Spring!

I am often asked about when it is the best time to sell a home.

Most think it is spring.

And yes, it is slightly better but only marginally so.

As a summary across all capitals – 21% of sales take place in summer; 26% in autumn; 25% in winter and 27% in spring.  New listings are sometimes higher in spring, than the other seasons, but not always.

Even in ‘holiday’ markets like the Gold or Sunshine Coasts there isn’t much difference between the seasons.

Bigger factors come into play.

Australian capitals
Housing sales distribution by season

Capital city Summer Autumn  Winter Spring
Sydney 20% 26% 25% 28%
Melbourne 21% 26% 26% 27%
Brisbane 22% 26% 25% 27%
Adelaide 24% 26% 26% 24%
Perth 23% 26% 25% 25%
Canberra 22% 26% 24% 28%
Darwin 24% 27% 25% 23%
Hobart 23% 26% 25% 26%
Average 21% 26% 25% 27%

It does pay, however, to launch a new housing project in the first half of the year.

Now, Soon and Later

I am quite interested about how a forecast is made. I like to understand the thinking behind the prediction.  I am particularly fascinated when a very definite outlook has been supplied.

Sadly – although not that surprising – property forecasts are often very definite but lack when it comes to the reasoning behind such a prediction.

Too often forecasts are made by relying on the past.  Most, if not all, look at the future in the context of previous experiences, rather than through the trends that are shaping what lies ahead.

I am not saying that I have the answers.  I spend a lot of my time these days saying, “I don’t know”.

But I do use three ‘tools’ to help assess what the future may hold when it comes to the residential market.  These work for me and they might work for you too.  They cover three time periods – now, soon and later.

Now

Property at the coalface is all about supply and demand. The interplay between the two determine short-term (next 2 to 3 years) property performance i.e. price or rental growth. In Brisbane, for example, dwellings sales volumes are currently declining whilst the amount of stock for sale is increasing.  Yet some are prophesising a short-term housing boom?

Soon

Here I like to think about three factors – cyclical influences, structural changes and what I call the ‘X factor’.  The time frame in question here is typically 3 to 5 years.

Cyclical things include confidence, interest rates, population growth and employment to name a few.  Structural changes involve taxation/charges, urban planning (such as urban growth boundaries and regional plans), government handouts (i.e. FHOG) or rules (i.e. FIRB).

And there is always a X factor.  Think: the Brisbane Flood in 2011 which interrupted the local housing recovery at the time or overseas buying (much of it illegal) in Sydney and Melbourne, which helped fuel their recent price bubbles.

Looking forward a possible X factor is a Labor win at the next federal election.

Later

Here I am talking about the next decade or two.  For mine, more time should be spent thinking about this timeframe rather than trying to score a short-term sugar hit or avoid a bout of housing depression.

I like to use three ‘thought’ bubbles here:  economic, political and social.  They are often in lockstep and in a tighter bearhug that most realise.  And, for mine, the economic, political and even social conditions looking forward are very different from the past.

In the next decade (maybe longer) there are very few trends that will drive housing prices and rents generically up, and heaps more that will keep them flat at best, but mostly lead to declines in real terms.

For more information revisit:

Future Shape

Many want to reassure us that the current slump in wage growth is just a temporary thing.  Yet despite rising business profits and apparently low unemployment, many are taking less money home (per hour worked) than they were in the past.

Limited wage growth and increasing job insecurity – I think – will be the new norm.

For mine, we are on the cusp of major workplace changes. A lot of the existing jobs aren’t really needed anymore.  Many more jobs can be done, and often better, by less people.  The hollowing out of the ‘middle class’ is set to continue, if not, accelerate.  There will be more lower paying jobs.

Too Orwellian?

No!  Just look in the mirror, we all are doing this to ourselves, every day and increasingly 24/7.  Don’t blame ‘Big Brother’, we are giving it up to the ‘algorithms’, whether it be via digitalisation, automation, robotics or the internet of things.

The table below outlines Australian jobs by major household income segments.  The past are facts and whilst the forecasts are mine they are based on emerging trends and my somewhat extensive research and interest on this topic.

Distribution of Australian jobs by income segment

Income segment Last 25 years Today Next 25 years
High 30% 25% 20%
Middle 50% 40% 30%
Low 20% 35% 50%
Total 100% 100% 100%

A recent US study showed that 47% of existing jobs could be obsolete by 2030 and the demand for some 40% of the other remaining jobs are likely be halved over the next decade.  Most of these job losses are expected in the higher and especially middle-income wage brackets.

Looking forward the jobs that will grow in demand will be those than cannot be done better and/or more cost efficiently by an algorithm.  Such jobs will most likely be lower paying ones.

These changes will have a profound effect on the future shape of cities.

Not Commenced

Today our chart shows the number of dwellings approved, but not yet started.

It is one of those rare property charts where, if the lines go down, it is a good thing.

At present, some 9,500 detached houses have been approved but haven’t yet commenced construction.  This is about a ten percent of last year’s detached house approvals.

But it is the attached dwelling figures that remain alarming, with about 32,000 apartments/townhouses approved, but still waiting in the wings.

When breaking it down the supply of approved but unbuilt dwellings is spread out as follows.  Both tables are for the year ending March 2018.

Detached houses

State

or territory

Number

yet commenced

Spread of

unbuilt stock

% of last

year’s approvals

New South Wales 3,759 39% 13%
Victoria 1,480 16% 4%
Queensland 1,381 14% 5%
South Australia 1,738 18% 21%
Western Australia 823 9% 6%
Tasmania 270 3% 13%
Northern Territory 43 0% 8%
ACT 42 0% 4%
Australia 9,536 100% 8%

Attached dwellings

State

or territory

Number

yet commenced

Spread of

unbuilt stock

% of last

year’s approvals

New South Wales 17,455 55% 42%
Victoria 5,806 18% 17%
Queensland 4,574 14% 26%
South Australia 1,655 5% 41%
Western Australia 1,164 4% 24%
Tasmania 98 0% 20%
Northern Territory 108 0% 84%
ACT 799 3% 20%
Australia 31,659 100% 29%

Some comments

Despite the recent surge in population growth, there now appears to be an oversupply of new housing construction.

In addition, there is a mismatch between the type of new dwellings being delivered and what the local market really wants.

Many new residential projects are no longer viable.

Some are saying that the lack of housing starts is due to a shortage of skilled construction staff.  Maybe?  But according to the bureau of statistics, 140,000 construction jobs were created over the three years, but construction jobs declined by 20,000 over the three months alone.

In short, new housing construction is now well passed its market peak.

Missing Middle

What does the future hold?

For mine demographics shape almost everything.

Future demographic shape

If that is true, what does Australia’s demographic shape look like over the next decade?

The first table shows that baby boomers, who were helping drive generic house price growth over the past two decades, are now starting to downsize and/or retire.  As a result, the size of both the downsizing and retirement housing market will grow in size over the next decade.

Also coming through are more first home buyers. This segment is expected to see the largest growth in the coming decade.  High overseas migration – whereby the average age of a new overseas migrant is 29 years – means many more potential first home buyers.

Australia: Past and forecast household buyer type

Household buyer type Last decade

Annual change

Next decade

Annual change

Change
No. % No. % No.
Young renters 29,000 23% 14,000 9% -15,000
First home buyers 7,000 6% 29,000 20% 22,000
Upgraders 28,000 22% 18,000 12% -10,000
Downsizers 36,000 29% 47,000 32% 11,000
Retirees 12,000 10% 26,000 18% 14,000
Aged 14,000 11% 14,000 9% 0
Total households 126,000 100% 148,000 100% 22,000

Some comments

Most aging baby boomers look to downsize/retire in their local area.

But most 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 carer.

First home buyers often need assistance to help pay the mortgage.  Many now take in a tenant.

My Housing Demand Model

Our modelling suggests that over the next decade more housing that fits between a small apartment (often downtown and in large, soulless complexes) and traditional detached homes will be needed.

This housing is often, these days, described as the “missing middle”.

See the schematic below.

More detail

Breaking this demand down further, our work suggests that the demand for housing that caters for sharing is very high – up to 25% – over the next decade.

At present, less than 5% of Australia’s existing housing stock successfully caters to this market.

See the second table for more detail.

Australia: Next decade by dwelling type

Dwelling type Single occupancy Multi-occupancy Total demand
Detached houses on land > 400m2 20% 10% 30%
Detached houses on land < 400m2 15% 5% 20%
Townhouses/villas/terraces/Plexes 15% 5% 20%
Apartments 15% 5% 20%
Age-related care 10% 10%
Total demand 75% 25% 100%

End note

Looking forward, I believe that many Australians will be forced to compromise on their housing.  This is already happening in many locales.

And if I am right – what is often labelled as the “missing middle” these days – should better weather the storm.

To that end, multi-occupancy property is looking more promising rather traditional housing.  This applies to owner residents as well as investors.

For investors, multi-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.

For mine an astute passive investor will buy strategically for a rental return and not just buy a common property in anticipation of generic price growth.

They will also buy a property with strong owner-resident resale appeal.  This increasingly will mean a dwelling which appeals to multi-generational households.

Missing: Green Infrastructure

Density must be off-set.

That’s a good yardstick.  The chummier our homes – think apartments – the bigger and better the outside space needs to be.

Brisbane is planning to become a very urban city, with many more residents living in mid to high-rise apartments and many of them in the downtown area.

That makes sense, but one thing that Brisbane and especially the inner-city area lacks is public open space.

There are some 275,000 people now living within a five-kilometre radius of the Brisbane GPO; with an additional 100,000 residents expected within the next 20 years.

Yet despite some notable additions like South Bank and Roma Street Parklands in recent years this area holds no more public open space than it did 100 years ago.

Some comparisons

Another way of looking at it is that there is just 6m2 of public open space per resident in inner Brisbane compared to 15m2 in Sydney and 29m2 in Melbourne.  Even in New York City the ratio is nearly twice that of Brisbane.

Worse still is that much of Brisbane’s inner-city open space is fenced and inaccessible to the general public.  This includes sporting infrastructure like the Gabba and Suncorp Stadium; the Riverside Stage and green spaces like Davies Park in West End which is partially fenced for sporting events.

In many of Brisbane’s inner-city suburbs there is insufficient green areas for children (and us adults) to play.

There is little doubt that what open space inner Brisbane does have is well used.  South Bank, apparently, attracts more foot traffic than Central Park in New York City. This to me suggests that South Bank is way too small.

Also, many of the open spaces inner Brisbane does have aren’t used often, nor shared, enough.  Think about Suncorp Stadium’s forecourt or Musgrave Park.

If Brisbane is to accommodate more apartments and at high densities in the inner-city it will need to invest much more in open space infrastructure.

If we use Sydney and Melbourne as benchmarks, then inner Brisbane needs some 100 extra hectares of open space and this will need to be delivered within the next decade.

How can this be done?

For mine, Brisbane’s greatest asset is the Brisbane River.  Like many assets it can be a burden too. The Brisbane River divides the city; confuses the uninitiated and sadly has been sold off in large chunks in recent decades to the highest bidder.

The best place, for mine, to start making inner Brisbane green again is to take back large parts of the river foreshore. Half a dozen bridge crossings – mostly green but a few vehicular ones too – would help matters as well.

On The Edge Of Town

A change in population is dependent on three things:

  • Natural increase – in short, births versus deaths.
  • Net internal migration – this means movements within the country, including interstate moves but also movements within the same state or territory.
  • Net overseas migration – people moving to Australia from overseas.

South east Queensland: Population growth last year

Urban zones Natural increase Net

internal migration

Net overseas migration Total

change

Inner city 1,831 2,194 3,983 8,008
Middle ring 7,368 -66 9,393 16,695
Outer suburbs 8,762 9,895 4,622 23,279
Outer conurbation 4,062 13,203 7,301 24,566
Total SEQ 22,023 25,226 25,299 72,548

Comments

1. Overall the data highlights that residents are showing a preference for shifting to either the outskirts of major capital cities where new housing is being built at lower prices.

2. Inner Brisbane is also attracting local moves as a proportion of the population – the young especially and in some instances those downsizing – are attracted to downtown living.

3. Some residents are moving away from middle ring locations, particularly those in Brisbane’s southern and western suburbs.  Several questions spring to mind including:  Are we already full?  Is the existing housing now too expensive?  Getting overcrowded?  Lack of amenity?  Or a lack of appropriate new housing stock?

4. Overseas arrivals are largely choosing to move to inner city and middle ring locations as these places hold educational facilities which is one of the main reasons for overseas arrivals to Australia.

5. Overall most of the population growth is taking place some 20 or more kilometres beyond the Brisbane GPO.  This trend, for mine, will now escalate as Brisbane City Council has just implemented some 40 new development and design measures that restricts the housing that many people really want.

My definitions

  • Inner city = within 5km of the GPO
  • Middle-ring = between 5km and 20km of the GPO
  • Outer suburbs = between 20km and 50km of the GPO
  • Outer conurbation = extended urban area, typically consisting of several border towns/cities merging with the outer suburbs of a major city.

10 Things: The Economy

Here’s a quick summary of the Australian economy (well the one that really matters).  Let’s call it 10 Things: The Economy.

1. Working longer hours for less pay per hour.

2. Stuff all wage growth, which is unlikely to change – digital stuff, automation, the internet of things, baton change to service industries and importantly low/declining productivity.

3. Many already underemployed, with a lot more oldies needing to work longer to make ends meet.

4. Rising costs – here I am talking about the vital day to day stuff and not the once off big-ticket items which, when combined, have a large weighting in the CPI index.

5. Housing supply rising against falling sales = lower/falling property prices.

6. High migration intake in an attempt to keep the housing demand artificially high…

7. …lending restrictions which were recently tightened but have just been loosened again because investors stopped buying – dur!

8. Deflationary not inflationary world with way too much debt.  When I was a youngin’ $1 of debt produced $1 of economic growth but today $4 debt = a $1 increase in GDP – madness!

9. Interest rates on hold for as long as possible.  I reckon the RBA should drop the cash rate but I am not holding my breath.

On most RBA interest rate benchmarks the results are below the line – wage growth, inflation, productivity and economic growth.  Yes economic growth.

Below are four charts which I have taken from PCA and Commsec emails I received yesterday.  Whilst the first two are the positive headline results, being 3.1% annual GDP growth and a 1% lift in the March Qtr, what gets very little airplay is that 70% of the March Qtr 1% GDP boost was from net exports and government spending.  Very little of our current economic growth is coming from domestic business expansion and household consumption.

Furthermore, chart 3 shows that we are running down our savings due to higher day to day expenses and low wage growth; and chart 4 shows that our productivity is in the toilet.

Pardon me if I don’t get too excited about Australia’s apparent stellar economy.

10. For mine, the next decade or two will be very different than the past 25 years.

The 15% Club

In a recent book physicist Geoffrey West has shown that there are both economies of scale (in infrastructure) and increasing returns to scale (in human creativity) from the process of urbanisation.

In his words: “Cities are … the cause of the good life.  They are the centres of wealth creation, creativity, innovation, and invention.  They’re the exciting places.  They are these magnets that suck people in.”

Economies of scale 

West and his colleagues at the Santa Fe Institute have identified two noteworthy statistical regularities.

First, “every infrastructural quantity…from total length of roadways, to the provision of sewers, to the number of buses needed… is scaled in the same way.”

That is to say, the bigger the city, the fewer the things that are needed per head of population.

And the economy of scale has a fairly consistent exponent of around 0.85. This means that, when a city’s population increases by 100%, it needs to increase the number of things per capita by only 85%.

Returns to scale

Secondly, and more surprisingly, is the socioeconomic impact – things like wages and the number of jobs, educational institutions, cafes, restaurants, shops and services etc. are upwardly scaled.

Instead of being an exponent less than one, indicating economies of scale, the exponent is bigger than one, indicating increasing returns to scale.

That says that systematically, the bigger the city, the more wages you can expect, the more educational institutions in principle, the more cultural events, the more jobs are produced and so forth.

In short, bigger places are more innovative.

The 15% Club

According to West’s work this seems to apply to nearly all places undergoing urbanization and more remarkably, all to the same degree.

There was a universal exponent which turned out to be approximately 1.15, which says something like the following:

If you double the size of a city, from say 300,000 people to 600,000 as in the Gold Coast’s case over the last 20 years, you get a 15% increase in productivity, jobs and wages (per capita) plus you get orderly 15% saving in length of roads and other general infrastructure needed.

People even walk disproportionately faster in big urban places than in small ones.  There is a wider range of possible jobs to do.  This is largely to do with bigger networks.

And this is why we are seeing population growth, not only in Australia, but elsewhere in the world, concentrate in a select few areas.  Cities are becoming bigger.  Big cities are becoming mega ones.  This trend is expected to escalate.

Unoccupied

We know that the number and proportion of unoccupied homes across Australia is increasing.  The latest national count found that 11.2% – or about one million – of our private dwellings were empty at this time last year.

Some statistics

Now, I need to bore you for a few moments with some stats.

The 2016 Census identified approximately nine million private dwellings in Australia on census night, of which 8,286,000 (88.8%) were identified as occupied and 1,040,000 (11.2 %) were unoccupied.  In the 2011 Census, 7,760,000 dwellings (89.3 %) were recorded as occupied and 934,500 (10.7%) unoccupied.

This represents an increase of 632,250 in total private dwellings since the 2011 Census, and an increase of 105,500 in unoccupied dwellings, which equates to 17% (or approximately one in six) new dwellings between 2011 and 2016 being unoccupied.

Let me repeat that – one in six of our new dwellings is unoccupied. 

Now, the Bureau used to – as part of the census – ask why a dwelling was empty during the night of the census.  It’s true that the highest levels of vacancy are often in coastal areas – or in areas where occupation during winter is not much fun (the census in recent decades has been conducted in early August) – plus, also in resource based towns/regions.  So, when we undertake our national count has some impact.

But housing vacancy in capital cities is also a growing trend, especially in locations associated with medium density housing and in particular, high-rise apartments.  There have been several studies in recent years, illustrating such.

Why is a dwelling vacant?

And when you look at past ABS results about why a dwelling is vacant, they found:

  • 50% – Resident is usually absent
  • 20% – Holiday accommodation
  • 20% – For sale or rent
  • 10% – Repairs/alternations

So, it is a somewhat safe bet to say that at least half of the dwellings unoccupied are deliberately locked up.

Recent plans

The Commonwealth and Victorian governments have now announced plans to tax vacant properties.  The Victorian government’s Vacant Residential Property Tax imposes a levy on properties that are vacant for more than six months in a year.

The federal tax differs in that it only applies to foreign owners, with a $5,000 charge to properties that are vacant for more than six months.

The increase in vacant dwellings 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.

Two comments

Firstly, we are not undersupplied with housing.  There is plenty of spare capacity – which leads me to my second thought:

The development industry keeps advocating that increasing new housing supply will alleviate housing affordability problems.

However, whilst housing supply has technically kept pace with population growth in Australia in recent years, most new housing development occurs disproportionately in “mid-to-high” priced segments, locking out many – and not only first home buyers.  Plus, it doesn’t help when a high and growing proportion of our new digs is locked up by speculators.

Copy link
Powered by Social Snap