As the good times end in Sydney and Melbourne, those in search of better deals are heading south. But as Tasmania is starting to discover, more people means more demand on a limited supply
There are winners and losers in every market cycle, but as homeowners in Sydney and Melbourne brace for a projected 7% drop in property values to 2019, one state is actively poaching those who are ready to put their money where their mouth is when it comes to leaving.
Earlier this year the Tasmanian Liberal government launched its You in a Year campaign. Highlighting favourable house prices, employment opportunities and low commute times, it prompted those in search of a primary, secondary or an investment property to look beyond the mainland.
While the RBA has officially called time on the boom in Sydney and Melbourne, in Hobart property price growth is up 17% in the past year, with some reports likening buyers to “piranhas in a pond”.
As Australian Broker has reported, vacancy rates are the lowest in 15 years and inner-city growth levels are in double digits.
“Tasmania’s capital, Hobart, currently has the strongest property price growth of any Australian capital. House prices now average $443,521, well below those in Sydney and Melbourne of $1.18m and $903,859,” says Cameron Kusher, research analyst at CoreLogic, which confirmed Hobart’s title of Australia’s top performing capital city in March.
Commenting on the figures he calls Hobart, “a standout performer” with “the strongest market conditions over the past year” in terms of value growth.
“In fact, the five suburbs with the shortest days on market for houses in Hobart have a shorter time on market than the fastest selling suburbs in each other capital city,” Kusher adds.
Tasmania is no stranger to heightened market activity, and the Real Estate Institute of Tasmania (REIT) has reported strong performance for a number of years.
House sales increased 20.5% from 2014-15, with 261 investment purchases over the year, while 19 sales were valued at $1m or more. REIT reported a further surge in 2016 and this time values started to increase, too. By March 2017, the island was enjoying its highest volume of sales since 2004.
Behind the numbers
The reasons behind Tasmania’s growth are varied and can be attributed to trends on both the Apple Isle and mainland.
At home, in 2017, unemployment dropped to its lowest rate in six years and remained at 5.9% for more than eight months. Additionally, demand from first home buyers remains strong, comprising 14.5% of the market, according to the latest figures from CoreLogic.
Bank of us CEO, Paul Ranson flags tourism, residential investment, interstate relocations and Airbnb as all having had an impact on current performance and demand dynamics. However, the demand for primary and secondary homes is down to two specific factors: population growth and relocating baby boomers.
He says, “While there is only anecdotal evidence, we are aware that many professionals are choosing to take advantage of the great lifestyle opportunities for their family in Tasmania and increasingly we see them commuting when required to work interstate.”
However, while these trends have only recently emerged, they are not new. As Ranson says, Tasmania’s property market is simply playing through its cycle.
Predicting the lucky run will continue for up to 18 months, he adds, “What we are seeing is very consistent with the dynamics of the overall Tasmanian market, which has been very stable with modest capital growth spikes every 12 to 15 years, followed by relatively flat periods of growth.”
“Demand is so extreme that some families are being left with no option but to camp on the Hobart Showgrounds” - Huw Bough, GM broker distribution MyState Bank
While investors and owners enjoy the spike in demand, others are finding fewer reasons to enjoy the favourable market prices.
“House and rental demand is so extreme that some families are being left with no option but to camp on the Hobart Showgrounds, with Hobart vacancy rates at 0.5% in February,” says Huw Bough, GM of broker distribution at MyState Bank. He reports a 21% increase in Tasmanian house sales to interstate buyers, almost half of which were purchased as investments.
Looking ahead to the impact a surge in investment buyers could create on the market, Bough adds, “We are already seeing these factors have an effect on the Tasmanian housing market. While house price growth and sales volumes have seen record highs, demand is far greater than supply, especially in the rental market, where the lack of supply is leaving some low-income families struggling to find accommodation.”
Tasmania’s growth is no accident. The state currently ranks first in Australia for relative annual population growth rate – at 0.64%, up from 0.55% a decade ago – and is actively courting new residents: it has set itself a target of 650,000 residents by 2050.
However, to thrive Tasmania must first meet the urgent housing demands of its current residents.
In the December quarter, housing affordability declined across the board and, proving growth is a double-edged sword, Tasmania recorded the biggest decline.
“Many professionals are choosing to take advantage of the great lifestyle opportunities for their family in Tasmania” - Paul Ranson, CEO Bank of us
“There is an emerging problem in the availability of affordable housing in the greater Hobart market. The state government is working with a number of parties to increase the supply of affordable housing, but this is likely to remain an issue in the short to medium term,” Ranson comments.
In the early 2010s, the annual housing pipeline averaged 3,500 to 4,000 units, however that declined to 2,000 units in 2014. Offering some hope, in the last 12 months dwelling approvals have continually increased, and a recent government audit identified 239ha of land that can be used for residential development.
REIT president Tony Collidge believes “the climate is right to attract increased development”, but red tape must first be removed.
At the government’s emergency housing summit on 15 March, Collidge and Housing Industry Association executive director Rick Sassin called for planning to be taken away from councils to promote greater flexibility and multiple-use zones. Yet, with CoreLogic reporting that Tasmanian construction projects take an average of three months longer than those in other states, the benefits of any proposal will take time to cascade.
As Tasmania tackles its challenges, investors and developers have reason to be cautious, but the state must act while its audience is captive. After all, you can’t build a sustainable housing market capable of long-term growth potential without building the houses themselves.