April Newsletter

Victoria leads the way Dwelling sales in Melbourne and regional Victoria continue to underpin the strong growth in our economy which is out-performing most other Australian states. Despite a reduction in participation by first home buyers following the cut back in grants, all the indicators point to strong growth over the next few months. Auction clearance rates remain at all time highs around 85%, unemployment is the lowest in Australia at 5.3%, Victoria’s population is growing at over 100,000 per year, combined auctions and private sales are now breaking the 1000 per week barrier and over $1 billion is being spent on housing in our peak sales weeks. This growth is not without a cost and Melbournians are now grappling with increased traffic jams, a stressed public transport system, chronic housing shortages for low income earners and renters; housing affordability for those who can buy has worsened and most of our other infrastructure is operating at close to capacity levels. Planning is now a front line issue for government and will now doubt get much exposure in the run up to the November election. Land banking a hot topic The elephant in the room no-one wants to address is the availability and supply of land (and to a lesser extent dwellings). Both private enterprise and the state government are involved in the subdivision of residential land suitable for new housing. With such strong demand evident there needs to be an increase in supply but this is yet to occur. It appears there are up to 70,000 allotments suitable for release but developers and the state body, VicUrban, are restricting supply and thereby holding up prices. This is despite Victorian builders commencing a record number of homes in the December 2009 quarter; the 14,066 starts was the highest number since 1984 and if annualised would equate to in excess of 50,000 new homes, enough to satisfy most of the demand. Compare this with NSW where they struggled to start around 25,000 homes for 2009. The other area where land banking is becoming an issue is in our inner suburbs where affluent overseas buyers are acquiring existing dwellings in prime locations and frequently holding them unoccupied. In the past this practice had been restricted to off the plan developments and apartments but since the Federal Government eased restrictions a year ago there has been a surge in these purchases. Several of our offices have detected a shift in the demographics of their purchasers who, some claim, are responsible for record breaking prices paid in recent weeks. Population drives growth Research has clearly demonstrated the link between population growth and price growth. According to the REIV Melbourne’s rate of population growth increased by 84% over the past five years but ABS figures show the number of dwelling commencements increased by 24%. This mismatch between supply and demand is driving house price growth. Yearly figures are a more reliable guide than monthly or quarterly, so the latest annual data from REIV indicating a 7.4% increase to $465,000 in the median house price for 2009 is no surprise. Likewise a growth of 26.4% over the past five years compares favourably considering the impact of the GFC. Anecdotal advice from our offices suggests the growth in 2010 will be even greater! A word of warning Record housing starts, massive growth in prices and record auction clearance rates cannot continue forever. Interest rates will increase to their long term level of a cash rate around 5-6%, more land will eventually be released, government stimulation will be withdrawn and banks may become reluctant to lend as much. Buyers will eventually enjoy a more balanced market and owners may have to accept lower growth. The question is when will this occur? As in the past there, will be no definitive event heralding a change. More likely an X-factor which no-one anticipates; but things will change. Adrian O Jones FAPI, FREI, CEA (REIV), Dip. Man. Chairman – Noel Jones Corporate Immediate Past President REIV

01-04-2010