After having escaped relatively unscathed from the Global Financial Crisis with a moderate downturn, the economy is now already into a sustainable recovery. Interest rates have been raised from the ‘emergency’ expansionary settings of 2009, with housing rate now back to average levels for the past two decades. To date, the recovery has been led by public sector spending. Fiscal stimulus programs supported household spending during 2009 and more recently the education building program has supported work for commercial businesses. The First Home Buyer Boost Scheme was a clear success with about 200,000 first home buyers in 2009. This scheme accelerated the recovery in residential property markets and triggered the rebound in residential building activity in 2010.
The increased affordability due to lower interest rates was the key driver behind the price rises in 2009. Rising interest rates through to 2008 had kept affordability strained and prevented price growth. This is despite a rapid increase in the underlying deficiency of Sydney’s dwelling stock since 2006 which should have been pushing price in Melbourne and Brisbane. Compared to an underlying demand for 51,700 new dwellings per annum over 2006 to 2010, New South Wales is on track to commence only 30,900 dwellings in 2009-2010. Given the low level of new dwelling supply currently coming through in New South Wales (well below underlying demand) and the lag for any upturn in demand to translate to new dwelling completions, we anticipate the state’s stock deficiency to have increased from a generally balanced market in 2006, to an estimated 112,300 dwellings at June 2011. This is over two years of the underlying demand expected for the state, indicating the tight vacancy rates and solid rental growth should be locked in over the forecast period.
Compared to Sydney, the Melbourne Residential market returned to positive price growth over 2007-2008. In our view despite price growth accelerating, the overall housing affordability in Melbourne was reasonable at prevailing interest rates as at June 2007 - even the latter part of 2007 as interest rates began to rise. This was possible due to well performing Victorian economy, with employment growth running at 2.7% over the year to June 2007. In addition, growth in underlying demand from increasing overseas migration and lower housing construction in Victoria (to below underlying demand) meant that Melbourne’s stock deficiency had been increasing steadily since being at balance in 2006. This means that there will be a solid rental growth.
Underlying demand in Brisbane’s residential market is projected to remain relatively high going forward, despite the forecast drop off in net overseas migration. Although diminished, Brisbane affordability advantage over both Sydney and Melbourne is likely to have improved slightly after recent strong growth in Melbourne and projected price growth in Sydney. After bottoming out in 2009/10, this should result in a slow increase in net interstate migration, as strengthening conditions in the mining and minerals sector create employment growth in white collar support jobs in Brisbane and contribute to entice people to move to the city.
The information is taken from: BIS Shrapnel and rpdata.com.au