Queensland’s folly

In response to the heading a critic might reply; “What just one?”

But as the newsprint article above outlines the Queensland government – and the industry happy clappers – think that some kind of magic uplift in new housing starts will happen as a result of making it a bit easier for older apartment buildings to be redeveloped by reducing an owner’s right.

For mine all that will happen is that older apartments will be harder to resell.  Pity as many of them are good buys, often being larger than most new product; are usually in good locations and are relatively affordable for buyers and renters too.

The evidence at the end of this post outlines why this development play is really a folly.

Table 1 shows that very few apartments across Queensland are actually demolished to help make way for new housing development.

That might change with the new ruling, but I remain very sceptical as last year just 160 apartments – across the whole state – where removed to make way for a new housing project.

This made up just 3% of the net apartment approvals across Queensland during fiscal 2022.

Charts 1 and 2 outline some 2,750 Queensland apartments – being 23% of the recent apartment building approvals – have yet started.

Taking a longer view Table 2 reveals that some 117,000 attached dwellings across southeast Queensland have development permits for a material change of use but have not yet been built.  This figure was up 7% on last year.

If these dwellings were built some 220,000 additional Queenslanders could be housed.  This would greatly improve the currently tight rental vacancy rate and housing affordability.

Some 48,500 or just over 40% of this unbuilt potential attached housing stock is in the Brisbane City Council area.

One might think it would be better if the Queensland government assisted more approved apartment projects to actually get built.  Lots of potential ways how here.

For mine a practical solution to the chronic shortage of affordable housing across the country – and of course including Queensland – is for the government to build more homes.

Charts 3 and 4 show that Queensland doesn’t even bother anymore.  Just 300 public apartments were built over the past 12 months in Queensland.  This was just 2% of the newly built apartments across the state last year.

Australia should also hang its head here too, as just 3,325 public apartments were built across the country last year.  Yet, Queensland’s market share was a pitiful 9%.

Maybe less money should be paid on unnecessary infrastructure to support once off events like the Olympics and more brass is spent on building more civic housing.

As charts 3 and 4 indicate we have done it before.  Now is the time to start it again and keep it going.

Me thinks that a 15% to 20% annual civic housing target rate would be good policy and politics too.

After all, we are currently dominated by Labor governments.

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Rebased population count #2

Another short post this week.

This week I have explored the impact our regular census survey has on estimated population counts.

I first wrote about this around August last year.

That article looked at the rebased population counts for Australia’s top 50 major urban areas and the biggest changes for LGAs across the country.

Since then, quite a few folks have asked me for a similar list by state and territory and for Queensland suburbs.

See tables 1 and 2 below.

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Rethinking capitalism

Take a few and have a gander at my chart and table below.

Past and current house price cycle

Both displays show the past nine house price cycles across Australia.  The exhibits are timed around the market peaks.

The current cycle – shown in black and red on the chart and inside the light blue box in the table – peaked early last year with a median Australian house sales price of just under $1.1 million.

The median house sales price rose by 21% over the 15 months leading up to the early 2022 market peak – and I will go out on a limb here – and say that I believe the median Australian house sales price will decline by 15% from the $1.074 million peak – dropping to a median value somewhere around $915,000 in the second half of calendar 2023.

Housing values should start to rise in early 2024, and the median Australian house sales price could be close to $965,000 by June next year.  This is still down 10% on the previous market peak.

And it will probably take another year or so for median Australian house sales price to break the $1 million barrier again.

However, others are now stating a 20%; to even a 25%; fall from last year’s peak, i.e., a median house sales price of between $800,000 and $850,000 sometime this year.

If that happens, that will bring median house values back to where they were at the start of this current cycle, being in late 2020.

A similar recoil has not happened before in the other eight cycles illustrated in this post.

What actually happens depends a lot on inflation and interest rates.

Rethinking capitalism

Yet interest rates – this time around – are as much a result of the government manoeuvrers as they are RBA action.

There is little doubt that the current RBA head honcho is on the way out.  For mine the whole joint needs a broom through it and a completely new operation needs to be set up.

The RBA really should only need to meet four times a year and set monetary policy twice a year.  Yes, only two times per year.  Maybe even once.  If they cannot do that then we have appointed the wrong board.

I also think that inflation is here to stay, and inflation target rates need to be set about 1% higher.  So, the RBA target rate should be 3% to 4% not 2% to 3%.

The target cash rate should be between 2% and 3%, meaning that most Australia mortgages are set at 5% to 6% per annum.

The median annual variable mortgage rate over the nine housing cycles outlined above was 6.9%.

By the way, headline inflation somewhere between 3% and 4% isn’t a bad thing.  It has a lot of positives, one of which is helping the government build its coffers.

I do think the RBA, regardless of its future shape, personnel and current jaw boning are likely to only lift the cash rate once or at most twice more before they rest.

I wrote a few times last year that the RBA – nor any other federal bank for that matter – has continued to lift official rates during periods of substantial house price depreciation.

If the federal government really wants to help average Australians – and one really wonders given the federal government’s (regardless of flavour) Sydney-centric view of the world over the past 20-odd years – then they need to look in the mirror.

Tone down the green rhetoric and remove the impossible emission targets; walk back the recent round of union enterprise bargaining; and stop the current spending spree, superannuation grab and other fiscal stimuli.

Also stop incentivising the private sector and especially the likes of the building industry.  All that happens is distortion, which does more damage than good.

Think the FHOG, HomeBuilder Scheme, New Home Grants and even negative gearing plus capital gain concessions.

If you really want to slow down spending, then place the GST on all goods, services and transactions and increase it to say 15% for a set period of time.

Superannuation levies might be set lower and when you sell your home, the longer you live in it, the less you pay in taxation.

It works both ways of course, so when things get tough economically, the GST could fall below 10%, again for an interval.

And while we are at it, why not clean up the Australian tax system.

Here we should have a flat income tax rate of say 20%, across all individuals and private enterprises.  Everyone must pay, regardless of status or wealth.

Negative gearing should go too, over a five-year time period to help with the sticker shock.  When it was removed in the late 1980s, it didn’t lead to less housing investment, lower vacancy rates and higher rents.

A lack of investment lending in the mid-1980s was the real culprit, like it is now.

For mine, financial institutions should not be shackled when it comes to home lending.  If a bank wants to grow its investment lending business it should be able to, without having APRA place annual growth limits on such loans.

And when it comes to the housing market, stamp duties should not exceed say $5,000 per transaction; infrastructure levies should be set at 5% of the sales price and levied at settlement plus real estate agent’s fees should be curtailed to an Australia-wide award system, something like between $5,000 and $10,000 per sale as commission.  Maybe the real estate industry should be on a salary?

Afterall, in most cases these days the digital advertising portals do most of the work.

And whilst I am on a roll, let’s have one building code – with climatic zonal differences – across the country.

Major residential town planning decisions should also be judged by an independent panel of experts, headed always by an experienced builder.  That way we might get the housing that the market wants and can afford.

Now that’s what I call rethinking capitalism Jim.

My current mindset

Right now, the overall market conditions in 2023 looks set to be hard when it comes to the Australian housing market, with official interest rates rising to 3.35% in just nine months.

Yet, the second half of 2023 – to me – looks better than the first half of this year with interest rate rises over and confidence returning to the housing sector.

Leading indicators show that inflation is already stabilising, and when using labour force figures that you can trust, unemployment is rising and sharply.

In short, the recent interest rate rises are having an impact.

I expect the RBA to lift the cash rate to 3.6% – that’s one more 0.25% lift – sometime over the next couple of months and then rest.

Importantly the USA election in early 2024 is likely to have an impact on interest rates – and with all things being equal – the USA are likely to start lowering the target rate in late 2023.

The RBA has in the past followed the Fed when it comes to interest rate movement.

For now, I think that the cash rate is likely to be around 2.5% by the middle of 2024.  That’s a 1% drop from where they are likely to end rise by Easter this year.

And I wouldn’t be that surprised if the first drop – likely in November this year – is a 0.5% fall.

Of course, the usual Ts and Cs apply!

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House price forecast #8

We know that Australian house prices fell 5% during calendar 2022.

Based on recent falls in home lending we are forecasting a 6.7% fall in the median house price across Australia for the year ending March 2023.

And looking further ahead we now expect an 13% fall in median house values across the country for the 2023 financial year.

This is what happens when interest rates rise nine times in as many months and home lending tanks as a result.

In simple terms, if you bought a house in June last year, it could be worth about 13% less by June this year.

As of June, last year the Australian median house sales price was around $1.065 million.

By the end of this June, we think the median selling price would be about $926,000.

That’s a fall just shy of $140,000.

If the RBA keeps lifting the cash rate and the banks continue to pass on the pain, then further falls in selling prices can be expected.

Yet the RBA – nor has any other major western national banking regulator in the past – kept rising official interest rates during periods of rapid (i.e., over 10% per annum) falling house prices.

We are once again entering uncharted waters and I do wonder if the RBA – and by extension the federal government – are up to the task.

And more on that topic next week.

Until then, two charts are included in this post.

Until then,

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Population update

Short and sharp this week.  A data dump really.

Australia’s population growth is returning to pre-Covid levels.  Well, it isn’t quite there yet, but it is unlikely to take much longer.  Sometime later this year if you ask me.

Chart 1 shows that annual rate of Australia’s population growth, whilst chart 2 shows that change on a quarterly basis.

Table 1 outlines that population components by state or territory and also for Australia for fiscal 2022.

Table 2 outlines the annual population growth results for each state and territory over the past five years.

All locales – with the exception of Queensland, South Australia and Western Australia – are currently down on past averages.  SA and WA are on par, whilst Queensland is clearly growing faster at present that it was just a few years ago.

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Top end of town

My last post attracted some questions about my thoughts about the future direction of the top end of Australia’s housing market.

Whilst much of the current slide in median values is due to a slowdown at the upper end of the housing market, this market has a big future.

Five potential dimensions as to why include:

1 – Current sales activity

Table 1 shows that the volume of top end dwelling sales – in this case determined by dwelling sales valued over $2 million – has increased markedly over recent years.

Across southeast Queensland (including the Gold Coast) there were 3,270 $2 million plus dwellings transactions last year.

And the eastern states of Australia (being Queensland, New South Wales, Canberra and Victoria) recording just under 60,000 similar dwelling sales.

2 – Latent demand

Typically, dwelling values for older homes in established suburbs, in our experience, are often 1.5 times to 2 times higher than their unimproved land values.

A recent consultancy gig suggests that – and using a multiplier of 1.5 times and looking at freehold dwellings with an UCV over $750,000 only – that there are between 60,000 and 70,000 freehold dwellings with a potential value over $2 million on the Gold Coast.

Table 1 suggests that there is around 1,300 dwelling sales over $2 million at present on the Gold Coast.

Yet if the right housing product is available the potential sales audience is substantially larger.

3 – Individual wealth

Table 2 suggests that there is likely to be 220,000 multi-millionaires (in US dollars) living in Australia by 2025. The size of the world wealth market is also growing rapidly.

Over the last two decades and helped by the strong housing cycle over the past couple of years, many Australian’s have become very wealthy as they have a combined net housing worth estimated to be $7 trillion.

Furthermore, as more older generations die it has been estimated that some $272 billion will be passed on as inheritance over the next decade.

History suggests that much of this money will be used to upgrade the recipient’s principal place of residence.

This is a potential ‘game changer’ when it comes to the top-end Australian housing market.

4 – Wellness

Australia is the third largest ‘wellness’ market in the world.  Wellness travel in Australia is estimated to be worth $16.5 billion per annum, ranked behind China and the United States.

A recent survey by Global Wellness Institute found that 39% of respondents voted for Australia as being their preferred location for a ‘wellness’ holiday.

Whereas these comments are tourist orientated, world-wide footfalls – and especially those with considerable wealth – are increasingly heading to the likes of Australia, New Zealand, Canada, the UK, the coastal flanks of the USA and Europe.

5 – Overseas interest

The Australian Government’s current population growth is forecast to increase from 0.1% in financial 2022 (Covid impacted) to 1.4% for fiscal 2023.

The latest federal budget estimate of 235,000 net overseas migrants for 2023 is already likely to be surpassed to about 300,000 for this financial year.

Moreover, the Department of Home Affairs has finalised over 2.78 million visa since June last year.  This includes some 90,000 skill work-related visa applications.

End note

A recent global survey of top end buyers by Knight Frank found they want the following things in a new housing development:

  • Luxury amenities and resident exclusive services
  • Lock up and leave options
  • Brand identity
  • Expressive architecture
  • A very high standard of building maintenance/management
  • Above inflation gross rental yields
  • Capital growth potential

We 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 and rising social/political unrest.

New premium dwellings in Australia have the large and growing existing buyer market.  In addition, the size of the latent market is bigger.

Many of these wealthy dormant buyers – including those already living in Australia or overseas – could be attracted to the right housing solution.

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A better mousetrap

One thing that is missing in today’s price point discussions is price range.

Find below three tables which outlines what is going on – by way of example – across the southeast corner of Queensland.

The same lessons apply elsewhere.

When median or more so, average, prices shift there are winning and losers.

Some market segments i.e., price ranges, do better, whilst others do not.

Let’s look at what is happening in each selected market.

Sunshine Coast

On the Sunshine Coast, the house market peaked with a median sales price of $1million in March quarter last year.  Since then, median values have fallen by $90,000 or 9%.

The sale distribution by price range shows that the Sunshine Coast housing market is softest at the top-end and especially for homes listed for sale over $1.5 million.

The fall in asking prices at the top-end is responsible for much of the drop – so far – in the median house price across the Sunshine Coast last year and in particular during the December quarter.

Remember the median house price on the Sunshine Coast was just $640,000 at the start of the Covid pandemic.

The core detached housing market remains strong – being priced between $500,000 and $1million.  This market segment is gaining market share.

Looking forward sale volumes are falling across the Sunshine Coast, whilst listings are increasing.  There is now about 14 months of resale housing supply on the market.

This is likely to see further price falls and especially across the upper end of the Sunshine Coast housing market during the first half of 2023.

Brisbane

The Brisbane detached house market peaked during the June quarter last year with a median sales price of $795,000.   Since then, median values have fallen by $50,000 or by about 6%.

Like the Sunshine Coast, Brisbane’s softest market is also the top-end, and this too has driven much of recent change in median house values.

Some price falls where to be expected given that median house price across the Brisbane region was just $550,000 at the start of the Covid pandemic.  Median house values rose by $245,000 or 44% between early 2020 and mid 2022.

And yet – like the Sunshine Coast – the core detached housing market remains strong.  This market segment is also gaining market share.

Looking forward whilst sale volumes are falling across Brisbane, listings are also starting to decline.  There is just six months of resale housing supply on the market.

If this trend continues the recent house price falls – and particularly for houses listed for sale between $500,000 and $1million – are probably over.

For mine median Brisbane house values are likely to start rising, slowly, as we progress through calendar 2023.

Gold Coast

The Gold Coast also peaked with a median house value around $1million.  Since June last year the median sales price has fallen by just $35,000 or by around 4%.

In contrast to the Sunshine Coast and Brisbane the top end of the Gold Coast housing market remains strong.  House sales over $1.5million are still gaining market share.

The ‘middle’ detached housing market – in this case being priced between $750,000 and $1million – is also gaining market share.

Looking forward whilst sale volumes are falling across the Gold Coast, listings are also declining in a similar fashion to Brisbane.  There is now just eight months of resale housing supply on the market.

With the same caveat as outlined for Brisbane, Gold Coast housing market values are likely to plateau soon and should start to rise during the second half of 2023.

The median house price on the Gold Coast was just $660,000 during the March quarter 2020.  Median house values have lifted just under 50% since the beginning of 2020.

A fuller picture

For mine, any housing market commentary needs to embrace not only median values but the distribution of sales by price range plus the number of overall sales and number of homes listed for sale.

This detail would help give the audience a fuller picture of what is going on.

And 2023 starts with a bang!

 Apologises as I announced late last year that we would be back posting from last Tuesday.  But paid work got in the way.

This year has started with a bang, with five project commissions due before Australia Day.

Three down and two more to go.

This work helps developers, financiers and other involved parties reduce the project’s sales risk.  This is principally done by my firm providing a ‘better market match’.

Our recommendations cover buyer/renter details, product types, design layouts, product sizing, parking + other amenities, pricing, potential rents, market penetration + rates of sale plus marketing direction.

Our work is based on a full basket of intel on the relevant housing market, its future direction and the subject development’s competition.

Why not contact me to find out more.   

We can help you build a better mousetrap.

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What lies ahead?

Click on the image below to download my presentation.

Get your own!

I have given a variation of this presentation many times this year.  Sometimes more than once for the same organisation.  I always make it relevant to the audience, the location and housing typology in question.

Interested in finding out more?

Go here and I will get back in touch with you.

For many in the property game this type of presentation it is a great way to start the new year with your team, clients or prospects.

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Better than expected

Just out earlier today was the ABS’s take on residential sale volumes and median prices.

A data heavy post this week – with six charts and two tables – and for once not that many words.

I reckon you deserve a break.

My only comment is that according to the national statistician Australia’s housing market is holding up quite well despite the rise in interest rates and other household costs.

It was no surprise then that our central bank rose the official cash rate by 0.25% to 3.1% this afternoon.

 

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State of play

At its core real estate is all about supply and demand.

Three tables this week.

Table 1 covers the Australian market, and it shows that detached house supplies are on the increase, when compared to current sale volumes.

In contrast, attached dwelling supplies – across the country as a whole – are on the decline.

In both cases – for detached houses and attached dwellings – the current level of supply is below the historic average.

If this continues into 2023 – and I think it will – this helps place a floor under dwelling values.

And given the tight attached dwelling supplies – which are mostly apartments – we might even see the reversal of this classic New Yorker cartoon.

 

Table 2 shows the same information as table 1 but this time detached houses by capital city.

Detached housing supplies are increasing in Sydney, Perth, Hobart and Canberra.  They are steady in Melbourne and Brisbane and falling in Adelaide and Darwin.

Table 3 shows the same information as table 2 but on this occasion attached dwellings by capital city.

 Attached dwelling supplies are increasing in Sydney and Hobart. They are steady in Melbourne and Canberra.  They are falling in Brisbane, Adelaide, Perth and Darwin.

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