transactions.

To the contrary, the 113,126 quarterly average volume of transactions in Australian real estate during the twenty-tens was notably lower than the 125,342 during the previous decade. One would ordinarily expect to see a quarterly average in excess of 140,000 transactions.

The chart below illustrates a steep decline in national real estate transaction volumes from the middle of the decade onwards. The sharp retraction is a direct result of Australia’s banking regulator (APRA) implementing a series of credit tightening policies throughout the second half of the twenty-tens.

In May 2015, Propertyology expressed concern for the impact this would have on home ownership, on the bulging $50 billion spent on aged pensions each year, the lost stamp duty revenue diminishing state government infrastructure funding capacity, and a general weakness for the broader economy.

Housing finance segmentation shows that the biggest retraction was in the investment space from 2015 onwards. Over time, the lower volumes of transactions for investment properties resulted in a general tightening in residential vacancy rates (and rising rents) in various parts of Australia.

The twenty-tens will go down in Australian real estate history for the immergence of the rentvestor.

As more people reflected the financial decisions of their predecessors, some Australians considered it important to take a different path in a different era. The strategy of renting a dwelling that satisfies your lifestyle while owning an investment property (or a portfolio of properties) in completely different locations became increasingly common during the decade. It’s a strategy that’s here to stay!

Another example of Australians becoming more engaged in their future financial wellbeing was evident in the form of enormous growth in self-managed superannuation funds. The estimated 1.2 million Australians with an SMSF by the end of the decade was a significant representation from a nation that had a workforce of 13 million people by the end of the decade.

During the decade, Australian real estate saw increased regularity of property developers paying large rebates to third party firms for marketing new properties such as high-rise apartments and house-and-land packages.

The (unregulated) lure of earning $20,000 to $50,000 per property challenged the client-best-interest test of many financial planners, accountants, mortgage brokers and so-called ‘property consultants’.

Major Events

2010:    RBA cash rate increased to 4.75 percent. First home buyer grants for established properties were removed.

2011:    Mining boom was in full swing. The world-class Museum of Old & New Art (MONA) opened in Hobart.

2012:    Perth was undergoing a substantial period of urban renewal.

2013:    Significant flow of Chinese capital into international assets, including Australia. Commodity price downturn.

2014:    Wagner family complete development of an international airport in Toowoomba within 2-years.

2015:    APRA begin a 4-year period is tight credit supply. Air BNB commence operations in Australia, opening up new economic opportunities across the country.

2016:    Smart Property Investment became the first real estate publication to fully embrace digital media by abandoning its print magazine and going completely online.

2017:    Australia’s car manufacturing industry officially closes.

2018:    Gold Coast host the Commonwealth Games.

2019:    Fear of negative gearing and other tax proposals drives real estate transaction volumes to a record low.

 

This look back on what transpired in Australian real estate in the twenty-tens shows that things are always changing.

In attempt to raise skills, standards and to provide greater protection for real estate consumers, the twenty-tens produced the introduction of tertiary qualifications for professional property investment advisors.

Propertyology is one of the very few Australian specialised property investment businesses that was in operation before, during and after the twenty-ten decade.

Having helped clients invest in sixteen (16) completely different cities (capitals and regional locations) across five different states, Propertyology’s experiences include navigating through the GFC, a mining boom and subsequent downturn. We’ve experienced property market booms in capital cities and regional locations and have endured others that have suffered over-supply and economic downturns.

The breadth and diversity of our experiences across all these years has afforded us a great appreciation for the many influences on property markets along with the importance of adopting sustainable and resilient investment strategies for those unexpected changes that may arise over the years.

Propertyology is Australia’s premier property market analyst and award-winning buyer’s agency. Every capital city, every non-capital city, we analyse fundamentals in every market, every day. We use this valuable research to help everyday Aussies to invest in strategically-chosen locations (literally) all over Australia. Like to know more? Contact us here.

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