Statistical Property Market Profile

Propertyology has conducted a study of the historical property market performance of each of Australia’s 550 local government authorities (LGAs) over a 15 year period; from 2000 – 2015.

The average annual growth rate of each LGA over the 15 years was then added with its corresponding rental yield, to calculate a total return. In the ranking of best to worst performed, all seven of Greater-Hobart’s LGAs were placed in the top 30% (three ranked in the top 10%). Derwent Valley (23rd), Glenorchy (53rd), Sorrell (53rd), Hobart (141st), Kingborough (151st), Brighton (151th), and Clarence (164th).

Information courtesy of Propertyology’s extensive research collateral.

While Sydney and, to a lesser extent, Melbourne, have produced solid property price growth post-GFC, Hobart is amongst the bunch of the other six capital cities which have seen property prices largely stagnate. After declines in median house prices of 2.4% in 2011 and 3.3% in 2012, Hobart produced modest growth in each of the subsequent years (2.0, 5.1 and 1.0%).

Economic Profile

Supporting a population of 227,039 (as at June 2015), Hobart is a modern and extremely picturesque city.

Hobart (and Tasmania as a whole) has had its share of economic challenges over recent years. The state’s forestry industry completely closed in 2010, there were mining-related job losses in the state’s north-west, and a large percentage of students were dropping out of school after year ten. For several years, much was written about Tasmania’s high unemployment rate and below average population growth rate. Property investors, myself included for quite a while, simply put Hobart in the “don’t bother” basket.

According to SGS Economics & Planning, “…between 2009-10 and 2012-13, the Tasmanian economy was stagnant. The 2015-16 growth of 1.3%, although lower than Australia’s 2.8%, shows an ongoing improvement in the Tasmania economy”.

“In 2015-16, Construction and Retail (0.3 percentage points) were the biggest contributors to Tasmania’s GDP growth. Agriculture and Utilities were the most significant drag on Tasmanian growth (-0.4 percentage points). As with all the other States, the decline in the share of Manufacturing in Tasmania is significant, falling from 14.3% of GDP in 1995-96 to 7.1% in 2015-16. Several industries have shown modest growth in share. Heath Care grew from 6.7% of GDP in 1995-96 to 8.7% in 2015-16, Education from 5.0% to 6.6%, Financial Services from 4.8% to 6.0% and Transport from 4.8% to 6.8%.”

The improvement in Tasmania’s economy coincided with the end of a 16-year reign of the former state government in March 2014. During 2014 and 2015, 9,000 extra jobs were created and interstate migration numbers have rebounded incredibly well.

While Tasmania’s economy still has a few challenges, the same can be said for most of Australia. The untold story, however, involves the significant improvement which has already taken place.

• International Exports: 8.7% increase in Tasmania for the year ending September 2016 (compared to 2% growth nationally).
• Retail Trade: 7.3% increase over the two years ending September 2016 (compared to 7.1% national average)
• Visitor Arrivals: 17.7% increase for the year ending August 2016 (the biggest increase of all states)
• Unemployment Rates: Tasmania’s September unemployment rate of 6.5% is far and away the most improved state in Australia over the last three years.
• Housing Finance: the number of loans for the quarter ending August 2016 is 7.2% higher than the same time last year (second highest growth in Australia, behind SA).

Propertyology is anticipating continued improvement in Hobart’s economy to come from greater engagement with Asian countries, a very strong tourism industry, an expanding international student market, major construction projects like the Hobart hospital, several new hotels, and the exciting Macquarie Point project, and fast-rising demand for Tasmania’s world-quality agriculture products (Asia’s food bowl).

Health is Hobart’s biggest industry employer. The Royal Hobart Hospital is currently undergoing a $700 million major infrastructure expansion. Tourism (reflected in ‘retail trade’ and ‘accommodation’ figures) is a very important industry to Hobart’s economy; domestic and international tourists have increasingly become aware of the state’s unique tourism attractions.

Hobart is affectionately known as a “university city”. The University of Tasmania has a number of campuses throughout the city, and has plans to further expand.

Job volumes in Hobart bottomed at 100,400 in January 2014 and increased to 106,000 in December 2015. The improved labour market has definitely lead to a general increase in consumer confidence.

With more people living outside of the state’s capital city than in Hobart, it can be misleading to adopt reports about Tasmania as a mirror image of how Hobart is tracking. As this chart shows, broad-brush unemployment rates are one such example where Hobart’s performance has been significantly better than the state as a whole.

Population Trend

The average annual population growth rate of Greater-Hobart between 2010 and 2015 was 0.6%.

On the back of the underrated improvement with Tasmania’s economy over the last couple of years, official population data from ABS for the March 2101 quarter showed that the state had its highest population growth rate in five years. A reversal in the interstate migration trend is an additional positive indicator.

Some property investors place too much emphasis on Tasmania’s below average population growth rate. The fact is, that over the last 20 years, there have only been two quarters out of 80, where Tasmania’s population grew by more than the national average (Q2 2006 and Q4 2003). However, Hobart’s property market has experienced plenty of strong years. Perhaps the best example is the six-year era between 2001 to 2006 when Tasmania’s population growth rate was below the national average, yet property price growth was far superior to Sydney. This included a growth of 44.6% in 2003, 32.1% in 2004 and 11.2% in 2005.

Of greater significance to housing demand than population growth in Hobart, is housing affordability and economic improvement. Hobart’s median house price is less than half the cost of Sydney and Melbourne, and there’s good reason to be optimistic about Tasmania’s economy. The much lower entry price and higher yield make Hobart a significantly safer investment than Australia’s two biggest cities, particularly so once interest rates start trending up again.

Future Housing Demand

With a median house price of $331,000 as at June 2016, housing is certainly more affordable than the combined capital city average of $604,700 (source: ABS).

Propertyology believes that Hobart has a mix of economic drivers with significant potential for prosperity at this juncture in the Asian Century. The OECD has forecast that an estimated 2.5 billion extra Asian people will transition from poverty to the middle class between 2013 and 2030. That places an enormous amount of demand for many of the goods and services which Australians have always taken for granted. Education, food manufacturing, and tourism are of premium quality in Hobart.

Tasmania’s international tourism numbers have reached record levels for three consecutive years now, growing by 20% to the year ending March 2016, compared to 8% national growth. Plantation forestry has re-emerged and is creating new jobs in manufacturing and transport. Growth in retail trade figures has occurred for eighteen consecutive months. The ABS released a statement earlier in 2016 saying that Tasmania’s economy was growing at its fastest pace since 2010, and only NSW and Victoria were growing at a stronger rate.

As an indication of the potential that many wealthy entrepreneurs see in Hobart, there have recently been seven new hotels approved for a combined $250 million. There’s also a feasibility study underway for a new casino.

The state government are seeking expressions of interest to develop prime, waterfront land at Macquarie Point (near Constitutional Dock) into a modern, mixed-use village, which will be a world class attraction. It has been described as a once-in-a-generation project, comparable to Sydney’s Darling Harbour. In December 2016, the state government announced the latest proposal will be shaped around a design by MONA founder, David Walsh, and may include passenger rail infrastructure. Estimated costing is $2 billion across three stages, over as long as 30 years. Stage One will include commercial and exhibition space plus accommodation. Stage Two will be conference facilities and an aboriginal history centre. While Stage Three is further development of the area next to water and port apron.

Housing Supply

As at 2011 Census, Greater-Hobart had 94,192 existing residential dwellings.

A residential construction boom which commenced in 2013 means that big mainland cities have unprecedented high volumes of new properties in the supply pipeline; this occurring at a time when population growth (demand) is not dissimilar to historical trends. Hobart, on the other hand, has building approval volume which is much more sustainable.

As this chart shows, Hobart’s supply and demand metrics certainly look quite balanced, giving us the confidence of a sustainable property market for the foreseeable future. Building approval trends have been very consistent.

Whereas large mainland cities have demonstrated a distinct trend towards building as many new apartments as detached houses, Tasmania’s most common dwelling style continues to be detached houses; only 17% of all dwellings approved during the 2 years ending December 2015 were apartments (compared to 47% nationally).

Recent Property Market Trends

An underrated economy, limited properties for sale, the tightest vacancy rates in Australia, a much more controlled housing supply pipeline compared to mainland cities, and increased buyer activity are all expected to drive property prices and rents higher.

Propertyology’s buyer’s agents have been actively investing in Hobart since mid-2014 (here’s a sample of what we’ve purchased). Hobart’s property market was dead flat when we started our run there. Our buyer’s agents have observed firsthand price growth of 8 to 10% in 2016. We can only see buyer activity further intensifying and forcing stronger growth over the next couple of years.

Hobart is Propertyology’s pick as Australia’s best-performed capital city property market in 2017. We predict double-digit price growth to be well and truly on the cards for Hobart throughout the year.

While markets like Sydney and Melbourne are much closer to the end than the beginning of their growth cycles, Hobart is just beginning.

The significant retraction in properties listed for sale has made it increasingly difficult for our buyer’s agents to find suitable properties for our investors. Properties are generally selling within a week of listing and often going for prices well above our own appraisal range. The market is red hot.

Residential vacancy rates in Hobart are the lowest of all capital cities and rental yields are the highest. It’s an investor’s paradise in that Hobart is producing the dual benefit of solid capital growth and high rental yield.

Disclaimer: Statistics in this report have been obtained from reputable authorities including (but not limited to) ABS, Census, other government sources, and CoreLogic. Commentary in this report has been prepared using information from a wide range of sources including (but not limited to) industry stakeholders, government bodies, community sources, and Propertyology’s own insights. While Propertyology has taken care to ensure that statistics and other general information in this report are accurate, no guarantee is given in relation to accuracy. Economies and property markets are unpredictable; no one can predict the future. This report is general in nature and should by no means be relied upon in isolation to make personal financial decisions. It is recommended that consumers obtain independent advice from suitably qualified professionals whom have considered your personal circumstances.