Canberra’s been a destination of choice for investors looking for steady growth for several years now.

Being somewhat insulated from economic conditions due to its reliance on the federal government as a significant employer has meant it’s often not as subject to the peaks and troughs in value growth as other markets, and this is the main factor for its steady growth. However, its tight land supply ratio – leading to high prices and characterised most spectacularly by homebuyers camping out for new land releases last July – and high average income, have meant that prices remain robust.

However, it’s possible the beginning of 2011 may have seen the city’s steady progression hit the skids. RP Data’s provisional figures for January, which the research firm stresses are likely to be revised, show an overall fall in values of 3.8% (seasonally-adjusted) in the quarter leading up to January – the largest drop in the country. That’s made up of a 4.5% drop in house prices in January alone, and a 6.5% fall over the quarter – and only mitigated by a 4.3% increase in unit prices over the quarter. According to RP Data, that has led to an overall 0.6% fall in prices over the past year. Residex also recorded a fall in the median house price value over the January quarter – albeit a more modest 0.58% – and median unit price climbing by 3.59%.

So what’s going on? Tim Lawless, research director at RP Data, puts the unimpressive performance down to affordability.

"The median price for houses is becoming very expensive," he comments. "That’s bringing affordability issues, despite the typically higher wages in Canberra."

Indeed, RP Data charts the median house price at $555,000 – outstripped only by Sydney, $5,000 higher than Darwin, and $65,000 above the national average.

So, if houses are becoming unaffordable, does that mean the market is stalling? It appears not: if anything, Canberrans are aping Melbournians and Sydneysiders, and switching their attentions to the unit market. RP Data reckons median unit prices shot up by 8.6% in January alone: the only unit market in the nation to show growth. Lawless suggests this could be due to a number of factors. 

"The median unit price is below the national average, so they’re quite affordable in comparison to houses. They also tend to be closer to civic centres than much of the freestanding housing stock, which is also attracting buyers." 

Also driving growth is the fact that Canberra’s unit market is fairly limited – and supply is expected to remain tight for the foreseeable future. Lawless recommends that investors should focus their attention on this part of the market if they’re looking at Canberra as an investment option. 

Even so, BIS Shrapnel economist Angie Zigomanis injects a note of caution.

"There are some areas of concern affecting the Canberra market," he warns. "First is the high level of construction, which could lead to oversupply in the future. The second is the rhetoric coming from the federal government about cutting costs. The last time there were civil service cuts in the mid- 1990s – when the Liberals last got in – it dented the housing market for a good two to three years, and it only really bounced back when government started to expand again in the early 2000s."