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Part 2: Valuable lessons from the Census - Housing Supply & Trends

Written on the 21 August 2017 by James Cagney

(A four minute read)

HOUSING SUPPLY AND TRENDS

  • Between 2011 and 2016, the median household income rose by 16% (or 3.2% per annum) to $74,500 per annum. This was slightly above the official consumer price index (CPI). Reserve Bank governor Philip Lowe has identified low wage growth as one of the key risks to the Australian economy, He says that, along with high debt and energy prices, it's crimping consumer spending.
  • The median rent rose 17.5% to be $335 a week which shows that renters are prepared to pay more for what they want. The wage growth now slowing and more Australians renting we can expect the gap between income and rents to widen.
  • The proportion of families renting is now broadly equal to those owning homes outright.  The banks have been raising interest rates to Investors in an attempt to make housing more affordable. All this will do is slow down the number of investment properties available for rent and less supply and increasing demand means higher rents and lower vacancy rates in the future.
  • This is already happening with rental vacancy rates fell across most capitals in July 2017. Vacancy rates for units in Melbourne have fallen from 2.5% in July 2016 to 1.7%, while houses remain stable at 1.4%. Both houses and units in Sydney remain stable at 2.1% and 2.2% respectively.The Brisbane rental market remains more tenant-friendly with July vacancy rates for houses steady at 2.7% and units down slightly over the month to 3.1%. Rental accommodation in Hobart and Canberra remains scarce with rates in those cities below 1%. Perth has improved, the house vacancy rates there shrinking from 4.3% in July 2016 to 3.5% and the unit rates decreasing from 5.0% to 4.1% over the same time.
  • The median mortgage fell by 2.5% to be $1,755 a month. This is due to the Reserve Bank of Australia (RBA) leaving the cash rate on hold at 1.5% since their last meeting.  Any futher increases in interest rates from the banks (which is very likely) or the RBA (less likely), will have a greater impact on owner occupiers and investors. Be aware that the RBA rate on the  Sept 7, 2011 was 4.75% and today it's 1.5% which has greatly impacted housing and rental affordability over the past six years. 
  • The Australian Housing and Urban Research Institute (AHURI) report that the number of house in need (mortgage and rental stress) is 1.334 million households (just under 14% of households), and this is forecast to rise to 1.524 million households within the next five years (2022). Although this is not good news for a number of people it means that 86% of households are coping with their mortgage / rents. Therefore this research shows that housing affordability is not as bad as the media makes out (sensational journalism) or what politicians from the all sides of politics are saying about the situation is out of control.  It is as the usual typical political posturing in Canberra and the public fall for their political agenda every time. 
  • Of the 8.861m private occupied dwellings   The proportion of families living in detached houses fell from 74% in 2011 to 72% in 2016; those in apartments fell from 14.3% to 13.7%; but those in semi-detached homes rose from 9.9% to 12.7%. 
  • The rise is semi detached homes are  mostly town houses which are being built in the middle to outer ring of the capital cities. Most of these come with a small back garden and Australians can still stand on their piece of dirt.
  • The new apartment market whilst getting all the publicity of oversupply in the media has only increased by 138,000 apartments over the past ten years and the market share remains about the same as in 2011. As much as 50% of the apartment buyers in the capital cities are overseas buyers, especially from Asia, and many lock up the unit which does not help the cost of renting an apartment. The recent introduction by the Australian Tax Office (ATO) and the Foreign Investment Review Board (FIRB)  change back to a 50% overseas sales limit on new housing is a step in the right direction.
  • According to Robert Mellor of BIS Oxford Economics the wave of cranes will disappear from capital city skylines over the next three years with high-rise apartment construction to halve and overall building to decline 17%. "Overall, we expect 2017-18 will be the peak in high-density residential completions, but that part of the market will slump in the subsequent two years. By contrast, a milder decline is forecast for detached houses. The saving grace is that the floor in residential commencements is likely to be higher than in previous busts."
  • One of the reasons for this anomaly is that the number of walk-up units actually fell by 56,000 dwellings since 2006, whilst the number of mid-to-high rise apartments has increased by 194,000 new dwellings. What has happened is that many of these walk-ups have been replaced by medium to high rise developments. Many of these apartments are near public transport, shopping centres and parks which adds to their attraction for owner occupiers with small families and renters.

If you want to be  a successful property investor you need to be acutely aware how  the changes in housing trends and demographics will affect your profit potential in any market place.

Next week we will cover the household types and demographics of people living in these dwellings. How will these change the face of cities, towns and suburbs around Australia and how you can take advantage of these shifts. We need to be ahead of the game if we are going to win.

DISCLAIMER

This is not financial advice. You should not act solely on the basis of the material contained in this article for your investment strategies. Changes in government and legislation occur frequently and without prior notice and financial markets are unpredictable.
Please note that the information herein is of a general nature only and is not intended as specific advice for any particular person or entity.

This information was written and compiled by James Cagney.  The opinions expressed herein do not necessarily represent the views and opinions of his associates including
Asset Finance Pty Ltd.

ACKNOWLEDGMENTS:

Thank you to the resources of Terry Ryder, Property Observer, The ABS, BIS Shrapnel, Michael Matusik, Property Monitors, AHURI, Colliers, On the House, Corelogic, RP Data, Residex, SQM, Herron Todd White, NAB Residential Property Survey, BIS Oxford Economics, Australian Bureau of Statistics, Peter Wargent, Port Phillip Publishing, Economy & Markets, Harry S. Dent and the many others for the material discussed above.


Author: James Cagney
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