It was a difficult year for Australia’s residential market, particularly in Sydney and Melbourne. Marked with articles lamenting sharp declines in property value, outlining concerns of low auction clearance rates and making envious comparisons to last year’s far more robust numbers, the residential market dragged its feet to a lacklustre finish in 2018.
Overall, Melbourne faces a rocky start for 2019. In November 2018, annual dwelling values fell by 5.8%, though this decline is mostly concentrated in Melbourne’s higher-end markets. In contrast, the more affordable sectors of the market saw a rise in dwelling values by 1.7%.
Data released by Corelogic indicates a general trend of significant falls in dwelling values in more urban, inner regions of Victoria. Regions that saw some of the steepest declines in annual dwelling values include Stonnington – East (-14.1%), Whitehorse – West (-12.4%), Boroondara (-12.2%) and Bayside (-10.3%).
By contrast, the highest increases in annual dwelling values tended towards the outer regions of Victoria: Gippsland – South West (13.4%), Baw Baw (12.6%), Creswick – Daylesford – Ballan (10.8%) and Geelong (10.1%)
Tracking the downturn of the housing market throughout 2018, experts across the industry have attributed falling prices to tightening credit conditions and increased regulations on interest-only loans. While the latter has been removed as of January 2019, interest-only approvals remain well below 20%. Melbourne’s residential market still struggles through the squeeze on credit conditions. Sydney faces a similar problem, though in other capital cities of Australia, the credit squeeze has a less prominent effect on the housing market.
The increased effect of the credit squeeze on Melbourne and Sydney is due to several factors. Primarily, that both cities have higher concentrations of investment demand and are generally the focus of foreign buyer activity in Australia. Thus with the previous year’s downturn in foreign buyer activity, Melbourne and Sydney present with sharper declines in housing demand.
The decrease in housing demand is then reflected by falling house prices, due in large part to the resultant shift to a buyer’s market, allowing buyers more favourable negotiation positions on price. With that being said, Herron Todd White’s monthly report accounts for pockets of Melbourne that have grown throughout the year—Victoria’s inner and outer south-east managed to push through adverse market conditions. Bayside suburbs such as Chelsea, Carrum and Aspendale were hotspots for development throughout 2018; Bentleigh, Murrumbeena and Wheelers Hill also experienced increased development activity
Australia’s ‘Severely Unaffordable’ Housing
Despite the heavy declines in prices across Australia’s residential housing sector, Demographia’s annual international housing affordability survey found that, at the end of 2018, Australia’s housing market was among the most unaffordable.
Compared with other major markets like the US, UK, China: Hong Kong, Canada, New Zealand, Ireland and Singapore, nationally, Australia ranks as the third most unaffordable housing market. A closer look reveals that Sydney and Melbourne rank third and fourth least affordable markets amongst other cities of significant population across the globe, beaten out only by Hong Kong and Vancouver.
A rating of 3 is classified as an ‘affordable’ market; 3.1-4 is ‘moderately unaffordable; 4.1-5 is ‘seriously unaffordable’; and exceeding 5, a housing market is considered ‘severely unaffordable’. Sydney and Melbourne sit at 11.7 and 9.7 respectively, while Australia as a whole has a rating of 6.9. These ratings indicate that the average Melbournian resident must save for nearly a full decade in order to purchase a home.
Housing Demand Outpaces Infrastructure Roll Out
Infrastructure is failing to keep up with the rising demand for housing in Australia’s major cities, finds the Planning Liveable Cities report. Despite the spiking growth in urban regions of Australia, the government is unable to smoothly provide the infrastructure such as public transport, roads, hospitals and schools to support this growth.
According to Infrastructure Australia’s executive director Peter Colacino, this presents a major issue to not only the economy, but also quality of life. Colacino asserts that the timing of infrastructure roll out is crucial as ‘our growth centres risk being characterised by congested roads, overcrowded trains and buses, over-enrolment in schools’ and so forth. He notes that the current system prioritises ‘outcomes for sectors’, rather than outcomes for a community. This, he argues, leads to ‘siloed planning and decision-making, which often leads to poor outcomes for communities’.
To frame it in a different perspective, Australia’s population is projected to rise by more than 10 million people over the next thirty years. Much of that growth (80%) will be concentrated in Australia’s five major cities—Melbourne, Sydney, Perth, Brisbane and Adelaide. This means that Australia’s demographic landscape is likely to see a dramatic shift, and with such a diverse set of economic, social and cultural opportunities, cities must adapt to a smarter, more sustainable way of infrastructure planning.
The overall solution that Planning Liveable Cities recommends is a ‘place-based approach’ which is tailored to and enhances the unique identities of each area, one that also recognises that social priorities should not be compromised for growth. (ET)