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Australia – Housing Market Gloom – is it justified?

1: House Prices:

Media reports that imply a property market collapse is taking place are not supported by the facts. This is consistent with commentary from the Reserve Bank of Australia to the effect that a mild correction is occurring.
Property prices and rents in Melbourne and Sydney are still higher than they were 2 years ago. In fact anyone who bought a house in Sydney or Melbourne more than five years ago is still sitting on a substantial capital gain (Sydney averages over 50%, Melbourne over 40%)

2: Rents:

In recent years rents did not keep pace with increase in sale prices, particularly in Sydney. For example in the period 2011-2017 for houses:

Increases in:
Melbourne
Sydney
Houses (Note 1)
2011 - 2017
House Prices
48%
85%
House Rents
13%
28%

For Apartments the gap is smaller.

Increases in:
Melbourne
Sydney
Apartments (Note 2)
2014 - 2018
Apartment Prices
22%
35%
Apartment Rents
16%
12%

Note 1
Median house / apartment prices and rents: data sourced from Real Estate Institute of Australia reports. Interpretation and application ©Woodhams Relocation Centre 2019.
Note 2
Data available only from March 2014

For property owners this has meant their rental returns have fallen for a number of years, however with rising capital values their overall returns were adequate. With property prices stalled, that is no longer the case and at some point one would expect rents to rise.

A leading indicator of pressure on rental rates is the Vacancy Rate. This refers to the % of rental properties available at a given time. A higher rate indicates greater choice for prospective renters, and downward pressure on rent levels. As a guide a 3% vacancy level is considered to provide market stability with no overall upward or downward pressure on rent levels.

Although in Melbourne and Brisbane there has been a significant tightening – and a prospect of rising rent levels - in Sydney the opposite is the case.

Capital City
Vacancy Rate (%)
Sep-18
Sep-17
Sep-16
Sydney
2.9
2.0
1.9
Melbourne
2.0
2.1
2.5
Brisbane
2.2
2.9
4.1
Adelaide
Not available
Not available
Not available
Perth
3.9
6.9
6.6
Canberra
0.6
0.7
1.3
Hobart
1.5
1.7
2.4
Darwin
7.9
5.9
6.7

Source:
Real Estate Institute of Australia surveys of Real Estate Agent Property Managers. Interpretation and application ©Woodhams Relocation Centre 2019.