Source: API - Liz Jordan
BRISBANE holds the strongest prospects for house price growth over the medium-term, according to a QBE report, while the lag in apartment supply responding to market demand could provide further volatility.
The Australian Housing Outlook 2019-2022 report, commission by QBE and authored by BIS Oxford Economics, says easing lending restrictions, federal and state tax concessions and lower interest rates are expected to encourage borrowers back into the market.
House prices across all capital cities are expected to stabilise over the coming year, before strong population growth and a sharp downturn in new dwelling completions results in price growth.
QBE Lenders' Mortgage Insurance chief executive officer, Phil White, said growing supply and demand imbalance is likely to be a powerful factor for some markets.
Building approvals fell by 19% in 2018/19 and completions are forecast to fall to 163,500 dwellings by 2020/21, 22% below the current five-year average.
"With population growth expected to remain strong, that's well below underlying demand. This could mean some previously oversupplied markets will tip back into undersupply by 2021/22. With other factors also stimulating the economy and by association the housing market, there is potential for a recovery in prices," White said.
However, White said the discrepancy between current demand and the timing of future supply is likely to result in greater volatility and upward pressure on property prices.
An increase in apartments being built seen in all capital cities is likely to create pressure on two fronts, being that higher density buildings take almost three times longer than houses to reach the market, and owner occupiers typically prefer ready-to-move-into properties.
Lag time
Data from the Australian Bureau of Statistics shows an apartment building takes an average of 84 weeks to build, almost three times longer than a house. A typical high-rise apartment building can over two years to complete, and the total development period taking into account the pre-selling period.
White said report's forecasts for the Sydney market therefore may be on the conservative side, and pockets of the market could see sharper price increases sooner, and there is a risk that consumer caution and oversupply could temper projections for Brisbane house market growth.
"Units are less able than houses to meet rapid changes in demand, particularly owner occupier demand, due to the longer gap between the rise in demand and the new supply coming onto the market. The lag can drive up prices as an undersupply will persist longer," White said.
"This price volatility also attracts speculative investments for capital gains rather than for long term occupation of housing. In turn, this speculative demand fuels new supply to hit the market simultaneously as the market peaks, ultimately resulting in excess stock and downward price pressures."
White said the trend of increasing medium and high-density development is at odds with providing more affordable housing for owner occupiers.
Brisbane's median house price growth is forecast to average 6.4% per annum over the next three years, taking the median house price to $660,000 by June 2022. Queensland's strengthening economy will also provide momentum for house price growth.
Challenges will remain for its Brisbane unit market given the weakened lending environment for investors and oversupply. A 2% decline in the median unit price is expected this year before modest growth of 3% in the next three years to $435,000.
Worst is over for Sydney and Melbourne
Upside remains limited for the Sydney and Melbourne markets over the next three years, although the worst of the downturn has past and both cities are seeing small growth in prices and elevated auction clearance rates.
Sydney house prices are estimated to rise by 1.2% in 2019/20, after dipping below the million-dollar mark for the first time since March of 2015. Prices are forecast to rise a cumulative 6% in the next three years to a median of $1.040 million, still remaining below the June 2017 peak.
A further 3% of price declines are expected for 2019/20, given the unit market more exposed to demand from investors, a further 3% median unit price decline is forecast for 2019/20 before prices show signs of recovering from 2020/21, and reach $720,000 by June 2022, on par with June 2019.
House price growth in Melbourne will likely be hampered by the rise in dwelling completions and an uptick in vacancy rates before a 5% annual rise over three years to $810,000 in June 2022, the equivalent of December 2016 levels.
Unit prices will remain flat in 2019/20 before the supply of recently completed unit stock is absorbed, and then prices will increase by an aggregate 4% over three years to reach $570,000.
Regional growth strong
Healthy price growth across regional areas on the eastern seaboard is likely. In NSW, Wollongong prices will rise 6% over the next three years to $685,000, and Newcastle by 11% to a new high of $630,000.
Geelong is past its growth phase, but median prices will rise 4% to $540,000 by 2022, while Ballarat will increase 8% to $425,000 and Bendigo by 7% to $395,000.
Gold Coast house prices will rise 2.9% each year to $680,000 by 2022, and units by 0.8% per annum to $435,000. Sunshine Coast median house prices will grow 7% to $635,000 by 2022; Toowoomba by 2.5% per annum to $415,000; Townsville by 10% to $345,000, and Cairns by 8% to $440,000.
