Matusik Missive

I started 2021 off by writing a series of ‘stuff worth knowing’ posts, they appeared to be popular with a number of peeps asking me for more.  In typical fashion it has taken me some time to respond.  But better late than never.

This week I cover the south east Queensland land market.

Four tables and three charts accompany this missive.  They are located at the end of my summary.

SEQld land market summary

Even when factoring in Covid’s impact, south east Queensland’s population growth rate is expected to increase over the next five years to average around 38,000 new residents per year.

As a result, there is a need to build some 14,500 new dwellings each year across the region, of which I estimate around 10,000 will need to be for detached dwellings.

Table 1 shows that most municipalities across south east Queensland do not have enough land supplies to cater for this demand, with only two local council areas having enough potential supply over the next five years, being Logan City and Lockyer Valley.

Chart 1 shows the interplay between underlying housing demand and dwelling registrations.  For mine, the most accurate measure of actual new housing supply is a dwelling registration.  This happens when the property title is transferred from the developer to the buyer and takes place at settlement.  Housing registrations across south east Queensland are well below underlying demand.

The undersupply of new housing, especially detached housing supply across south east Queensland, is now critical, with only 36 land estates releasing more than 50 allotments during 2020.  See table 2.  This is down from 62 similar sized land releases three years ago, and an alarming 93 comparable land estates in 2017.

As a result of increasing population growth (coupled with low interest rates/easy credit and various government incentives) land sales are increasing across south east Queensland, but with tight supply, land prices are rising too and sharply.  See charts 2 and 3.

Table 3 shows that some 17,000 urban allotments sold across south east Queensland during financial, which is up from 11,500 sales the year before.  The median urban land price across the region now exceeds $300,000; the median urban lot size is 425m2 and the median price of land on a per square metre basis is $710.  The median price of a new house and land package is close to $600,000.

And in conclusion, Table 4 shows that there is now little new land development that supplies allotments over 600m2.  The supply of new land sized over 1,000m2 is particularly tight.

Supporting information

Dual-occupancy detached housing provides two separate residences on the same titled allotment.  A main residence and an ancillary dwelling are supplied, in which the ancillary or secondary dwelling is smaller than the main residence.

Typically, up to five bedrooms and between two and three cars (on site) are permitted in a dual-occupancy detached house; with the ancillary dwelling having one or two bedrooms.

Whilst they should, in my mind, be the same everywhere, planning regulations vary amongst local councils across Australia.  This lack of conformity (with very clear guidelines) is holding back the creation of this important dwelling stock.

At present one in five of Australia’s households hold two generations and some ten percent hold three generations.  These figures are expected to rise to around 25% and 15%, respectively, within the next decade.

Yet the supply of housing that caters well for multi-generational and multiple tenants is in short supply.

Our work suggests this demand could be as high as 25%, yet, we estimate, less than 5% of Australia’s existing housing stock successfully caters to this market.

For investors, dual-occupancy product already shows a much higher return than most other housing types.  More people are sharing accommodation and a key to getting a better rental yield is to hold property that facilitates sharing.  Two sources of rental income are often better than one.

For owner-occupiers such dwellings appeal to multi-generational households.  This product also appeals to first home buyers and empty nesters too.

Future housing demand

What does the future hold?

Our work suggests that demographics play a vital role in shaping future housing demand. So what does Australia’s demographic shape look like over the next decade?

Two demographic segments are set to feature, ageing Baby Boomers and Millennials.

Most ageing baby boomers look to downsize/retire in their local area.   But many are not that interested in trading in their detached home for a tight mid-to-high rise apartment.  A ‘middle ground’ product is really wanted.

Better still, is one which can accommodate a relative, grandchildren, visitors, a tenant and in due course, a live-in carer.

Millennials, many of whom are now buying their first home, often look for assistance to help pay the mortgage.  Many now take in a tenant.

This younger demographic segment has a different mindset to their parents when it comes to property investing as they understand the pitfalls of sharing rental accommodation and often buy an investment dwelling that properly caters for two or more tenants whilst maintaining a rental premium.

In short both segments like dual-occupancy housing.

Rent and price analysis

Recent analysis by us has found that having a home that is purpose built to hold a multigenerational household or two (or more) tenants can lift the overall properties value by up to 20% and adds around a third more to an investment properties rental income.

Our work when looking at the South East Queensland market, suggests that dual-occupancy homes can achieve gross rental yields between 6% to 8% for permanent tenancies and between 15% and 20% for short-term occupancies.

Plus when looking at recent housing resales – again across South East Queensland – we found that dual-occupancy houses resold for between 12% and 15% more than other dwellings in the same location without a dedicated secondary abode.

Little wonder that the demand for dual-occupancy housing is high and rising. 

Last week I posted about the short-term direction of house prices.

To recap there appears to be a clear relationship – causation not correlation – between the annual change in housing finance (when brought forward by six months) and the annual movement in house prices.

Two tables help outline the short-term future direction of Australia detached house prices, by capital city.

Table 1 shows – and assuming the historical relationship between housing finance and detached house prices hold – that the median detached house price across Australia could be in excess of $1million by the end of 2021.

Table 2 outlines that over the past six months, detached house prices rose by 12% across Australia – and again if the past link between the growth in housing finance and house prices continues – then Australian detached house could rise by $210,000 or as much as 23% between the 30^th June and 31^st December this year.

My comments

House sales are rising whilst stock listed for sale is declining, adding another string to the housing market’s bow.   Lockdowns are giving people time to investigate buying, whilst keeping supply tight.  Loose credit and record low interest rates are adding fuel to the fire.

Crazy stuff!

Earlier this year I posted about the short-term direction of house prices.

There is a clear relationship – causation not correlation – between the annual change in housing finance (when brought forward by six months) and the annual movement in house prices.

Two charts help explain the short-term future direction of Australia house prices.

Two charts

Chart 1 suggests that house prices are likely to surge over the next six months.

In my May post – via chart 2 – I suggested that if the past relationship between housing finance and house prices plays out over the next six months, then it is possible that Australian house prices could rise by 14% for the 2021 financial year and the annual increase could be as high as 25% for the year ending September 2021.

Chart 2 below shows that the annual house price for fiscal 2021 came in at 18.8% (so higher than the forecast 14%) and the annual growth rate for the year ending September is still holding at around 25%, whilst the yearly growth rate for calendar 2021 looks like it could come at around 38%.  Yes 38%!

End note

Despite the rolling lockdowns and talk of a double dip recession the housing market appears to be gaining heat, not cooling.

And as I stated last May too, without much wage growth and persistent local unemployment (and especially underemployment) one wonders how long this can last.  Also, one must ponder when APRA and the RBA will step up to the plate and slow this down.

To reiterate that won’t happen this side of a federal election.

Yet a lot has happened in the last three months and given recent events, the federal poll looks like it will be now held at the latest possible date – late May 2022 – rather than in 2020.

So, the good times – housing market price wise – look set to continue for a while longer.

Next week, I will post part 2, looking at possible short-term price growth by capital city.

I recently heard the Australia Census labelled as the People’s Olympics.

I think that is a good description, as it is us self-reporting, standing up and being counted.  It is an important event, not only for folks like me who use the information to help make a crust but also because we are telling the government who we are, where we live and what we do.

This Census will be a bit different – given all the Covid stuff – and some longer terms trends, well established from previous counts, might appear to be broken when the 2021 results come out sometime in late 2022/early 2023.

I have written about these trends before.

I do think that the 2021 Census will throw up a fair bit of ‘noise’ in relation to many of these trends, but future counts are likely to see many of these tendencies snapback to their longer range leanings.

Less renters

For example, one thing the 2021 Census is likely to find is that the proportion of people renting across Australia has declined since 2016.  This goes against the longer term trend.

Recent survey work by the ABS shows that during calendar 2020 the proportion of Australians renting fell from 32% in late 2019 to 27% in late 2020 and the ratio of owners with a mortgage rose from 33% to 38% over the same period.

On one hand this isn’t that surprising given record low interest rates and several government incentives – like HomeBuilder – to encourage first home buyers, in particular, to borrow and build a new home.

Yet on the other mitt, this is somewhat strange stuff when you think that during 2020 Australia experienced its first recession in yonks – forced as it was – and that business and consumer confidence was low.

I also believe that many of these new first home owners once they have lived in their new home – which more often than not is located in the outer suburbs – for the required time period as specified in the relevant government stipend will then rent that dwelling out and move back either with mum and dad or go back to renting closer to town.

Why?  Because builders and land developers tell me that a quite a few of these new home owners, on settlement, start asking questions about mandatory occupation time frames and how much rent their new home would achieve.

A few Australian home builders have insinuated to me that this percentage is a high as 50%.

Living alone?

The latest ABS data suggests that one quarter of Australians live alone.  Past censuses indicate a similar proportion.  This census will most likely show a similar result.

Yet I believe that this is an overcount, as a lot of people designate that they live ‘alone’ but really, they live ‘independently’ from others in a household.  They don’t have a binding relationship with others in their abode at the time of the official count.

On the flip side the proportion of multi-generational households and group living is undercounted.  This is especially the case when it comes to rental accommodation.

The number of cars parked in city streets suggests that there are more people per household than the official statistics suggest.

For mine, we are more crowded house than an empty one.

Final comment

I do fear that 2021 will be one of our last census counts.  Other countries have dropped their official counts and replaced the data set with other measures.

True these other measures are often timelier, sometimes more accurate (take household and personal income as an example) and appear less expensive that doing a full domestic count.

The 2021 census is estimated to cost $300 million.

But the alternative to doing a count – remember it is us telling the government who we are, where we live and what we do – is the government sampling us and then telling the electorate who we are and what best to do.

The census is transparent and mostly accurate whilst any replacement is very likely to be opaque at best and stacked sky high with hidden agendas.

As a case in point, just look at Palaszczuk’s use of focus groups to help determine Queensland’s Covid reaction and extent of restrictions rather than qualified medical advice.  Moreover, despite footing some $528,000 for such research (to date) the public cannot view these results.

The Queensland premier of course isn’ Robinson Crusoe when it comes to such spurious acts.

Surely, we have enough fake news and marketing spin without adding more fuel to this fire.

Also, such action sets a dangerous precedent – if we replace counts with sampling or target focus groups – then why have elections if a sample of voter intentions is cheaper, timelier and more deemed more accurate than actually going to the polls.

We should insist that Australia keeps the People’s Olympics.  They should be held every five years too.   For mine they are one government expense worth their weight in gold.  Well silver maybe.

This week I have looked at the perceived constraints on new housing development.

I have used the information from the NAB quarterly residential property surveys – and with some estimates on my part – have compared the survey results between mid 2019 and mid 2021.

Between 350 and 370 property industry panellists participated in each residential survey.

I have included three tables in this post.

Table 1 shows the constraints on new housing development have increased over the past two years.

Please note that the higher the number in table 1 the larger the perception of constraint; with scores ranging from 0 (no or limited constraint) to 100 (highly constrained).

Table 2 suggests that the bigger increase in new housing constraints have been felt in Western Australia, South Australia and then Victoria.  It isn’t a coincidence, in my mind, that these states had the largest uptake of HomeBuilder applications when viewed on per capita basis.

Table 3 indicates that the biggest change in constraints has been in the labour market, site availability and construction costs, all of which have been influenced by a rapid rise in demand brought about by HomeBuilder and to a lesser extent a relaxation in credit compliance.

End note

HomeBuilder was a successful programme, it helped lift housing demand when that demand should have been falling, due to restrictions on immigration.

But such government incentives distort the building cycle, often leading to a boom-bust scenario.  Domestic demand has been brought forward and in coming years we have likely to see a contraction in new housing starts.  How large that reduction is depends on when, and by how much, overseas migration returns and if any further construction incentives are offered in the lead up to the federal election.

A noisy wheel gets the most grease and the housing industry and associated businesses have a big microphone, so I expect it will be back to Big Australia and more building related handouts sometime in 2022.

If you are hooked on the 2032 Brisbane/SEQ Olympic palaver, then maybe quit reading now whilst you are ahead.

For those that don’t easily swallow the bunkum, read on.

…..

My headline comments

For mine such major sporting events are an absolute waste of money.

The 2032 Olympic Games is also very, very unlikely to leave a lasting legacy.

And the next ten years of Olympics-related development – Queensland’s so called Golden Decade (oh Lord please give me a break!) – doubtfully will deliver anything special; let alone supply what is really needed; nor should it lead to above average Brisbane centric asset growth.

Why?  Because such past events like this hardly ever do.

Some statistics

But wait just a minute, there is a report which says that the estimated economic and social benefits of the 2032 Games is projected to around $8 billion for Queensland and $18 billion for Australia.

Yes, there is such as report but did you know that this impact is based over 20 years – between 2022 and 2042 – and more than half of this illusionary $18 billion figure is for things like civic pride, better health due to exercise, self-improvement from volunteering and even ‘retained expenditure’, in this case, the assumption that Aussies around 2032 won’t travel overseas but will stay home to attend the Games.

I kid you not.

Past studies have found that there was only a moderate increase in adult sport participation post a Summer Olympics – and that this didn’t last long – and when it comes to the winter event, and also Commonwealth Games, there was no evidence that the event boosted adult sports participation in the area that hosted the sports event.

We also now have the politicians telling us that the Brisbane Games will create around 120,000 new jobs.  Well, that figure is also over 20 years, and sounds less impressive when you consider that by 2042, Australia is likely to have an extra six million more people employed than now.

A 2% potential job impact doesn’t have the same ring to it does it?

Talk about hyperbole!

But wait there is more.

And just like every other urban region that has invested heavily in hosting a major sporting event or its equivalent over the last couple of decades, this event will most certainly lose money.  Probably a lot of money and much more money than most realise.

A review of the 19 past Olympic Games, covering both the summer and winter events and stretching from Grenoble in 1968 to Rio de Janeiro in 2016 found that the average cost overrun was in the tune of 120%.

The Sydney 2000 Summer Olympics saw a cost overrun of 90%.  Furthermore, the Sydney event – which was fun to watch and no doubt a positive experience for those that were involved – generated about a $2.1 billion loss in real terms.

That’s a very expensive two week holiday if you ask me.

With such a poor batting average it is very unlikely that Brisbane will hit the ball out of the park.  In fact, based on past evidence Brisbane is very likely to eclipse the 120% average and by a long shot.

My two bobs worth

Moreover, I think that we – being the ‘West’ and especially, Australia, of late – have now reached a stage where the quote “Give them bread and circuses and they will never revolt” by Roman poet Juvenal, applies.

During the last stages of the Roman Empire, the government kept the Roman populace happy by distributing free food and staging huge spectacles such as gladiator contests in the Colosseum.

In the modern political context, the phrase means to generate public approval, not by excellence in public service or practical policy, but by diversion, distraction or by satisfying the most immediate or base requirements of a populace — by offering a palliative: for example, food (bread) or entertainment (circuses).

Replace ‘food’ with welfare; subsidies; wokeness; even artificially low interest settings and you get the drift.

We are now so hooked on this stuff.  We were once a stoic brunch.  Not anymore.

Imagine if the Olympic monies (and importantly the time and effort) was spent on things that would really make a difference to the city and its local residents.

Some suggestions include:

• Bridging Brisbane
• Providing more greenspace
• Making the city function better
• Creating more 21^st century specific jobs
• Enhancing walkability

And whilst outside of my purview, our education, taxation and even health systems need a major overhaul.

The real lesson here

Yet despite volumes of documented evidence to the contrary why do cities and nations keep pitching for these things?

There are several reasons why.

• Powerful people will benefit.  High profile projects attract vendors, businesses and politicians that seek high profile outcomes.
• The project is specific.  Are there other ways that Brisbane/SEQ could effectively invested the money? Revisit my short list above and the answer is yes, without a doubt.  But there’s an infinite number of alternatives – with numerous agendas and many vested interests – versus just one specific goal.
• The project has a rigid timeframe.  It’s imminent. You can’t study it for years or a decade and come back to it.  You are either in or out.  It’s yes or no.
• The end is in sight. When you build a stadium, you get a stadium.  When you host the Games, you get the Olympics.  That’s rarely true for the more important (but less visually urgent) alternatives, such as actually making the city better.
• Patriotism’s at work. “What do you mean you don’t support the city?”

As I wrote a few years back, the big takeaway here is to understand that an economic argument as to why the hosting of the Olympics shouldn’t happen is a waste of time.

It won’t change the decision maker’s minds.  It will get no purchase with the masses.  The media might run a few stories about the counterpoint but only really to be seen as offering a balanced view.

But we can learn a lot as to why such campaigns get traction and succeed.

Enough said.  I won’t waste anymore of your time.

The top end of town just keeps getting stronger, if table 1 is any indication.

The Covid19 pandemic, along with the current monetary, fiscal and tax settings in Australia, have been kind to those who own property and especially many in the baby boomer cohort.

Many of these wealthy baby boomers are looking for a better housing solution.

Table 2 shows that there are some 200,000 millionaires currently living in Australia, with 3,200 of them worth over an estimated $US30 million.

But it isn’t just the domestic market that is active at the top end of town, overseas buyer interest is on the increase too.  This can be seen by the lift in the proportion of international apartment buyers over the last twelve months.  Many of these ‘overseas’ buyers are expats, keen to come home once restrictions are lifted.  See table 3.

This really isn’t that surprising given the relative value of top end housing downunder when compared to overseas. Table 4 clearly shows this differential.

End note

I expect a continuation of the recent overseas buyer trends, if not a heightened level of overseas buyer interest from expats and other overseas residents who view Australia has a ‘bolt-hold’ against future potential pandemics.

I have undertaken a lot of consultancy work on the Gold Coast over the past three decades – yes, I have been doing this stuff for that long! – and as part of recent project advice commissions we have been asked about the long term housing cycle and the interplay between Sydney and Gold Coast dwelling prices.

So, this post I unpack the past and give my two bobs worth on what I think will happened on the Gold Coast over this property cycle.

Four charts are included.

Charts 1 and 2 show that the Gold Coast housing market is a cyclical one.

Typically, a sales-related housing cycle in Australia lasts around seven years.  The Gold Coast follows this trend.

At present detached house values are rising by 20% per annum and attached dwelling values are increasing by 10% on a year to year basis.

Charts 3 and 4 shows that there was little difference between housing values in Sydney and on the Gold Coast in the mid-1990s and in the late-2000s.

At present the difference in Sydney’s indicative house price is 40% more expense than on the Gold Coast.

Whilst the GFC is somewhat to blame for the Gold Coast’s poorer performance in recent years and Sydney’s price growth has been lifted by Australia’s elevated overseas migration intake over the last ten years, history suggests when the right circumstances present themselves, Gold Coast housing prices come close to matching those being achieved in Sydney.

Synopsis

It would appear that the Gold Coast is at the starting phase of another housing upswing.

I believe that a similar growth curve as to what was experienced between 2001 and 2008 on the Gold Coast is likely to transpire over the course of the current housing cycle.

In addition, I think that due to reoccurring Covid19-related events interstate; coupled with the Gold Coast’s scaled up urban size; quality infrastructure provision and future housing market parameters (tight supply) the Gold Coast is likely to see its dwelling prices start to rematch Sydney’s over this course of this current housing cycle.

Peaks head north?

Earlier this year I wrote a missive titled Bust?

That post held a long range chart that I cut and pasted from an academic study by Nigel David Stapledon from the Australian Business School of Economics at the University of New South Wales.

That chart was close to a decade old.

Many asked me if I had an updated version and when I posted a precis of the Bust? Missive on LinkedIn – with a copy of the Stapledon chart – LinkedIn told me that my post was trending big time and I was in the top 1% of viewed articles for that week.

Well, that’s as close as I get to celebrity these days.  Yet there must be something about the chart that appeals.

So, this post I have updated this information and have included three charts.

All three charts cover median house prices from 1881 to 2021 for the relevant aggregated Australian capital cities at the time.  In each case the charts show real house prices in 2021 dollars.

Three charts

Chart 1 outlines that key drivers that have influenced the housing market over the past 140 years.

In real terms (2021 dollars) the median house in an Australian capital city was worth $59,250 in 1881.  Today’s median capital city house price is around $750,000.

For those interested the median house value in current terms in 1881 dollars (when converting from pounds) was $870.

 

Chart 2 shows the time periods between each market trough to market peak and the annual compound growth in current and real (2021) terms.

In current terms median house prices have grown by 5.9% per annum on a compound basis since 1900.

Interestingly, when taking inflation into account, this compound rate drops to just 2.2% per annum between 1900 and 2021.

Chart 3 illustrates the time frame of each previous stagnation period since 1881.

End note

My update further confirms my thesis.  To reiterate:

We are likely to see house prices lift by 25% to 30% from trough (2019) to peak this cycle (2022), which will translate (in current terms) to between 7% to 8% per annum on a compound basis.

Alternatively based on estimated 2023 dollars – and assuming an anaemic rate of inflation between now and then – such growth would convert to between 5% and 6% per annum in 2023 dollars.

The recent change in house prices appear spectacular and is does compare well to the long term average.  But assuming my forecast rings true, then the likely annual rate of component growth (in both current and real terms) will be in line with recent market recoveries/upturns.  Revisit chart 2.

Of course, a higher rate of inflation in coming years would result in less real compound annual growth.

I also believe that after this market peak, the housing market (price wise) is likely to settle into a somewhat long period of stagnation.  Although the stagnation time periods have been shortening over time – revisit chart 3 – here appears to be little left in the tank to help drive future house prices.

I do think that the next price plateau could be as long as a decade.  Maybe even longer.  History shows that such a period of inactivity does happen.