Hotspotting

There’s endless commentary about housing affordability in Australia but very little awareness that the fundamental issue is the high cost of creating new homes – and that our politicians are the cause of the problem.

The value of dwellings across the nation is underpinned by the cost in building new ones – and, in Australia, that cost is incredibly, ridiculously high.

And it’s high because of the policies of our elected representatives, at all levels of government, but particularly state government politicians.

Right now, after massive increases in building costs in recent years, you cannot build a new house in Sydney, for example, for less than half a million dollars.

A new study has found that the minimum cost of building a Sydney house is $2,300 per square metre – and based on the average size of a new house in New South Wales, that means the cheapest you can build the standard brick and tile house is $550,000.

Now, Sydney is the most expensive capital city in Australia to build a new home, but it’s not significantly cheaper elsewhere.

Research published earlier this year by Master Builders Australia found that the average cost of building a new house nationwide was $490,000 – having increased 53% in the past three years.

Keep in mind that that figure does not include the cost of the land – just the construction cost for the average brick and tile new house.

Master Builders said the cost of building homes had been inflated by higher government taxes, new government regulations which have added massively to the cost of construction, bureaucratic delays in getting building approvals, the increasing cost of materials and the shortage of tradespeople.

Tradies are in short supply primarily because so many are now working on big-ticket government infrastructure projects and are no longer available to work in the home building industry.

Keep in mind, all the figures I have quoted relate to the cost of construction and do not include land cost.

According to the recent study on Sydney home construction costs, the average price of vacant residential land in Sydney is over $640,000. However, it depends on where you buy land and you may have to pay far more than that, especially in established suburbs.

It means that establishing a new house on a block of land can typically cost more than a million dollars in Sydney.

It’s cheaper, but still incredibly expensive, elsewhere in Australia.

I have had recent conversations with a number of builders and developers of residential estates – people doing projects in outer-ring areas of capital cities and in regional towns – and they all say the same thing: they cannot produce a new house on a (very small) block of land for less than $750,000.

I have also spoken to the head of one of the largest development companies in Queensland who says the biggest cost escalations in the residential property industry have been in building high-rise apartments.

The costs have risen so much that it’s unviable for this company to build apartments unless they can be sold for at least $1 million each.

We know from other reports that dozens of major apartment developments have been cancelled because the cost of construction is too high to make them viable.

These outcomes speak to all the major issues afflicting residential property at moment – the shortage of new dwellings, the serious shortage of rental homes and rising rents, and the overall affordability issue.

For those facing the high cost of building new homes in Australia, the reality is that (depending on location with Australia) between 35% and 50% of the cost is government taxes, fees and charges.

All levels of government – local, state and federal – treat the housing industry as a cash cow. In other words, they milk the housing industry for taxation revenue, while claiming to care about the high cost of housing.

They have further inflated the costs of creating new homes by passing laws that change the design of homes – theoretically to make them safer, more accessible or more energy efficient. These imposed design changes have added massively to the cost of building dwellings.

The new construction code imposed by our elected representatives, alone, has added up to $40,000 to cost of building a new house in Australia.

The same problems exist everywhere in Australia. That includes in Canberra, where housing has become a major issue in the lead-up to the ACT election.

A peak body for residential housing wants the next ACT government to implement a four-year moratorium on new regulation and taxes on home building, to give the industry a chance to recover and deal with the shortages.

The Housing Industry Association ACT also wants the government to relax planning rules across some of the territory's residential zones to allow for larger homes and higher density.

It says the ACT is failing "across almost every housing metric".

He pointed to a reduction in residential dwelling commencements, the increased costs to service mortgages and low rental vacancy rates.

The HIA says: "The private housing market has been squeezed by a lack of shovel-ready land, and an explosion in regulation, red tape and taxation. Yet, at the same time as the private construction and rental sectors are constrained, there has been a failure of government to meet its obligations for public housing.

"The ACT has a housing emergency. To do nothing other than continue with the status quo is not an option."

Now, those comments are directed at the dire situation in Canberra, but could be applied equally to most cities across the nation.

Politicians have created the problems and are clueless about how to resolve the issues that are causing prices and rents to rise, and the cost of building new homes to escalate.

How relevant is population growth data for people choosing where to buy?

According to the theories espoused by some, the best places to buy are the ones with the highest population growth.

But the evidence suggests otherwise.

For example, take a look at the latest data on population growth across Australia, published by the ABS recently.

It shows that one of the states with the highest population growth has been one of the worst performers recently on price growth, while one of the states with the lowest population growth has been one of Australia’s best performers on price growth.

For the record, the ABS data on population for the 12 months to the end of March 2024, shows that the national population is now above 27 million  - 27,122,411 to be exact.

Over 600,000 was added to the national population in that 12-month period which, while very high growth, was less than the number added in the 2023 financial year.

83% of the national population growth has been due to overseas migration. In 12 months ended March 2024, Australia added over 509,000 net migrants (made up of 718,000 people immigrating to Australia and 209,000 emigrating). 

Western Australia recorded the highest percentage growth in the 12 months to March, with its population rising 3.11%, compared to the national average of 2.32%.

And that, of course, does align with house price outcomes, with Perth recording the highest price growth among the capital cities and WA achieving the highest price rises among the state and territory regional markets.

The next highest annual growth in population was in Victoria, which rose 2.72%. But property prices haven’t been rising in Melbourne or Regional Victoria – in fact, they’ve gone backwards a little in the past year. So, high population growth, particularly from overseas migrants, has not pumped up property markets in Victoria.

One of the weakest population growth rates has been South Australia, up just 1.48%, but Adelaide has been achieving exceptional growth in house prices and unit prices, bettered only by Perth. And Regional SA has consistently been an out-performer on property price growth as well.

Clearly, based on this evidence, population growth in not the big factor.

It may A FACTOR, one of a number of factors which can influence property markets, but clearly it’s not the big driver.

The latest Australian Bureau of Statistics data has recorded a decline in the number of dwelling approvals across the country.

Total dwelling approvals saw a drop of 6.1 per cent in the month of August, at a time when Australia needs to be building a lot more homes.

According to ABS head of construction statistics, Daniel Rossi, private dwellings excluding houses were the main contributor to the decline – in other words, there has been a big decrease in approvals for attached dwellings like units and townhouses.

This has resulted in a 16.5 per cent fall in approvals for those types of attached dwellings.

Furthermore, the value of total residential building fell 6.7 per cent to $7.96 billion while the value of non-residential building rose 11.5 per cent to $5.30 billion.

The numbers suggest that there’s a lot of construction projects happening in Australia but not enough of them are new dwellings in a nation that has a severe shortage.

A lot of government resources are being directed into big infrastructure projects, and a lot of tradespeople are working on these projects, when the nation really needs these resources to be going into building new homes.

One of the measures of construction activity in Australia is the number of cranes on the skyline.

The infrastructure boom has pushed the total of non-residential cranes across the nation to a record 370, while slumping investment in new housing has reduced the number of residential cranes to a two-year low in the latest report on the country’s construction sector.

The infrastructure boom is keeping construction costs high and making it harder for private projects to stack up, according to Domenic Schiafone, the head of research for quantity surveying firm RLB, which produced the report.

Other data shows that in the 2024 financial year, the number of new homes built in Australia fell 9% to the lowest level since 2011.

If the current rate of building continues, Australia will build around 800,000 over five years, when the Federal Government target is 1.2 million new homes – a figure that was never realistic and looks, now, increasingly fanciful.

HIA chief economist Tim Reardon agrees there are many challenges making dwelling development difficult. According to Reardon, rising taxes for foreign investors and rising regulatory costs generally are negatively impacting building approval figures.

Reardon notes that house approvals in Perth and Brisbane are faring much better than in Sydney and Melbourne. 

He says confidence in the Melbourne new home market has been adversely impacted by two new taxes, while policy debates generated by recent Federal Government actions are making it harder for the industry to achieve the national target of 1.2 million new homes.

Reardon says: “Recent discussions on negative gearing and capital gains tax arrangements for residential property are undermining confidence in new home building. The government’s focus should be on lowering the taxes, regulatory costs and excessive charges that make up as much as 50 per cent of the final cost of a house and land package.”

That’s worth repeating – that, in some parts of Australia, up to half of the cost of a house and land package comprises the taxes, fees and charges imposed by government.

The official figures show that total housing starts for the year to June totalled about 159,000, which is 81,000 homes short of the 240,000 the country needs to be building each year to meet the government’s increasingly aspirational 1.2 million-home target over the five years to 2029.

If building continues at this pace, Australia will build less than 800,000 new homes over the next five years – 400,000 short of the government’s target.

The rise and rise of the unit market is keeping the Greater Sydney market busy, although below the exceptional levels seen in some of the other market jurisdictions across Australia. 

Unit markets are considerably more positive than house markets in our most expensive capital city and the market share of attached dwellings continues to rise.

In our latest analysis, well over half of all residential sales across Greater Sydney are attached dwellings.

In most of the Greater Sydney municipalities where sales activity is strong, it’s the unit markets that are most active. Outer ring house markets are generally subdued, suggesting that those seeking affordable options are choosing apartments and townhouses. 

The dominance of attached dwellings in Sydney market performance can be seen in various metrics, resulting from our most recent analysis of activity.

While 45% of locations with house markets have positive rankings in our latest analysis, 67% of unit markets are positive. This includes 24% of house locations classified as rising markets, in contrast to 37% of unit locations.

This coincides with further evidence that a growing share of dwelling sales in the Greater Sydney market are attached dwellings. 

Comparing the June Quarter results for the past four years, the market-share of units was 48% in 2021, 50% in 2022, 52% in 2023 and 54% in 2024.

So the latest quarter has shown a resurgence in sales activity in Sydney, inspired by rising demand for attached dwellings.

In the City of Sydney LGA, two-thirds of suburbs have positive ratings, headed by the unit markets in Sydney CBD, Surry Hills, Waterloo, Chippendale, Darlinghurst, Elizabeth Bay and Redfern – all rising markets.

In the Canterbury-Bankstown LGA, which has recorded a steady rise in sales volumes over the past 18 months, 60% of locations have positive ratings, most of them unit markets. Those with rising sales activity include the unit markets in Bankstown, Belmore, Canterbury, Campsie, Lakemba and Wiley Park.

The City of Parramatta fits this pattern also. Two-thirds of markets have positive ratings and 10 of the 13 ranked as rising are unit markets – headed by North Parramatta, Sydney Olympic Park, Toongabbie and Westmead.

Top end municipalities that continue to pump strongly include the Woollahra LGA, where there have been steady increases in quarterly sales over the past 18 months. The apartment markets in Double Bay, Vaucluse and Edgecliff are all rising, while those in Rose Bay, Woollahra and Paddington have consistent buyer demand.

The City of Randwick is also very consistent with its sales levels, boosted by rising activity in the unit markets of Kensington and Matraville, the house market in Randwick, and both houses and units in Maroubra. In the City of Waverley, another place with steady quarter-by-quarter sales, the leading locations with rising sales are the unit markets in Bondi, North Bondi, Bondi Junction and Waverley.

In the outer-ring areas, the City of Penrith at the western fringe of Greater Sydney has recorded a recent upsurge in market activity and six out of ten markets have positive rankings. Rising locations include the house markets in Jamisontown, Kingswood, Penrith, St Marys and Werrington, as well as the unit markets in Colyton, Kingswood and St Clair.

But the City of Liverpool is where house markets are doing best, amid a recent upturn in sales volumes – led by Green Valley, Moorebank, Prestons and Wattle Grove. The unit market in the central suburb of Liverpool is also notably strong.

The Regional New South Wales market overall is solid, without excelling at the levels seen in other regional areas like Queensland and Western Australia, but with individual out-performers.

There is hesitancy in the Regional NSW market overall. It has a high number of locations where buyer activity is lukewarm and price performance below the levels seen elsewhere in the nation.

It’s noteworthy, however, that Regional NSW has seen better performance in its unit markets than its house markets, which is part of a national trend.

Overall sales levels have improved, continuing a pattern of recovery over the past year, but remain well below the peak levels of 2021. Regional NSW saw a major decline in its market in 2022 and early 2023, with signs of gradual revival seen since mid-2023.

Amid this overall patchy performance, there are some standout growth markets, based on individual Local Government Areas including those in the Wollongong, Newcastle and Albury regions.

The Wollongong region continues to be a state-leading star. The City of Wollongong LGA has an above-average number of rising locations and the nearby Shoalhaven LGA continues to thrive: quarterly sales over the past 18 months have been rising steadily, showing one of the best patterns of growth in the nation. The Shellharbour area is also part of this region’s growth.

Newcastle remains an outstanding market and neighbouring LGAs including Lake Macquarie, Port Stephens and the Hunter Valley municipalities all have busy markets.

The Mid Coast LGA has delivered steady increases in market activity over the past year, quarter by quarter. Both Forster and Tuncurry have rising markets and Taree is highly consistent.

While those markets are heading into over-drive, some of the high-profile regions of NSW have not yet got out of second gear. 

The Central Coast still has a degree of uncertainty; Byron Bay is showing signs of recovery, after a high peak in 2021 and a deep post-boom trough in 2022 and 2023, but remains well peak the 2021 boom levels; and both Coffs Harbour and Port Macquarie have had patchy results over the past year, with indications of recovery in the latest quarter.

The Tweed LGA is showing signs of joining the boom experienced north of the border in the Gold Coast region, without yet being fully on board.

Elsewhere in Regional NSW, Dubbo, Wellington, Orange, Gunnedah, Inverell and Tenterfield are classified as rising markets; Goulburn and Mudgee are rated as recovery markets; and Armidale, Glen Innes and Parkes stand out for consistent sales activity.

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Household wealth in Australia keeps rising and the key reason for that is residential property – which accounts for 68 per cent of the total wealth of Australian households.

New data from the Australian Bureau of Statistics (ABS) shows that total household wealth has reached $16.5 trillion.

Now, that number doesn’t mean much to the average observer, so here are some other numbers that give it some context.

That household wealth figure represented a 1.5 per cent rise in the June quarter and the current level of the highest on record.

It’s 9.3 per cent higher than a year ago, and it means the overall level of household wealth in the nation has increased for seven consecutive quarters, driven primarily by residential land and dwellings.

Dr Mish Tan, head of finance statistics at the ABS, notes that house prices have continued to rise across most states and territories, despite high interest rates, and said this largely reflects ongoing housing supply constraints.Property assets reached an unprecedented level of $11.2 trillion as of 30 June 2024, making up around 68 per cent of household wealth. The surge in household wealth over recent years has largely been attributed to rising property prices.

Households also hold $1.72 trillion in cash and deposits or 10.4 per cent of their total net worth, alongside a record $3.94 trillion in superannuation assets.

Now, one of the ways that residential real estate has pumped up household wealth in the past year or so, is the steady rise in the number of suburbs across Australia with a median price above $1 million.

According to CoreLogic, the number of Australian suburbs with a $1 million median price for either houses or apartments has reached a new record high.

Over the 12 months to September, 218 more suburbs surpassed a $1 million median for houses or apartments. Australia now has 1,257 suburbs with a median house value at or above $1 million, as well as 140 suburbs with a median apartment value at the same level.

And if you want to discover which suburbs are most likely to join the Million Dollar club in the near future, get yourself a copy of our newest report – the national Top 10 Million Dollar Hotspots report.

Hotspotting has published this report in conjunction with multi award winning buyers agency Propertybuyer – and it provides valuable insights into where to buy real estate in locations where the median price is below $1 million, but expected to surpass the milestone figure in the not too distant future.

ANZ, the worst forecaster on property price outcomes in the nation, has just published its forecasts for what will happen with house prices in 2024.

Yes, that’s right. They’ve published, in October, forecasts for house prices this year, a couple of months before the end of the year.

Why have they done this? Because it’s the only chance ANZ has of getting it right with its property price forecasts. 

Essentially what it has done with these “predictions” is take the existing situation and extrapolate it two months into the future.

So, you will be amazed to learn that they’re predicting that Perth, Adelaide and Brisbane will lead on price growth in 2024.

You’d pay good money for insights as sharp as that, right?!

The big four banks, collectively, have terrible track records in forecasting property price outcomes. 

They are ALWAYS – and I do mean ALWAYS – wrong, but usually they are spectacularly wrong.

But ANZ bank is the worst of them.

At the start of 2024, it predicted house prices would fall across the nation in 2024 – by as much as 15%.

They did the same at the start of 2023 – forecasting massive decline in house prices.

Of course, it’s now clear that they got this horribly, horribly wrong – because they just don’t understand real estate dynamics.

Their reason for expecting prices to collapse in 2023 and again in 2024? Because of high interest rates.

Essentially that’s all they have in their kit bag of real estate knowledge.

Interest rates high or rising? Property prices fall, according to the ANZ mindset.

Except they don’t – and they didn’t.

ANZ has a few problems at the moment. It’s been taken to court, successfully, by federal authorities like ASIC because it’s not only incompetent, it’s an organisation with dodgy ethics.

But once they sort out their legal issues, they might turn their attention to sacking their senior economists who continually pump out ridiculous reports claiming to be research – including absurdities like forecasting property price outcomes for the calendar year, just two months before the end of the year.

The report, rather comically, is titled “Property Insights” – but there is nothing insightful in this report or anything else emanating from ANZ any time in the past several years.

The biggest paradigm-changing trend in Australian real estate, the rise and rise of apartments, is confirmed by the latest price data from the usual suspects – and is reflected in our choices for the latest edition of our most popular report, the National Top 10 Best Buys report.

The latest price data from CoreLogic shows that unit prices are rising faster than house prices.

While news media, in its predictable fashion, focussed on the perceived negatives in the CoreLogic Home Value Index published in October, my analysis of the figures is that they provide further evidence that rising demand for attached dwellings is creating out-performance on price growth.

Perth still leads on growth in house prices, but the numbers for growth in unit prices are considerably stronger, both for the past month, the past quarter and the year to date.

According to CoreLogic, Perth prices rose 1.6% in September for houses but 2% for units.

In the September quarter, Perth house prices increased 4.6% but unit prices were up 6.2%. 

And, for the first nine months of 2024, house prices are up 17% but unit prices more than 20%.

It’s the same for one of the other hot city markets, Adelaide. 

House prices in Adelaide has recorded strong rises in the month of September, the September Quarter and the year to date, but unit prices have increased more in each of those time frames.

The price outcomes are even more emphatic in Brisbane: house prices rose 2.4% in the September Quarter, but unit prices rose 4.8%, exactly twice as much. And the year to date growth numbers are 10% for houses but 14% for units.

In both Sydney and Melbourne, which have not been matching the smaller cities on growth, the numbers are nevertheless stronger for units than for houses.

And nationally, median prices grew 0.4% for houses but 0.6% for units in September, while in the September Quarter houses were up 1% but units 1.2%.

The differential is greatest in the Combined Regional markets, with units outperforming houses in the month, the quarter, the year to date and in the past 12 months.

And that holds true for most of the individual state regional markets, notably Western Australia, New South Wales and South Australia. In Regional Queensland, where many regional cities have highly active markets, the numbers are fairly even.

Overall, these numbers are the latest piece of evidence that the old paradigm of real estate, that houses always outperform units on capital growth, is changing and in many locations HAS changed.

As we comment in the report we recently published with marketing company Nuestar, the one we call The Rise and Rise of Apartments, there is growing buyer demand for attached dwellings across Australia.

Units now accounts for more than half of all sales in the Sydney market and they have a growing market share in Melbourne, Brisbane and Canberra as well.

In the booming Perth market, where houses are no longer the cheapest in capital city Australia following massive price growth recently, more and more buyers are pivoting to the more affordable and often better located unit products in the market.

And now this compelling trend in national real estate is a big influence on our choices to the nominated locations for the new edition of the National Top 10 Best Buys. 

Many of the nation’s strongest locations for unit demand are prominent in this report – as well as some of the most vibrant house markets in key locations across Australia.

Join us for an insightful and essential webinar hosted by Terry Ryder, Founder of Hotspotting, and Corinne Bohan, Managing Director of Image Property, as they dive into the crucial role of professional property management in today’s rapidly changing rental landscape.

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