07/01/2019
Some experts argue that a market may be stunted if prices have barely risen for many years, while others will assure you that the best investments are made in suburbs that always have good value. performed in the past.
Not only do these theories totally contradict each other, but they are also flawed because they rely on past performance one way or another.
Past performance is not always a good predictor of future performance, as the dynamics that caused price and rent changes in the past are likely to be different in the future. Three key dynamics can accurately predict whether prices and rents are likely to change in the near future, and the first of these is .
Any increase in the number of households settling in a suburb or locality causes an immediate increase in demand for housing because we all need a place to live. Unfortunately, this is where many predictions go astray because these new households could be tenants or homeowners. They can increase rents but not prices, or prices, but not rents.
The second dynamic is the power of purchase. It is the need and the ability to obtain housing finance that determines whether housing demand for new households will be satisfied by tenants or buyers.
The third dynamic of property prediction, properties then comes into play. Rents will only increase when the rental demand exceeds the number of available offers, and the prices will not. Will only increase if the number of properties offered for sale is lower than the demand of potential buyers. We must consider these three factors when we analyze the real estate market's growth potential, and when all align, we can be pretty sure that a boom is likely to occur. produce.
The use of the prediction dynamics of three properties allowed me to correctly and publicly predict that the housing market in Sydney would experience a boom in 20131 and reveal the suburbs likely to experience the first rising price, as well as predicting that the housing market in Hobart would be booming. in 20172, just before the start of growth.
Using this dynamic, I can now reveal which capital is likely to experience a boom, predict when it might start, and predict which suburbs have the greatest potential to be the growth leaders.
Demographic Growth and Housing Demand
Any analysis of a real estate market must start with people. Although the size of all our capitals has always increased every year since the Federation in 1901 (with the exception of Darwin after the devastating passage of Hurricane Tracy in 1974), their population growth rates have varied enormously and the periods of strong demographic growth have always led to an increase. price of housing.
This is not a chicken and egg scenario because household growth has always been the first. On the other hand, cities with declining population growth rates have not experienced the type of housing boom observed in Sydney, Melbourne and Hobart. Figure 1 shows the losers in terms of the growth rate of their population.
The biggest loser is Perth, which recorded in 2011 a record population growth rate of 3.6%, one of the highest in our history. This dropped to an annual increase of only 1% last year. Darwin has also suffered a slowdown in annual growth in the number of new residents since 2011, while Canberra and Adelaide have stagnated. We can not hope that any of these real estate markets in the capital will expand, unless their population growth rate increases significantly in the near future.
This does not mean that housing price growth can not happen or that some suburbs are not going to explode, but simply that a boom in the general real estate market is unlikely in Canberra, Darwin, Adelaide or Perth unless and until their population growth rate rise significantly.
Figure 2 shows the winners of the demographic growth of the capital and you can see that the growth rate of Sydney and Melbourne has increased more or less continuously since 2011. The housing real estate boom in these two cities began about two years after rising population growth rates.
As illustrated in Figure 2, the increase in Hobart's population growth rate only began about three years ago in Sydney and Melbourne, and the Hobart housing market experienced strong growth two years later. later. Brisbane's population growth rate has declined to a recent date, but has been steadily increasing since 2014 and its current growth rate is now higher than Sydney's. This could indicate that Brisbane is the obvious candidate for the next real estate boom, but we need to know if the new households will likely be tenants or buyers, as only buyers can directly cause price rises and trigger a real estate boom.
Since growth begins at the bottom of the market, it could remain hidden for a few months
Purchases, Not Rentals
Population growth can come from three different sources and each source has a different effect on housing markets. The first is natural growth, which is the number of births minus the number of deaths each year. The natural growth rate in Australia generates about 150,000 new residents each year and the impact on the housing market is initially minimal as babies create demand for more bedrooms than housing. This can eventually lead to a housing demand if their families need and can afford to move to a larger home, but the process is slow.
Arrivals abroad are a much more immediate source of housing demand. Australia receives 250,000 each year. Not only are there more than 100,000 arrivals abroad more than newborns each year, but all these new residents need housing and thus create an immediate demand for additional housing.
And it's more than that, because most of these new residents prefer to live in our big cities and have to rent for several years before they can buy their first home. They are looking for older, more established suburbs where there are already communities of people of similar ethnic or cultural backgrounds and identities. Whenever we encounter a large number of overseas arrivals from a particular part of the world, we can be reasonably certain of where they will prefer to live.
Migrants have been the main source of population growth in Sydney and Melbourne in recent years, as shown by Figure 3 which shows the huge population difference between these two cities and the other capitals.
Another source of population growth or decline is population movement between states and territories. According to the ABS, about 376,700 residents moved from one state to another in 2016-2017. They have a direct impact on supply and demand, so we need to know what types of households are performing these moves between states, where they are going and whether they are likely to buy or rent .
Figure 4 shows the net effect of people who moved between states, and that NSW and WA are the biggest losers. When we look at their demographics, we find that most of these people who are moving are younger people who are leaving Sydney because of the inability to find housing, or who are leaving Perth to look for a job in their homes. Eastern states. A lot of them were overseas arrivals from a few years ago and are now making their second move to Australia.
Thus, while Sydney currently has a high number of foreign arrivals, many will eventually move to Melbourne – or Brisbane, where the highest annual net gain of new households from interstates. Even Tasmania, which has had a negative interstate balance for many years, has begun to earn more people than it loses every year. Although some of these households are retirees, those who settle in larger cities tend to be younger people in search of their lifestyle, job opportunities and opportunities. education and affordable housing.
We need to know if new households will likely be tenants or buyers, as only buyers can directly cause price rises
Growth begins slowly
When these households start buying their own home, they do it at the least expensive end, namely the first buyer's affordable market. Figure 5 shows how housing price growth starts with the cheapest suburbs and demand shifts to more expensive established suburbs, with price growth prompting current homeowners to modernize.
As more and more homeowners decide to modernize, investors intervene to participate in price growth and a boom often begins. The boom comes to an end when potential retirees decide to degrade, using the growth of equity gained through the boom as a nest egg for the future. This is how the recent real estate booms in Sydney, Melbourne and Hobart have all started and ended.
The trend of first-time home buyers is on the rise in other capitals, but the supply of affordable first homes remains higher than demand in Brisbane, so prices in the cheaper suburbs do not increase and that it is a buyer's market, as shown Figure 6 . Prices for first homes are stable in Perth, which is now a "neutral" first-time homebuyer market, and is progressing slowly in Adelaide, which is a sellers' market for first-time buyers.
Demand for first-time homebuyers is growing faster than supply in these three capitals, but Brisbane is the only capital city where demand will become strong enough to trigger a surge in prices. Floods in the Brisbane River in January 2011 have sharply reduced demand for housing. With many casualties and the destruction of more than 25,000 homes, it took a long time for the painful memories to be replaced by happier memories, but the market has recovered with average price growth. 35% dwellings in the suburbs affected by floods in the last five years, compared to 15% for all of Brisbane.
Housing prices in the flooded suburbs have now returned to the east where they would have been if the disaster had not occurred, and the time has come for the Brisbane housing market to respond to the huge increase in demand for new households. Figure 6 shows that this could begin in the next 12 months and that boom conditions will be evident in two years.
Given that growth starts in the lowest price segment of the market, it may remain hidden for a few months, as the increase in sales in the cheapest market segment results in a lower overall median selling price . When the median price of real estate in Brisbane starts to increase significantly, the boom will have already begun.
What could change this forecast?
This forecast assumes that current population growth and movement trends will continue, that interest rates will not rise, that housing finance will not deteriorate and that the rate of new housing development will not increase. not. On the other hand, if Brisbane's population growth rate continues to increase, the forecast could come into effect as soon as possible.
Every year since 2013, many experts have incorrectly predicted that the Brisbane real estate market was about to boom. More recently, some of them raised their arms to heaven in confusion and abandoned the city as a lost cause. However, by the time these experts desert Brisbane, my analysis shows that it is now ready to become the next, booming capital.
John Lindeman
is Director of Innovative Housing
Property Power Market Analysts
Partners and author of
Unleashing the real estate market
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