residex may 2015 market update

Search

Add comments

May Property Market UpdateMay

062015

Disparity Between House and Unit Growth Widens

by Eliza Owen

Market Analyst for Onthehouse.com.au

This month has seen a drastic change in Melbourne house growth, which shot up 2.27 per cent in March,

bringing the annual growth rate to 8.68 per cent.

Table 1 – Summary of Results for Major Cities as at March 2015

Sydney is still leading quarterly growth with a further 3.18 per cent expansion, bringing the median house

value to $929,000.

Graph 1 displays the monthly house and unit growth trends for both the Sydney and Melbourne markets

from March 2011.

Graph 1 – Sydney and Melbourne Growth Trends

Welcome

Residex is Australia's leading provider of

accurate property information supplying

automated valuation models to the banking

industry, residential property price

estimations and trend data to government

and private enterprises, propensity

modelling to large corporations and

property growth predictions to institutions

and personal investors. Residex has the

only property software system in the

market specifically for mortgage brokers.

Subscribe

Subscribe to the FREE Residex newsletter

and receive the most accurate monthly

statistics, market commentary, new

releases and updates direct to your inbox.

Subscribe Now

FREE - Suburb Profile

Homebuyers

Sellers

Investors

Indices

Find Us On Facebook

Twitter residex_au

Archives

May 2015

March 2015

February 2015

December 2014

November 2014

October 2014

September 2014

August 2014

July 2014

June 2014

May 2014

April 2014

March 2014

February 2014

December 2013

November 2013

October 2013

September 2013

Log In To use Facebook's social plugins,

you must switch from using

Facebook as L J Gilland Real Estate Pty Ltd to

using Facebook as Linda J Debello.

Home About Contact Products

of 4May Property Market Update » Residex Blog

6/05/2015http://blog.residex.com.au/2015/05/06/may-property-market-update-3/?utm_source=m...

The trend data in the graph is slightly different to the data presented in Table 1 because it represents a

‘best fit line’ as a result of smoothing out the growth rates over time.

Note the divergence in the trend lines between Melbourne houses and units, represented by the dark blue

lines in Graph 1. From December 2014, the growth in value of Melbourne houses increased, while units

have been trending down to almost zero per cent. This is reaffirmed by the data in Table 1, which shows

Melbourne units declined 0.08 per cent in value last quarter.

Sydney properties are also displaying a larger divergence in growth for the two different dwelling types.

The current housing boom has really emphasised the idiosyncrasies of the two markets. Although units will

present as relatively affordable, it is clear they do not produce higher returns.

At the current rate of approvals, I would argue new units are a mal-investment of resources in the long

term. Developing dwellings for investors sees a higher incidence of unit development, which creates lower

living standards for tenants and more competition in the housing market for owner-occupiers, as less new

houses are developed. This is supported by the latest housing market survey from NAB, which shows a

majority of foreign investors purchased units (53 per cent), followed by houses (30 per cent) and land for

development (17 per cent) . While similar data was not available for domestic investors, units are most

appealing because they require low maintenance and are relatively affordable.

ABS approval data also shows the incidence of increased unit development along with investment. Graph

2 displays this data between 1995 and 2015.

Only twice in recorded history have approvals for units outstripped approvals for houses: September 2013

and January 2015.

Last month, John Edwards posed the question of whether people would prefer to live in a house or unit,

and assumed people would prefer a house and garden. I think this situation, where tenants, first home

buyers and low income earners are priced out of houses and into units, can be clouded by arguments

about a changing lifestyle of younger generations.

Perhaps people waiting longer to have children could explain entry into a unit as opposed to a house;

People may have more capacity to move into a unit before buying a house with no children to

accommodate. However, I found the median age of people having children was largely unchanged from 29

in 1995, to age 30 in 2015. Yet Graph 2 displays a significant upward trend of unit approvals in this period.

Graph 2 – Australia-wide Approvals

August 2013

July 2013

June 2013

May 2013

April 2013

March 2013

February 2013

January 2013

December 2012

November 2012

October 2012

September 2012

August 2012

July 2012

June 2012

May 2012

April 2012

March 2012

February 2012

January 2012

December 2011

November 2011

October 2011

September 2011

August 2011

July 2011

June 2011

May 2011

April 2011

March 2011

February 2011



Name

E-mail

URI

Leave a Reply

(required)

(required)

Your Comment

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title="">

<b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike>

<strong>

Submit Comment

Another explanation could be the planning of our cities. Most of the entertainment, employment, cultural

activities and services are found in cities. Development in Sydney in particular has taken place in the form

of haphazardly planned dormitory suburbs. Consequently, pressure is placed on our roads and public

transport as people commute for hours from work to home. Trading in commute times for low

maintenance, conveniently located property could be another factor at play in the drive for units. This is

supported by population-weighted density figures, which have risen at higher rates in Sydney than any

other city. Population-weighted density increased approximately 15 per cent between 2000 and 2012.

However, I do believe that if Sydney was well-planned, this density may not be as severe. Australia has

ample space, and the technology is available to distribute resources widely. In spite of this, developers

have largely not yet sought to integrate new houses with work places, good transport, local industry and

ample entertainment facilities. If people recognise the importance of planning, then high density, low

quality units would likely become redundant.

It is understandable that investors have been tempted into the high returns of the Sydney property market.

However, I would say that continued investment in units is not favourable. Historically, houses have

outperformed units, and have suffered less in periods of correction. Well built houses on large blocks of

land will retain value because they come with land and present all sorts of potential for development,

extensions and spacious living.

A final consideration is the unusual volatility in this lengthy boom. Property is a long term investment that

has historically trended upwards, but the increase in the range of returns in the last 20 years suggests they

are becoming less safe.

To get a sense of how volatility has grown over the past two decades, we can consider the range of capital

growth values over time for Sydney metropolitan houses. For example, in the period 1990 to 1995, the

Sydney market saw losses of 1 per cent per annum and highs of 10 per cent per annum. The range of

returns in this period is 11 percentage points. Between 1995 and 2000, this range widened to 15

percentage points, and between 2000 and 2005 it widened further to 29 percentage points. Over the past

five years, the range of returns has remained at 23 percentage points with growth ranging between minus

3 per cent and 20 per cent. These sustained, higher ranges point to larger volatility in housing returns.

Furthermore, household debt is at record highs, and growth in the New South Wales and Victorian

economies are currently heavily reliant on continued construction of infrastructure and dwellings. Such

growth is not sustainable, and should be kept in mind as we cautiously move forward over the next few

months.

Eliza Owen,

Market Analyst for Onthehouse.com.au

