House price outlook #6

We know that Australian house prices rose 6% during the 12 months to June 2022.

And the just released (June) official lending statistics suggest that house prices could now rise by 4% for the year ending September 2022.

For calendar 2022, we are forecasting a 1% fall in median house prices across Australia.

In simple terms and from the bird’s eye view,  if you bought a house in June last year, it could be worth 6% more as at June this year; and a home bought around September 2021 could have grown by 4% more in value come September this year.

But if you bought a house last December, then it could be potentially worth 1% less at the end of this year.

Two charts are included in this post.

Unders and Overs

Every year, the ABS gives us a population estimate for every place in Australia – usually released in March – and takes into account births, deaths and an estimate of net migration from the previous year.

These estimates also consider changing Medicare records and local building activity.

Most of you would know this data as Estimated Resident Population.

What’s maybe a bit less well known is that these estimates are revised after each Census.

This missive holds three tables which supplies the rebased population counts and the change in population size from the previous 2021 financial year estimates.

Looking at the big picture, Australia’s overall population was revised down by 50,063 people between the pre-Census and post-Census estimates.

And both Victoria and New South Wales were revised downwards by about 100,000 each, while WA, SA, Tas and the ACT were all revised up.  Queensland and the NT stayed about the same.

Table 1 shows that changes for the 50 largest significant urban areas across Australia.

Table 2 shows those local council areas which experienced the largest upwards and downward population revisions.

The general trend here is that the ABS underestimated the amount of growth in outer suburban areas and regional cities to a significant extent, while overestimating the amount of growth in inner suburban and inner-city areas, particularly in Sydney, Melbourne and Brisbane.

This may be because young people – who dominate our inner cities – are hard to catch in things like Medicare change-of-address records.

It may also be to do with using increasing dwelling numbers in the inner cities as a proxy for population growth in a pandemic when many of the dwellings were left unoccupied.

On average 20% of the dwellings in our major inner-city areas were unoccupied last August.

And to appeal to about a third of my base, table 3 provides information on the largest 25 local authority areas across Queensland.

The heading

And in reference to this post’s heading, Unders and Overs is a very simple dice game.  It is usually played with two wooden dice.  The principle of Unders and Overs is to guess whether the value of the dice is lower/higher than or equal to Seven.  These are the only bets in the game.

You know the score.  Stay in control.  Gamble responsibly.

Eleanor Rigby

Ah, look at all the lonely people!

This week I want to look at Australian household types.

I get a bit sick of hearing that a quarter of Australian’s live alone.

This isn’t true, one in ten Aussie’s live alone.

The quarter statistic comes from the Census and measures that number of occupied dwellings on census night that housed one usually resident person.

So, a quarter of our occupied dwellings typically hold just one person, but 90% of us live with someone else.

Semantics?  Maybe?  But let’s get this stuff right from the get-go.

This post holds five tables.

Table 1 outlines the number of occupied dwellings by household type.  This table shows that 26% (well 25.6%) of Australian occupied dwellings held just one resident in mid-August last year.  This proportion was 25.0% in 2016.

Table 2 shows that the size of the lone person households accounted for 34% of the overall increase in the occupied dwellings over the past five years.

Table 3 outlines the number of people per household type in 2016 and in 2021.  It shows that just 10% of Australians live alone.

Table 4 shows that the size of the number of people living alone accounted for just 15% of the overall increase in size of the Australian population between 2016 and 2021.

And finally, table 5, outlines some key housing demographics by household type.  This table outlines the average number of people typically resident by household type as well.

Some thoughts

There has been some conjecture regarding the reduction in household size to 2.5 people on average per occupied dwelling in the latest census results.

Several have been saying that the increase in lone person households – up 347,200 or 69,440 per annum – over the past five years has resulted in the decline in average Australian household size.  This is probably true.

Yet the average household size was 2.57 in 2016 and is currently estimated to be 2.54.  So not that big of a change.

In addition, some are saying that a big reason for the decline in rental vacancies is due to more renters opting to live alone.

Table 5 shows that 39% of lone person households rent.  This suggests that there has been a potentialincrease of about 135,000 lone person rental households over the past five years.  This equates to an 27,000 increase per annum.

This might also be plausible especially when factoring in Covid’s potential impact – many choosing to self-isolate – and the fact that there were 75,000 rental vacancies in August 2016 versus about 37,000 in August last year.

We will know more when the next stage of the 2021 census is released later this month.

But for mine the big reason for the decline in available rental properties is that not enough new investment property has been built across the country over recent years.  It also doesn’t help when investors choose to lock-up their digs rather than rent them out.

All the lonely people
Where do they all come from?
All the lonely people
Where do they all belong?

Postscript

Eleanor Rigby is the only Beatles song where none of the Beatles play an instrument. They only sing as a string ensemble plays on. There was also some debate between John Lennon and Paul McCartney as to who wrote most of the song, but the song tends to follow more of Paul’s storytelling style.

Eerily enough, the name Eleanor Rigby was found on a gravestone at the St. Peter’s Parish Church where John and Paul met as teenagers. Yet in a 2018 interview, McCartney said that he hadn’t known of that person or the gravestone when he wrote the song.

 

Talkin’ ‘bout my generation

People try to put us d-down (talkin’ ’bout my generation)
Just because we get around (talkin’ ’bout my generation)
Things they do look awful c-c-cold (talkin’ ’bout my generation)
I hope I die before I get old (talkin’ ’bout my generation)

Well, I was a bit peeved when the ABS told me a few weeks ago that I was a Baby Boomer instead of belonging to Gen X.

True, being born in 1965, makes me on the cusp of the two demographic segments, but a Gen Xer I am.  I relate to their general traits and are influenced by their stimuli.

Besides – other than kids and teenagers – who likes to be told that they are older than they feel!

This post holds five tables.

Table 1 outlines the seven major generations.  Last year, being 56 then, I am Gen X.

Table 2 shows that Millennials are now the largest generational segment in Australia with a 23% market share.  Baby Boomers and Gen X hold 20% each.

Table 3 shows that the Millennial cohort, grew that most over the last five years, increasing by 110,000 people per annum between 2016 and 2021.  The size of the Baby Boomer generation declined by 1% between the last two census periods.

Table 4 outlines the major influences on a selection of generations.  This is important when promoting goods and services, including real estate, to your target generation audience.

And finally, table 5, outlines some key housing demographics by generation cohort.

Having been born in 1965 I like The Who’s My Generation which was released that year too.

However, these days, I cannot agree with Pete Townsend’s last line of the opening verse of My Generation.

Spare + Unoccupied

This topic has got a lot of air over the past couple of weeks.

This post I want to cover two subjects, firstly unoccupied dwellings and secondly underutilised or spare bedrooms.

Four tables are at the end this post.

Let’s start with unoccupied dwellings.

Unoccupied dwellings

According to the 2021 Census there are some one million unoccupied private dwellings across Australia.  This equates to about 10% of Australia’s private residences.

According to the ABS an unoccupied private dwelling is a vacant one at the time of the census (usually around mid-August every fifth year) and the reason for the vacancy includes being a holiday home – for owner’s use or rented out commercially i.e., Airbnb; an investment property without a tenant; a newly built but vacant dwelling; a habitable dwelling being renovated and/or vacant dwelling for sale or lease.

This count excludes non-private dwellings such as hotels and motels, caravan and similar ‘housing’ estates, marinas, prisons, boarding schools, defence, and religious establishments plus other communal housing, such as aged care.

The occupancy for most Australian dwellings is determined by the census form.

Unoccupied dwellings are then followed up by field visits and other secondary indicators such as personal income taxation plus Medicare and social service datasets.

This census Smart-meter electricity data was used for the first time.  This information is a strong indicator of dwelling occupancy.  The ABS believes that the use of this information has significantly improved the accuracy of the dwelling occupancy count in 2021.

Now that we have got this out of the way, let’s review the findings.

Regardless of the recent headlines one million unoccupied dwellings is not new.

Table 1 shows that this has been the case for a long time across Australia.

In fact, the growth in unoccupied dwellings has slowed down between the last two census periods.  This slowdown, for mine, is due to two factors – one, the improvement in the data, as outlined above and two, because to the Covid pandemic, which saw a lot more holiday homes being utilised.

On that note many have commentated that the reason for the high number of unoccupied homes is Airbnb’s.

Yet it is estimated that just 100,000 whole dwellings are listed for rent as an Airbnb across Australia.  So, if there are 100,000 Airbnb listed dwellings and they were all vacant across Australia at the time (highly unlikely but let’s roll with the flow for now) then this accounts for 10% of unoccupied homes.

In addition, there are studies to suggest that one in every 100 Australian households hold a holiday home for their personal use.  Assuming they were all vacant in August last year, then that would account for another 100,000 unoccupied homes.

It is obvious from table 2 that quite a few Australia’s unoccupied dwellings are in regional towns and tourist orientated locations.

But I think it is more reasonable to assume that some of these holiday homes were occupied in August last year.  So, if say half of these homes were occupied, then combined there were some 50,000 unoccupied Airbnb’s and 50,000 unoccupied holiday homes for personal use last year.

If this is true, then ‘holiday’ homes account for 10% of the unoccupied dwellings in 2021.

It has also been mentioned that a lot of the reason for the unoccupied count is due to dwellings being sold or for lease.  This accounts for some of the unoccupied stock, but not as much as some think.

There were 625,000 dwelling sales across Australia last year.  If these sales, took on average, three months from initial listing to settlement – which given the heat in the housing market at the time, isn’t unrealistic – then some 150,000 dwellings or 15% could have been unoccupied due to the sales process.

Furthermore, there were some 60,000 vacant rental properties across the country in August last year, accounting for 6% of the unoccupied stock.

Our recent work suggests that that one in every 200th renovation is big enough to exclude occupation for a period of time.  So, this means around 50,000 dwellings could be unoccupied, which represent another 5% of the total.

Therefore, in total ‘sales, for lease and renovations’ account for about 210,000 unoccupied dwellings or roughly 20%.

So, what makes up the 70% or 700,000 unoccupied dwellings?

It short these are investment properties that are locked up rather than tenanted.

Table 2 shows that many of the unoccupied dwellings are in our capital cities and especially in Sydney and Melbourne where more apartments are in the dwelling mix and the proportion of overseas buyers, especially from Asia, and particularly from China, is the highest in the country.

Consequently, and in summary, it is somewhat safe to say that something like 70% of the unoccupied dwellings across Australia are deliberately locked up.

Assuming past immigration levels return then there is a need to build some 150,000 new dwellings across Australia each year.

If we could unlock these 700,000 empty homes, we would not need to build a new home for 4.5 years.

Whilst that is fantasy land, any move that opens these locked up digs will go a long way to improving short-term dwelling supply.

Now let’s turn our attention to empty bedrooms.

Empty bedrooms

Table 3 suggests that three quarters (77%) of our dwellings have one or more spare bedrooms.

Homeowners without a mortgage (who are usually older) have the most spare bedrooms (91%) whilst those renting have less.  Yet some 74% of renters say they have at least one spare bedroom.

A bedroom in this case is one which is large enough to fit in a double sized bed and has a window and/or direct access to natural light.  Typically, the room dimensions are at least 3 metres x 3 metres.

Table 4 shows that 84% of detached houses have a spare bedroom, whilst just half of Australia’s apartments have one or more underutilised bedroom.

Both tables indicate that some 13,600,000 bedrooms across Australia are unoccupied when it comes to someone sleeping in them on a regular basis.

If two people, on average, share one of these spare bedrooms – they could hold two single beds – then these underutilised bedrooms could house Australia’s entire population.

Wow!

End comments

The increase in vacant dwellings and empty bedrooms is also a global trend.

The value of housing is no longer based on its social use.

Housing, in many western countries, has become a financial vehicle, and in markets where capital gains outweigh rental returns, homes are increasingly left vacant.

Australia has plenty of spare housing capacity.

We should be looking to implement some rules – both carrots and sticks – to better utilise what we have already got.

Harder economic times and a much slower real estate market will do some of this heavy lifting, but I think we need some new hard legislation to encourage investors to seek tenants.  This is especially the case when it comes to overseas landlords.

A stiff ‘empty’ annual land tax could be applied.

I am thinking something like 2% for Australian owners and 10% or higher for foreigners.

I have advocating – No Passport, No Buy – for some time when it comes to private housing, but if we are going to continue to sell off the farm, then lets at least get tough regarding occupancy.

Private housing should be for shelter after all.

Two things

1. Two June play lists

You lucky peeps.  Well maybe not.  Sadly, more than a few told me that my May playlist was the best thing I have ever published.

Listen to my June playlists here.

2. A few seats remain

There are a few Master Class seats available for my next Brisbane workshop on Friday 14th October.

Go here to secure your seat/s.

House prices: The next five years

Yeah, yeah interest rates are rising.

When they do, they negatively impact buyer confidence, which in turn usually lowers economic activity such as property sales.  If real estate listings remains steady, or worst still, rise, then housing values can fall.

I don’t know about you, but it seems that every time Philip Lowe opens his gob these days another property commentator or economist announces more babble about dwelling price forecasts.

All I know is that – after about 30 years of analysing the housing market – changing interest rates influence the pace of price rises or falls rather than how far they lift or decline.

I do believe that when looking at where housing values may settle, it is best to use household income as the benchmark.

My table this post shows potential sustainable detached house prices for Australia and the eight capital cities.

The results are based on six (6) times median household incomes for each location.

Importantly the 6x variable is not based on all households, but those households with a mortgage as at early 2022.

One could argue that 3 to 4 times household income is a better ‘affordable’ or ‘sustainable’ housing price gauge.

Well, that used to apply yonks ago, back when the world was flat, one used to bribe the local bank manager to get a home loan, interest rates were in double digits and your job was for life plus bound by a straitjacket.

Let’s just say that today’s world is different.  Think loan brokers, loose accounting, the bank of mum and dad, low mortgage rates and work gigs rather than being a salaryman etcetera.  Sorry ladies!

So based on 6x household income, Australia’s house prices look to be about 11% overcooked.

Some areas are worse than others – think Sydney, Melbourne, Hobart and Canberra.

Whilst others appear to be near ‘fair value’ such as Brisbane and Adelaide.

Darwin and Perth look underdone.

It is not to say that Perth is going to boom or that Sydney house prices will fall in a massive heap.

All I am trying to do is to provide some logic as to where housing values might settle in the medium term.

Postscript

I am often asked what I think housing is worth.

My reply is always given from the bird’s eye perspective and for yonks that reply been somewhere between 5x and 6x times relevant household incomes.

I have used 6x household incomes in this post, as I think things economic downunder aren’t as bearish as many are suggesting.  Overreacting yes.  Bullish no.

But if you wanted to use 5x household incomes, then, on average, Australia’s house values are about $170,000 or 16% overcooked, suggesting a ‘sustainable’ median house value of around $900,000.

My chart shows what I think will happen over the next five or so years and what such a change looks like over the mid-to-longer term.

Housing demos by tenure + more

There is little surprise that most homeowners are either couples or live alone as they are typically older Australians.

Many who own their home outright live in a detached dwelling and most pay less than 25% of their gross household income towards housing costs.

See table 1.

Table 1 also shows that many Aussie households with a mortgage have dependent children.

They are also middle aged, live in mostly detached houses and only 17% pay, on average, more than 30% of their gross pay on housing costs.

In contrast, Australian renters are more of a ‘mixed grill’ when it comes to household type, with private long-term tenants skewed towards a younger demographic than owners or mortgagees.

More renters, these days, live in something attached rather than detached housing.  Over one third of tenants reside in an apartment.  See chart 1.

Also, of note – revisit table 1 – is that close to a third (31%) of renters pay more than a third of their wages on the cost of their abode.

And whilst this has been the case for the last five years the situation is likely to get worse as vacancy rates tighten due to the return of immigration and as new building starts tightened.

Chart 2 shows that more tenants have been ‘renting’ from family and friends in recent years.  As rents rise many more renters will be forced to either boomerang back home, share with other tenants or accept much lower digs, assuming they are available.

Some of my contemporaries have been suggesting that one reason for the decline in the rental vacancy rate in recent years is because more renters are either living alone or in a couple situation.  They say that Covid drove this change.  But the latest housing occupancy survey shows that there has been no change in the average private rental occupancy rate of 2.6 per dwelling.

A lack of investment in new rental housing is the main driver for the decline in available rental space along with many investors deciding to keep their dwellings vacant.  

Whilst some landlords have opted to list on the short-term rental market via Airbnb most have opted for capital growth over a rental yield and in some locations, investors were put off by the state/territory government pro-renter Covid-related prescriptions and memorandums.

For mine, investors are better off buying a dwelling that is designed for tenants to share.

In summary it is renters that are really facing housing affordability issues.

One of Labor’s better policy suggestions is their “Help to Buy” scheme, which should help renters get into the housing market, with a 40% government down payment assisting buyers.  Ten thousand starts have been allocated in the first batch.  This is one way to lift the amount of available ‘public’ housing.

Outside of the mid-1980s renegotiation of the Commonwealth-State Housing Agreement (CSHA) by the Hawke government – which helped lift new housing starts by over 50% over the next two years – and the GFC related emergency funding provided by the Rudd government, charts 3 and 4 show that there has been a massive decline in the amount of public housing provided across Australia in recent years.

Building more public housing is one way to increase housing supply without adding fuel to dwelling prices and weekly rents.

There is some debate as to if the 10,000 “Help to Buy” spaces will actually be taken up.  I hope that they are, because as shown in chart 3, there is a need to at least repeat this volume of new public assisted builds on an annual basis.

Ideally, 10% of Australia’s new housing starts should be in the public space each year, which means about 15,000 ‘public’ new homes per annum.

Also, a topical concept at present is taxing Airbnb as per the Brisbane City Council’s latest budget.  Such moves should be popular with some residents but will do very little to switch landlords back to leasing to long term renters.

Another current notion is replacing stamp duties with higher land tax.

Stamps are ridiculously expensive, reduce housing affordability (at the time of purchase, where it matters most) and stops mobility.

Having an option to either pay stamp duty on settlement or pay a higher annual land tax is a good idea and one, if enacted in NSW, is likely to spread across the country.

There is little doubt that a lot of households don’t move – either to downsize or to a new area for work/lifestyle – because of the high cost of selling and buying.

Regulating real estate agent’s selling fees to a maximum set amount regardless of sale price – something like $10,000 – would also help.  These days the digital property promotional platforms do most of the heavy lifting.

And real estate types please take a breath before shooting me a nasty email.

As I have written about many times before making it easier to build would also help with rental affordability.

Australia’s planning rules are highly restrictive (now that’s an understatement!) and favours “nimbyism” that really only serves those that own a home (or are paying one off) over those that wish to become owners.

We need a lot more “missing middle” in our capital cities and major regional towns too.

Finally in this space – of increasing supply without boosting prices – more housing co-operatives should be provided.

Here residents are either members (i.e., renters) or joint owners.  It is all about providing housing and not wealth creation.

Over 20% of Sweden’s housing is via co-operatives.  In Norway is it 15%, with 40% of Oslo’s housing supplied this way.

Build to Rent is a general move in this direction.

Housing investor demographics

About two (2) million or 21% of Australian households hold an investment property.

The number of housing investors have increased by 240,000 or 13% over the last five years.

Of the two million investor households, some 68% hold just one investment property, whilst 20% hold two.

When looking at the total 9.7 million Australian households, 14% hold one investment home, 4% hold two, 2% hold three and just 1% or 87,000 households hold four or more investment properties.

About half of the growth in investment households over the last five years, has been in households holding two investment properties and another 25% of the lift has been in households holding three investments.

Our table this post shows that homeowners hold 80% of the investment properties and 20% of renters hold an investment property.

Not surprising, housing investments are mainly held by older residents.

Many investment properties are estimated to be worth around $500,000, yet there is a wide range in appraised values.

Also, numerous property investors live in New South Wales (32%) and Victoria (29%).

One thing that was a surprise in this recent ABS release – and it is something that they haven’t monitored before – is that around 29% of investment properties are not rented out.  They are sitting there vacant.

So, whilst there are about two million investment properties across Australia (as at 2020) only 1,442,000 hold tenants and a big 577,000 are sitting vacant.

Somewhat amazing is that 170,000 of these 577,000 vacant investment properties are held by renters.  This implies that 42% of the investment properties currently held by those renting are unoccupied.

This goes some way to explain why vacancy rates have plummeted in recent years.

As I have written about before – and especially assuming that these figures ring true (remember they are the results of an ABS survey) – something should be done to discharge these under utilised homes.

A stick could work.  An annual tax or separate charge for empty homes are two examples.  But maybe a carrot would be better.  A tax break or rental supplement maybe.

Yet, once price growth slows down and even reverses for a time, then maybe these landlords without a tenant will seek a rental yield instead of relying solely on capital gains.

Rising interest rates should also see more investors seek a rental return to help cover holding costs.

Recent buyer demographics

The latest statistics from a great ABS series titled housing occupancy and costs have just been released.

Over the next couple of weeks, I will feature some of the key findings with you.

Two tables and two charts are included in this post.

Some observations from table 1 include:

  • There were 1.1 million Australian dwelling transactions during 2020, of which 14% were for new homes and 86% for established abodes.
  • There were some 9.732 million households across Australia in 2020, so some 11% of households either bought, sold, and moved or bought an additional home that year.
  • First home buyers accounted for 37% of the sales, whilst changeover buyers, 63%.
  • The average price paid was $700,000 (remember these statistics cover fiscal 2020) and the average equity held buy all buyers was 52%.
  • According to the ABS first home buyers had a 35% equity stake in their purchase, whilst changeover buyers held a 60% share of the dwelling’s worth.
  • Buyers are paying a premium – ranging from 7% to 12% – for a new dwelling when compared to something established.

My end note here is twofold, firstly if this equity stake has remained stable since 2020 – and in contrast to recent media comments – recent buyers should be okay if (when) housing values take a bit of a slide.

And secondly, due to material shortages and rising labour costs, new homes over the past two years have become more expensive, making established digs (to many I would suggest) better value for money.   This in turn will contribute to a fall in new housing starts over the next couple of years.

My observations from table 2 are:

  • Somewhat surprisingly 65% of recent changeover buyers have a mortgage.
  • About half of the recent buyers live in a family household; whilst 30% are couples (with no dependent children) and 19% live alone. Lucky buggers!
  • Detached houses are still the most popular housing purchase for changeover buyers (75%), less so for first timers (67%).
  • Nearly all first home buyers are aged between 25 and 44 years, whilst the majority (61%) of changeover buyers are over 45 years old. Some 23% of changeover buyers during 2020 were over 65.

My end comments include that it isn’t maybe that surprising that buyers have been taking advantage of record low interest rates.  Chart 1 shows that homeowners with full equity have been in decline for some time.

Whilst detached housing remains the preferred dwelling type across Australia, there have been clear trends in recent years – due often to the rapid rise in detached house prices – that more first home buyers are opting for something attached instead.  Apartments seem to be an increasing choice.  See chart 2.

…..

My May 2022 playlist is below.

50 songs that I have liked listening to this month.  The usual caveat applies being some tunes are new, many old.  No rhyme or reason for their inclusion, playlist order or genre.

…..

Home buyers

Another stocking filler this week …. busy, busy, busy with consultancy work.

The table shows fewer first home buyers in the mix.  Accelerating dwelling prices has made buying a home expensive, and now with rising interest rates, prohibitive.

For mine – and despite what government incentives are on offer – first home buyers’ interest will decline further over coming years.  Many buyers, including first timers, brought their buying decisions forward over the past 12 to 18 months.

It is not until we see immigration rise – and then only after a few years of elevated overseas migration – will first home buyers rise up the pecking order.

Investment interest is largely steady, with a 20% market share of the established market and 30% of the new housing space.

One of the things further exhausting the rental housing supply is that some 50% of the homes listed for sale across Australia at present are being sold by investors, whilst investors represent between 20% to 30% of buyers.

This dislocation is more noted in regional markets, where investors represent some 75% of those selling, yet investor buyer interest is much lower, at around 35%.

Little wonder regional vacancy rates remain tight, and in many locations, are still falling.

Finally, it is not surprising to see more expats and foreigners in our buying mix.

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