Expert commentary

The Big Housing Problem - Ken Morrison (Opinion)

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Residential Sector

The AFR reported that last week was the slowest auction week of the year, as Sydney recorded its third consecutive sub-60 clearance rate of 59.5%. Cautious buyer activity was linked to rising interest rates and higher mortgage rates imposed by commercial banks. (Auction clearances fall to new low before likely rate rise, Michael Bleby, 01/05/22) 

Throughout April house prices in Melbourne, Hobart and Sydney decreased by 0.6%, 0.3% and 0.2% respectively, while prices in Canberra, Perth, Brisbane and Adelaide all rose by over 1%. The AFR reported that the price falls reflect decreased demand and increased stock availability, and will be accelerated by interest rate rises. (Property price falls to accelerate, Sydney drops for third month, Nila Sweeney, 02/05/22) 

House price decreases are to be expected, as the pandemic saw a 35% increase in national home prices, and this rate of growth cannot be sustained. The RBA estimated that real house prices will only reduce by 10%, which would put national prices where they were during mid-2021. Read more…  

BTR
Inflation and rising interest rates have created a near perfect climate for Built-to-Rent projects, the AFR reported that as housing costs increase BTR may provide an inflation hedge. As demand for rental units grows, Mirvac data showed that 60,000 units of rental stock per annum are necessary to  cover future needs. (Inflation, supply issues ‘almost perfect’ for build-to-rent, Martin Kelly, 03/05/22) 
 

Rental

ABS data indicated that while all capital city rents increased by over 1% in the first quarter of 2022, Melbourne and Sydney rents lagged behind with only 0.2% and 0.3% growth respectively. Read more… 

The Urban Developer reported that Sydney’s vacancy rate has dropped by 0.1 percentage points to 1.4%, which is a five-year-low. Compared to rates from April 2021, all capital cities except Darwin had a decrease with Sydney down by 1.3 percentage points from 2.7%. (Sydney’s Rental Vacancies Reach Record Low, Marisa Wikramanayke, 04/05/22) 

Domain’s latest Rental Vacancy Report showed that the national vacancy rate in April maintained March’s record low of 1%, which when coupled with rising rents creates a difficult prospective tenancy climate. Read more… 
 

OTHER KEY HEADLINES

1. ‘Mortgage arrears, delinquencies to rise: Moody’s- The Australian 05/05/22 
2. Interest rate rises likely to spur apartment demand - AFR 04/05/22 
3. Flooded properties in Lismore hit the market as residents start again - AFR 02/05/22 
4. Sydney prices fall for first time since Covid pandemic began as property market stalls, PropTrack data reveals - The Australian 01/05/22 
5. Victorian budget 2022: State Government expects home prices to drop 4 per cent by 2023 - Realestate 03/05/22 

Commercial Sector

Offices

The AFR reported that Canberra’s office vacancies fell to the lowest levels since 2008 during the March quarter, sitting at 5.5% compared with the national average of 13.5%. JLL data showed that this is the fourth consecutive quarter in which the capital’s office market has recorded growth. (Canberra office vacancy rates tighten, two more buildings sell, Martin Kelly, 02/05/22)  

The AFR reported that co-working provider Victory Offices has been evicted from its fourth tenancy, this one at 420 George Street (owned by Mirvac), due to unpaid rent. Victory is now worth only 5.5% of what it was valued in June 2019, after the share price fell by more than 25% on Thursday. (Victory offices evicted again, Myriam Robin, 05/05/22)  
 

Retail

The Australian reported that a new ‘Large Format Retail’ (LFR) precinct in Brisbane will reflect the shifts in consumer expectations post-pandemic. The recent shift to online shopping fuelled by COVID-19 has changed the retail landscape, as customers search online for products before going in-store to test them. As consumers expect a retail experience at shopping centres, large format retail centres will need to include convenience retail options as well as entertainment opportunities. (Buchan Group designed precinct for Anaconda aims to reset Large Format Retail expectations, Chris Herde, 02/05/22)  
 

Hotels  

The AFR reported that super-funds are amongst emerging private-sector hotel investors as major banks retreat due to pandemic induced hotel shutdowns. The latest hotel performance figures presented by consultancy group STR highlighted strong recovery across the sector due to a surge in demands, particularly in regional hotels. (Super funds ready to lend to hotel investors as banks pull back, Larry Schlesinger, 04/05/22) 
 

Farms

The AFR reported that farmland values will continue to increase over the next three years, following five years of year-on-year increases of 15% p.a. This growth will be sustained by high commodity prices,  the scarcity of prime farmland relative to demand, much of which comes from corporate investors seeking a hedge against inflation. (Surging farmland a ‘good hedge’ against inflation: CBRE agribusiness, Larry Schlesinger, 01/05/22)  


OTHER KEY HEADLINES
1. Farmland price growth to moderate after 20pc surge last year - AFR 03/05/22 
2. Perth’s office market kicks with $1 billion in listings tipped - AFR 04/05/22 
3. Australia ‘leading the pack’ as a hotel investment market – AFR 05/05/22 
4. Vicinity Centres lifts as consumers return to suburban shopping centres – AFR 05/05/22 

Construction & Development

The AFR reported that new dwelling approvals fell by more than 18.5% in March, preceding the interest rate rise that economists speculated would quell demand. Falling approvals have been linked to mortgage rate rises and decreasing house values, which will exacerbate this degrowth in future approvals. (New housing approvals fall 18.5pc, Michael Bleby, 05/05/22)  

The AFR reported that Murdoch University is testing the use of a robot to install screw fixings on construction sites. The use of robots to perform repetitive tasks such as these could save 15-20% of the overall build time for construction companies. (Murdoch University pilots robot construction, Michael Bleby, 05/05/22)  

The Urban Developer reported that despite hysteria surrounding the insolvencies of Probuild and Condev, construction insolvencies are still at a historic low. Despite a 21% insolvency increase in the March quarter, gross profit margins are at an all time high, as builders pass on higher material and labour costs to developers and consumers. As the economy stabilises post-pandemic, builders no longer accept projects that are not financially viable, as there is a steady stream of work available. (Builders Face the Music as Insolvencies Rise, Taryn Paris, 05/02/22)  

The AFR reported that material and labour costs will continue to grow in the second half of 2022, and that higher building costs will be a permanent part of the Australian construction industry. Total construction sector inflation will hit 9.5 per cent over the year to June 2022, due to the Ukraine/Russia conflict, sector growth and transportation interruptions. (Don’t expect building costs to come back down, Michael Bleby, 01/05/22)  

 

OTHER KEY HEADLINES
1. NSW pushes five-day week for construction workers in healthcare - AFR 01/05/22 
2. Cbus Property appoint Hutchinson Builders to finish its 443 Queen St apartment tower - the Australian 02/05/22 
3. Builders hammered by skilled labour squeeze - the Australian 04/02/22 
4. Construction Workers Banned to Save John Curtin Pub - the Urban Developer 02/05/22 

Finance Sector

The RBA decision on Tuesday to lift the cash rate by 25 basis points from 0.1 to 0.35 per cent could see the official cash rate reach 2.5 per cent by the end of next year. The AFR reported that the rate rise signaled an end to COVID-19 “emergency’’ monetary policy settings, rising inflation and the lowest unemployment in 50 years. (RBA acts: ultra-low era comes to an end, Geoff Chambers, 04/05/22)  

The Australian reported that property prices could see a greater and faster fall than the RBA’s 2024 projection if interest rates continue to rise. PropTrack senior economist Paul Ryan said although the impact of rate movements would be gradual, nearly every mortgagee will need to reassess their budgets. (More hikes could hit house prices hard, Mackenzie Scott, 03/05/22) 

Commonwealth Bank, ANZ, Westpac and National Australia Bank, announced that they will be lifting standard variable mortgage rates according to the interest rate spike. Read more…  

Despite the increased cost of lending, borrowers may still save due to strong conditions created by state homebuyer schemes, strong employment, wage growth and increased migration. Read more…  

Victoria’s state budget announcement increased support for those at risk of homelessness to find permanent housing, with an $85mn commitment towards homelessness support across the state. Read more…  

The AFR reported that Victorian homebuyers pay up to $420,000 on an average $1 million home in taxes, which has delivered Victoria’s budget a $15 billion windfall this year. The Urban Development Institute of Australia has warned that property taxes already contributed more than 50 per cent of this year’s tax revenue and urged the Victorian government not to introduce or increase taxes on homebuyers if re-elected in November. (Falling house prices to hit Victoria’s $15b property take, Gus Mcubbing, 03/05/22)  

The AFR reported that older women and downsizers are likely to be swayed by Labour’s proposed shared equity housing scheme, as it offers a chance for those who do not qualify for a standard mortgage to get into the market. Research from the Grattan Institute showed that the potential pool of people who qualify for the scheme is large, of which 80% are single working people. (Older buyers likely to flock to Labor housing scheme, Michael Bleby, 03/05/22) 
 

OTHER KEY HEADLINES
1. Higher interest rates likely to add further downwards pressure on housing growth rates - Corelogic 03/05/22 
2. RBA Governor Philip Lowe is hiking interest rates. Worst case, it’ll mean an extra $600 per month on a $500,000 mortgage - The Conversation 03/05/22 
3. Queensland real estate: RBA lifts interest rates to 0.35 per cent - Realestate 03/05/22 
4. Reserve Bank raises interest rates ahead of federal election - and says there's more to come - Realestate 03/05/22