What Makes A Housing Boom?

Property spruikers are at pains to outline that because one area is cheaper than another, it must be a better buy.  Take Sydney versus south-east Queensland (SEQ), for example.

Some folks have been calling for – and still are – a SEQ real estate “boom”.

Yet, the latest figures show that dwelling values have risen by about 14% across Sydney and Melbourne over the last 12 months and, despite “boom” calls over several years now, SEQ’s annual growth rate remains well below the rate being experienced in our two largest cities.

It’s true that much of SEQ is in a better position on the property clock than Sydney and Melbourne, so things should continue improving.

It is also true that SEQ typically follows the Sydney/Melbourne cycle and receives buyer interest from down south due to price and rental yield differential.

But is it realistic to label SEQ as Australia’s next “boom” area?

What makes a market boom?

Let’s look at a few of the things that we think need to be happening before a place “booms”.

Population growth

First of all, the “boom” area has to be expanding.  More people should want to live there.  Population growth should be expanding.

Whilst SEQ’s annual population growth is improving, net interstate migration to Qld is still lacklustre and is very unlikely to bounce back to the levels seen during the late 1990s-early 2000s.

Why not?  Because Queensland, and many parts of SEQ, are not creating enough new jobs.

Employment growth

The second thing that needs to happen for a place to be labelled a “boom” town is that jobs, and lots of them, are being created.

Yet the baton change from mining to non-resource based employment is having a negative impact on Queensland’s economy.

Sydney and Melbourne are creating, and are projected to continue creating more new jobs than SEQ.  Sydney and Melbourne’s continued residential performance is being helped by these new jobs.

Resource-based jobs – in fact, lots of them – were being created in the early to mid-2000s, which was the last time the Queensland residential market went through a residential “boom”.

Tight supply

Also, housing supply – both existing and new stock – needs to be in tight supply before a residential market can “boom”.

Whilst undersupplied a few years back, some parts of SEQ are already struggling with its level of new and resale residential supplies.  The region’s vacancy rate is increasing; rental growth is now flat and the amount of stock for resale is on the rise.  This is especially the case for inner Brisbane apartments.

In simple terms, an increase in supply does place a cap on potential price growth, plus how far rents can increase.

Unvalued housing

Our experience is that housing needs to be a “steal” at the start of a potential “boom”.

Whilst SEQ values are less than Sydney’s and Melbourne’s, housing isn’t cheap in SEQ, when measured against local metrics – housing costs are far from a “steal”.

It was much cheaper to buy or rent in SEQ in the late 1990s/early 2000s – the last time this area experienced “boom”– like conditions.

Right demographic mix

Finally, an area needs the right demographic mix in order to help fuel a “boom”.

SEQ is facing a large demographic shift over the next decade or so.  In short, this shift involves an increase in the size of the downsizing and early retirement markets, with a contraction in the number of households upgrading their housing.  Also, fewer young people are moving to; or staying in; Queensland in general.

As people age, they spend less, not more, on housing.  Fewer upgraders in the demographic mix places a natural break on generic dwelling price growth.

The SEQ demographics were quite different 15-odd years ago – i.e. the start of SEQ’s last “boom”.

Households upgrading were a dominant market segment back then, helping to drive home prices higher, as this buyer group spent money in anticipation of future earnings; and as they tried to outdo “the Joneses” next door.

This was pre-GFC.  Post that event, quite a few older SEQ households are still licking their financial wounds; most remain cautious and are reluctant to start a house price bidding war.

X Factor

There is always something more – beyond the short list above – that drives a market to “boom”.

In Sydney and Melbourne, whilst many still want to deny such, this X Factor has been overseas buying, much of which is indirect, via friends and relatives already living in Australia.

In SEQ’s past, the X Factor was high paying Queensland resource-based jobs.

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