Hotspotting

The latest government data shows that household wealth in Australia continues to rise and residential property is the main reason for that.

New data from the Australian Bureau of Statistics has shown that the wealth of Australian households has risen for a sixth consecutive quarter, with residential land and house prices the largest contributor.

The ABS figures indicate that household wealth on average increased 2.7 per cent in the March Quarter. 

In raw numbers, our collective wealth increased by $431 billion - to reach over $16 trillion.

Those numbers are probably meaningless to most people – but the total wealth of Australian households is now 10 per cent higher than it was a year ago.

Residential land and dwellings were the largest contributors to quarterly growth in household wealth.

And the ABS figures show that, overall, residential property accounts for two-thirds of our wealth. 

Dr Mish Tan, who is the ABS head of finance statistics, says that “Rising asset values continue to drive growth in household wealth, with house prices continuing to increase.”

Other ABS data shows ongoing growth in loans for the purchase of residential real estate.

And the growth in lending to buy property is occurring both for owner-occupiers, including first-home buyers, and for investors.

The figures emphasise just how important residential property is in the economic life of the nation and how the ongoing growth in property values underpins the financial fortunes of most Australian households.

Investors come to property markets in many different shapes and sizes, but our observation is that most are seeking a level of affordability.

The official data shows that most Australians seeking to buy investment properties are not wealthy, with most having incomes below $100,000, and most have just one property or are buying a rental property for the first time.

This dictates, for many, a purchase somewhere in the range from $400,000 to $600,000.

Fortunately, there continue to be options in regional Australia where buyers can access houses in this price range in locations which have good prospects for future capital growth.

Our day-to-day research shows that investors can buy in regional areas at affordable prices, achieve above-average rental yields and look forward to good price growth.

That old attitude that you have to make a choice between strong capital growth or high rental yields is one of the great misconceptions of residential real estate.

If you choose your location well, you can have a good combination of both.

Those seeking to buy in that price range between $400,000 to $600,000 can still find possibilities for houses in the cheaper areas of some of our capital cities – and, increasingly, investors who are aware of the current trends can find good options in the market for units and townhouses.

In cities like Brisbane, Perth, Adelaide and Melbourne, you can buy units in inner-city areas in that affordable price range.

The rise and rise of apartments and townhouses as the dwelling of choice for many important cohorts has meant that attached dwellings are increasingly challenging detached dwellings on capital growth, while providing cheaper buy-in prices and higher rental yields.

So, how can you find out more about the possibilities?

By reading our new Cheapies with Prospects reports.

We have two editions of the Cheapies reports – the city edition and the regional edition – and in these reports the key criteria are that the locations have affordable options and the credentials for capital growth.

The new editions are available now and provide clues to the places you can look to find that precious combination of affordability, good rental yields and potential for growth.

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The unfortunate reality is that the core problems afflicting housing markets don’t get fixed because politicians don’t understand the problems AND they’re unwilling to consult with the people who do.

If a state government gets the message that’s there’s a serious rental shortage, the only response will be to announce they’re going to build a million new dwellings over the next 10 or 20 years – which doesn’t address the core issue at all and is unlikely to ever be delivered anyway.

Politicians are incapable of coming up with anything else as a response to an immediate and pressing issue.

If a state government gets the message that housing affordability is a big issue, the only response will be to announce grants or stamp duty concessions for first-home buyers.

This, too, does not address the core issue – the high cost of housing in Australia and in particular the ridiculously high cost of building new dwellings – but it’s all they have in their kit bag of ideas.

And this speaks to one of the core issues for the dwelling industry – politicians appear to believe that the only people in society who deserve any consideration or assistance are first-home buyers.

And that’s reflected in the state and territory budgets delivered recently: a number of governments have announced measures to assist first-home buyers.

Tasmania has decided that first-home buyers will pay no stamp duty on a home costing less than $750,000.

South Australia has announced a similar measure, while Queensland says it will provide stamp duty discounts for first-home buyers paying less than $700,000 for a home.

From the viewpoint of first-home buyers, that’s better than nothing but it doesn’t address the very high cost of dwellings or the shortages that are causing prices and rents to rise.

And it doesn’t help anyone other than first-timers. 

What about other real estate consumers?

What about second-time buyers? What about downsizers? What about investors who supply 90% of the homes that people rent, where there’s a chronic ongoing shortage.

Consider second-time buyers. They might be a young couple who bought a small apartment as an affordable first dwelling. But now they’re starting a family and need to upgrade to a larger home. There is no assistance and no concessions for them. The costs of selling and buying elsewhere are huge, with stamp duty a massive impost. 

Politicians have often made statements urging older Australians to downsize – to sell the family home now that the kids are adults and have moved on, and make those family homes available to young buyers.

Apart from the daunting prospect of moving house, the big issue that stops many people from downsizing is the hideous cost of selling their home and buying elsewhere. 

Based on the national median price for a house, the total costs of relocation can be around $100,000 – with a huge chunk of that being stamp duty on the purchase of the next home.

But most state and territories don’t recognise this reality.

Tasmania is an exception. It has a 50% stamp duty concession for pensioners downsizing.

If politicians were genuine and fully understood the issue, stamp duty would be abolished for downsizers.

And then we have investors, that cohort that politicians and journalists like to vilify and demonise – and misrepresent as greedy rich bastards ripping off the system.

The reality is that the typical investor buyer is young, earning less than $100,000 and is buying for the first time or owns one other property.

Landlords are in short supply and people need to be encouraged and incentivised to buy properties and make them available for long-term rental.

Right now, there are no incentives to take on that very big risk and burden in the hope of making gains in the future. 

There are many, many disincentives, including land tax, capital gains tax, onerous state laws favouring tenants - and escalating costs, including interest rates, insurance premiums, council rates and maintenance costs.

These people need and deserve financial incentives – and, given that investors usually pay more in stamp duty than home buyers, it would be both wise and fair to provide stamp duty concessions or exemptions to investors to encourage more rental supply.

But don’t hold your breath. The thought would never occur to politicians, who appear to believe that the only cohort in the community that warrants assistance with the high cost of dwellings is first-time home buyers.

One of the core reasons the national shortage of dwellings is so serious is that it coincides with a record increase in the nation’s population.

The latest data shows that Australia’s population grew 651,000 in 2023, the highest number in the nation’s history.

84% of that growth was attributed to overseas migration.

Now, the record level of population growth last year did NOT cause the shortage of dwellings including the under-supply of rental homes.

The seeds of the shortage were sewn years earlier by bad government policy and have been exacerbated by bad governance every year since.

But that very high level of population growth has made a serious problem more dire.

Australia now has a population of 27 million, up 2.5% in 2023.

All states and territories recorded population growth during last year, although many of them were net losers of population to interstate migration. 

It was overseas migration and natural increase that allowed the weakest jurisdictions to record increases, despite losing population from people leaving to live elsewhere in Australia.

New South Wales, the most populous state, did not record the biggest rise in numbers - Victoria added more to its population (186,491) than NSW did (185,459) both in raw numbers and in percentage terms.

Queensland also had a big rise, adding 141,378 people - because it had by far the largest net gain from interstate migration.

Notably, every state and territory was a net loser through interstate migration EXCEPT Queensland and Western Australia - which means lots of people are relocating and most of them are moving to Queensland or to WA.

WA in fact recorded the biggest population increase in percentage terms last year, rising 3.31%, followed by Victoria (up 2.78%) and Queensland (2.62%)

The places with the weakest growth were Tasmania and the Northern Territory, which both were net losers to internal migration but gained a little from overseas migration.

NSW made the biggest gains from overseas migrations but was the biggest net loser from internal migration.

So, what does all that mean for real estate?

Based on the population trends, where would you be buying real estate?

Based on these numbers, you would be focusing on Queensland and Victoria, as well as WA - although we continue to urge caution on the frenzied Perth market.

And where would you be avoiding? Tasmania and the Northern Territory, which both have weak economies and negative population figures.

But it pays to keep in mind that there is data to consider OTHER THAN population trends.

The most concerning thing about the unprecedented shortages which afflict Australian real estate markets is not that they are driving up rents and prices across the nation.

Alarming though that is for tenants and for first-home-buyers, the truly concerning thing is the myriad ways in which our elected representatives keep making those problems much, much worse.

Every time a state or territory government passes legislation or announces a policy move or hands down a budget which impacts on the rental shortage and housing affordability issue, they make it worse – not better.

This is the unsung scandal of Australian politics – that, at a time when the cost of living is such a big issue for so many people, the biggest single cost in the budget of most households (the cost of accommodation) keeps getting worse because our politicians keep making decisions that make it more and more costly.

In recent weeks we’ve witnessed the delivery of the Federal Budget and state and territory Budgets– and there’s not a single measure in any of those budgets which deals with the high cost of building and buying houses, or with the chronic shortage of rental properties which is causing residential rents to rise and rise.

But there are numerous measures in those state and federal budgets which, directly and indirectly, make those core housing issues worse.

And the big-spending pre-election vote-buying handouts in some of those budgets have added fuel to inflation which is likely to keep interest rates higher for longer.

If Australia had a news media worthy of its place in society, there would be headlines screaming about this every day.

What we do have, every day, is articles and commentary reminding us that there’s a shortage, items on the plight of tenants and on the lack of affordability in real estate – but there is little or no coverage of the steady flow of measures from politicians which continue to make all the problems worse.

And there has been little or no commentary on the reality that none of the budgets handed down in recent weeks contain any measures to directly address the shortage of homes available for rental.

Some state budgets have policies to build more social housing over the next 4-5 years, but nothing to address the immediate shortage of tenancies.

There has not been a single measure to provide encouragement or incentives to the people who provide over 90% of the homes people rent – private mum-and-dad investors.

What there has been, notably in the state budgets from the governments of New South Wales and Victoria, and in other policies they have announced, is a series of measures which increase the costs on the people who provide the product that’s in short supply, particularly with new or increased taxes.

The industry has sought to warn governments that measures like these will likely worsen the dire shortage situation by forcing investor owners to sell up – or further worsen the plight of tenants by forcing landlords to increase rents.

Investors owners have experienced massive increases in their costs recently, with higher interest rates, higher council rates, higher insurance premiums, higher maintenance costs – and, in the case of Victoria and NSW, major hikes in land tax and other taxes.

This has meant that rental properties that previously paid their own way are now in a serious loss situation. This forces owners to either sell or increase the price of the product they provide, which is a home for rent.

Victoria has exacerbated the problems in that state by introducing new requirements on the standard on the dwellings which will force owners to spend between $5,000 and $10,000 on upgrades.

This will tip many owners over the edge and force them the sell – and their tenants will lose their homes.

This is already happening. A new report has found that over 3,000 investors sold their Melbourne properties in May alone – and, across Victoria, almost 4,000 rental properties are listed for sale, according to Suburbtrends.

Given the strong anti-investor stance of the Victoria state government, the properties being sold are unlikely to be bought by investors, so they will be lost from the pool of rental properties – and vacancy rates will continue to fall, which puts further upward pressure on rents.

One of Australia’s most respected property analysts, Simon Pressley of Propertyology, has said his business will not recommend Victoria to investors until there was a change in attitude from the state government.

The firm is instead steering would-be investors to specific locations in other states.

He has warned that the lack of new investment in Victoria had made the situation for tenants “ugly”.

But it’s not only Victoria. It’s also happening in New South Wales, with thousands of investor-owned properties currently listed for sale.

The state budget in NSW includes significant increases in land tax – and, according to multi-award-winning buyers ‘agent Rich Harvey of propertybuyer, the changes will cause more investors to sell in NSW and will also prompt intending buyers to avoid NSW.

The NSW state budget also imposes a major Emergency Services Levy burden on property owners - and increases taxes on foreign investors, which will also have the impact of reducing rental supply.

The Property Council said the NSW budget bombshell “beggars belief”.

The Council’s NSW executive director Katie Stevenson says: “It’s a massive cost for property owners facing a once-in-a-generation housing supply and affordability crisis.”

The Australian’s wealth editor James Kirby commented that Sydney’s “prime position as the nation’s hottest property investment market is now in jeopardy”, with investors likely to be driven away from the city.

The national president of PIPA, Nicola McDougall, said about NSW: “This has come out of nowhere. It’s going to drive rents higher and it’s going to force investors to sell up, just like it has in Melbourne – I really wonder: does the NSW Government understand this?”

And my answer would be: No, they really haven’t got a clue. Or, if they do understand, they don’t care about the plight of the one-third of households in NSW who rent their accommodation.

In Queensland, where the State Government faces an upcoming election, the State Budget has thrown lots of electioneering cash at Queensland families to help them pay increasingly high electricity bills and for car registration fees, and there was a renters relief package – but there was nothing to increase the supply of rental properties and reduce the cost of building new homes.

The Queensland Budget stated the ridiculous objective of building a million new homes by the year 2046 – ridiculous because it’s based on the current government remaining in power for the next 22 years, when the polls suggest they won’t survive in government beyond the state election in October this year.

And, like other states, Queensland has slugged foreign investors with higher taxes – which will have the impact of further reducing rental supply and preventing the construction of major apartment buildings.

And so the process continues. 

The rental shortage has been created from years of politicians discouraging, demonising and disincentivising investors – and they continue to make the situation worse for tenants with ongoing measures which punish investors and exacerbate the shortage.

The high cost of building new homes, whether they be houses or townhouses or apartments, has been largely, though not entirely, caused by imposts from various levels of government, including local councils, but in particular by state governments.

They keep changing the guidelines in ways that add to those costs and they keep slugging builders and developers with taxes, fees and charges – as well as mind-numbing bureaucratic delays which also add to the costs in times of high interest rates.

The result is that the standard house-and-land package is so costly as to be increasingly unaffordable for young buyers – and they keep adding more and more layers of cost, including the new construction code which adds up to $40,000 to the cost of building your standard brick and tile house.

As a society, we should be outraged by this. Our elected representatives have made housing increasingly unaffordable, both for purchase and for rental, and each passing month they make it worse, while blaming others for the problems.

According to our national newspaper, The Australian, the fact that property prices have continued to rise in spite of higher interest rates is, and I quote, “weird” – and apparently the people described by the newspaper as “experts” are scratching their heads about it.

The article that contained this nonsense was just another plank in the ever-growing pile of misinformation about real estate issues perpetrated by economists and journalists who don’t allow their ignorance of property issues to prevent them from commenting about them.

Journalist Anthony Keane is the personal finance editor at The Australian. And given that he has a fancy title and he works for this major standard-bearer Newscorp publication, the national newspaper, we the readers are entitled to expect him to know something about the subjects on which he pontificates.

Sadly, he does not.

In claiming that it’s unusual, indeed “weird”, for prices to rise when interest rates have increased, he is demonstrating that he’s not a student of history and he doesn’t waste any time on research before banging away on his computer keyboard.

He simply regurgitates the outpourings of economists who subscribe to the kindergarten analysis view that falling interest rates mean property prices rise and rising interest rates mean property prices fall.

That pretty much sums up the views of senior economists working for the big four banks and others like them. They continue to believe that interest rate trends dictate everything in real estate, although there is a mountain of evidence that confirms this is not the case – notably in the past 18 months.

Many of Australia’s most spectacular property booms have occurred during times of high and and rising interest rates, including in the late 1980s and the early years of this century, when mortgage rates were higher than now and rising, but market activity and prices kept on increasing.

Last year, we had the RBA continuing to lift the official interest rate – we saw a total of 13 monthly rises by the time they paused – and yet we had substantial price growth nationally, including boom-level price increases in several of our capital cities and also in several regional markets.

According to Anthony Keane, this represents what he calls “a new world of weirdness”.

The reality is that it’s not weird, it’s quite normal.

And the people who are apparently “scratching their heads” about it are not experts. If they had expertise, they would understand the dynamics in real estate markets and be unsurprised at the price outcomes.

People who are really bad at predicting housing markets and price outcomes, like the big bank economists, would rather claim the market is wrong than admit that they are.

The past 18 months in real estate has not been an aberration or a unprecedented maverick event – it’s simply another demonstration of the reality that interest rate events are NOT the prime influence on trends in real estate.

Right now there are far more powerful forces in play, including the imbalance between supply and demand.

So, is this (as suggested by The Australian) a new world of weirdness? 

No, it’s not, it’s simply business as usual in property markets across Australia, in which interest rates are a factor but not a particularly powerful force – in times when the biggest influence is the shortage of everything important in real estate at times of high demand, causing prices, rents and yields to rise in good locations.

Far from this being a case of “weird is the new normal”, normal continues to be normal.

The new 2025 Financial Year is upon us and, as we do every year, we are making special offers to real estate consumers and to our business customers.

One of the key factors for success for real estate investors is basing decisions on quality research.

As we launch into the new financial year, it’s crucial to have the best information at your fingertips.

To help set up investors with a suite of reports that cover all the key bases, we’ve put together a bundle of reports that nominate great locational options for capital growth, for rental yields and positive cashflow, as well as our Australian Property Guide that provides information about the key rules and costs like stamp duty in each state and territory.

So this special bundle provides the new edition of National Top 10 Best Buys, as well as National Top 10 Positive Cashflow Hotspots report and the Australian Property Guide at a price that saves you $248 if you bought each of those three reports separately.

Having these three reports gives you a major head start on the competition for the best places to buy in Australia in FY2025.

For real estate professionals we have two key membership products, Property Pro and Enterprise.

These provide a range of features, including access to our new one-stop-shop research portal, all our hotspots reports and a range of other key benefits.

Our EOFY special deals provide a saving of $1,500 for the Property Pro membership and an annual saving of $3,000 for the Enterprise membership.

Overall, it’s a package of special deals that has something for everyone, whether you’re an investor who wants to buy, an investor who plans to sell or a real estate professional with a business seeking to provide the best advice to customers.

And if you want to take advantage of these offers, you need to take action this week – as the special deals expire on June 30.

The most successful property investors have some features in common - and making decisions based on genuine research is one of the key ones. But those people are relatively rare.

My observation of the behaviour of investors over four decades shows that more people make investment decisions based on media soundbites than on real research.

And, as we embark on a new financial year with all kinds of competing forces in play in real estate, it’s more important than ever that real estate consumers base their decisions on research, rather than media frenzy and herd mentality.

Far too many people are leaping recklessly into the Perth property market because mainstream media keeps telling them that prices are booming and will keep on doing so, backed by commentary from real estate people who have a vested interest in prolonging the boom.

At Hotspotting, we think this media soundbite approach is fraught with peril and that many of the people diving into the Perth market - grabbing anything that’s for sale and paying more than the asking price, without regard for the quality or location of the property - will regret their decisions made in haste without proper due diligence.

It’s a reflection of those views that our new edition of the National Top 10 Best Buys report does not include any locations in Perth. Based on detailed research, we think this market has peaked (after three years of major price growth) and will not be the national leader on capital growth in FY2025, as some are predicting – or hoping.

We think there are other, better places for people to be putting their money – safer, less volatile, less heated markets with good potential for capital growth. Well-researched investors buy in areas with growth credentials BEFORE prices escalate.

Our choices for good locations to buy in FY2025 are based on research-based knowledge of the key trends driving demand in the best locations across Australia. 

We’re not focused on short-term sugar-hit gains; we’re focused on places we think will do well in the medium to long term. We base our choices on economic factors, demographic trends and on the locations of influence from big infrastructure developments.

At Hotspotting, we are constantly on the look-out for evidence of change in property market trends and individual locations.

Places that have been weak performers on capital growth in the past can become the leaders of the future because something major has changed in that market – often caused by the development of major new infrastructure.

Sometimes it’s a significant demographic shift – such as the trend that has seen large numbers of people leaving the biggest cities and moving to smaller cities or to regional areas, in search of a different and more affordable lifestyle, enabled by technology.

In the past 12 months we have observed a surge in demand for units and townhouses by a range of buyer cohorts, for a host of different reasons – and this is changing one of the dominant paradigms of real estate: that houses outperform units on capital growth.

We have also seen he re-emergence of markets that had exceptional price growth from 2020 to 2022, have had 18 months of correction or flatlining and now are starting to grow again. We call them “the second wind markets”.

Real estate is dynamic, with change as a constant: if you read the new edition of our National Top 10 Best Buys report, you will know about all the key trends that matter in the new 2024-25 financial year.

The report we call The Pulse provides critical intelligence for property investors because it shows how you can get both a high rental yield and excellent capital growth if you choose your location well.

Recent editions of The Pulse have featured locations where rents have grown 10-15-20% in a year, but so have property values – providing the ultimate win-win-win situation for property investors.

Hotspotting produces this report in association with leading national experts on property depreciation, Washington Brown – who provide additional key elements to the data in this report.

The figures from Washington Brown show that intelligent application of depreciation tax benefits can create a significant increase in the rental yield of your property.

It depends on a number of factors, including the tax bracket you are in, but typical depreciation benefits for an investment property can lift a 6.3% gross rental yield to 6.75%.

A 6.4% yield can improve to 6.8% or 6.9%.

Tyron Hyde, the CEO of Washington Brown says that “Depreciation is the secret sauce when it comes to property investing - and can turn a good, positively geared property into an even greater property! 

“Better yet, depreciation can turn a negatively geared property into a positively geared scenario.”

Tyron Hyde reminds us that property investors are able to claim the wear and tear of a property against their taxable income, which should be factored into the yield of a property.

Depreciation is a non-cash deduction, which means, unlike all other expenses on your property, you don’t have to pay for it. 

The depreciation amount you can claim is built into your property when you buy it; you just need a Quantity Surveyor like Washington Brown to calculate the number.

So, if you get a copy of The Pulse, you can learn a number of key things for property investors: 50 locations which are affordable, where you get above average rental yields, and which have good potential for capital growth – and the important data from Washington Brown which shows how depreciation benefits can turn a good rental yield into a great rental yield.