Part One: What’s driving the markets across Australia?
Could an interstate investment be the right move for you? Whether you’re a first time buyer, an investor, or a home owner looking for an interstate change, as every state market is different, a little local insight could be helpful. In Part One of our two part review of Australian markets, we look at the ‘states of the nation’ and explore what’s driving – or impeding – real estate markets. Part Two will look at the current supply and demand across the nation’s capitals.
Australian property prices are as strong as ever, with the combined capital annual rolling growth rate at above 11%, being the fastest annual year-to-date growth since June 2010. But drill into the data and the individual States tell a different story.
Price growth in Sydney and Melbourne is responsible for driving an Australia-wide growth rate of nearly 50% over the past five years, while other capitals are showing far more modest individual growth.
Is it population growth that’s driving markets?
Why are markets so different? Housing markets are, of course, driven by a number of factors. Demand, not surprisingly, is one of the key drivers of growth. Latest figures from the Australian Bureau of Statistics confirmed that Sydney’s population has recently passed the five million mark. That’s five million people who need somewhere to live.
While Sydney may still be the biggest city, Melbourne’s population is the fastest growing in Australia with 2.4 per cent growth in 2015-16, ahead of Brisbane (1.8 per cent) and Sydney (1.7 per cent). Looking at population growth alone, it’s not surprising that Sydney and Melbourne are leading the way in growth of property values, as shown in the table below. But as Brisbane sits way behind the southern capitals in terms of recent growth in values, population growth alone is clearly not the only factor in play.
The employment market is another key influence on property markets. Once again, Sydney and Melbourne top the list in total jobs created, thanks to strong service sectors. But look to the mining states where jobs growth has been modest and migration rates have dropped, and you can see how it correlates to negative value growth in Darwin and Perth; the only state capitals to post a negative result.
Interest rates are another key driver to add to the list. Two rate cuts in 2016 have seen an increase in demand from investors. As affordability is still an issue, especially in Sydney and Melbourne, it’s not good news for all buyers, with the number of first time buyers as a proportion of total owners varying widely from state to state.
Separately, and together, population growth, employment figures and lower interest rates are just three of the key drivers of the Australian property market. None tell the whole story, but together patterns start to emerge as we look at the market on a State-by-State basis.
Current trends across the states
While the south-eastern states continue to drive national figures higher, not every state is seeing consistent house price growth. The tables below summarise the latest state-by-state housing data and they tell an interesting story.
NSW, Victoria and ACT
The nation’s highest median prices are in Sydney and Melbourne, with Canberra rounding out the top three. While the cost of entry to these markets is high, especially for first home buyers, falling figures for the length of time properties are on the market confirm that demand remains high. It’s interesting to note that while the consistent ‘list-toppers’ of Sydney and Melbourne recorded the highest growth in values, employment and population, they also share the lowest figures for rental yields.
At home in Hobart?
While many investors may favour potential growth over rental returns, investors could do well by turning their attention to our southernmost city, Hobart. Posting the fourth strongest growth figures, Hobart also tops the list for rental yields. And with the lowest median prices in Australia for both houses and units, it would seem to tick all the boxes for first home buyers and investors alike.
With its thriving arts scene, exciting food culture and easy access to Tasmania’s renowned natural and historic attractions, Hobart has much to offer. Before you pack your bags, however, keep in mind that Tasmania has shown negligible jobs growth in the last five years. Planning a move interstate can be dependent on getting a job.
Despite the mining downturn having a negative impact on property values, WA has performed better on the jobs front. Though far behind employment growth in Sydney and Melbourne, WA delivered the third highest employment growth figures in Australia. If you’re willing to make the move west, Perth could be an option for first time buyers who feel “priced out” of their local market. Head a little further out from the state capital and your money could go even further with many beautiful coastal and country towns to consider.
Is Adelaide the quiet achiever?
Reasonable median prices and some capital growth also make Adelaide worth considering, especially as a more affordable option for first time buyers. With relatively modest growth in employment, however, finding a job in South Australia could be challenging. Find a job, however, and you could be enjoying an enviable lifestyle in a city famed for its many acclaimed festivals, relaxed lifestyle, a thriving ‘foodie’ scene and close proximity to the state’s world renowned wine growing regions. Cheers!
While Darwin has recorded Australia’s most significant drop in values, comparatively more affordable prices, some of the country’s highest rental yields, and reasonable employment growth have put the northern capital on the map for first home buyers and investors alike. If a warmer climate is on your wish list, Brisbane could also be worth considering. While growth has been modest at 2.2%, property is more affordable than the southern states and rental yields higher than Sydney and Melbourne.
A capital investment
If you give your vote for a more affordable option than Sydney or Melbourne, with the ‘next best’ growth and solid rental returns, you could do worse than looking at the nation’s capital. While there’s a push underway to decentralise government departments away from Canberra and other state capitals, the federal bureaucracy won’t be going anywhere fast. With over 57,000 government employees currently in Canberra, rental demand is likely to remain strong.
If you’re contemplating an interstate move, there’s many things to consider. The second part of this special ‘states of the nation’ review looks at what’s currently happening with supply and demand in different capital city markets across Australia and how that could impact your property search. Follow the link below to find out.
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