Canberra has defied the gloom surrounding public sector job-shedding to record another strong year for house price growth. However, a looming dwelling surplus promises to pose a few growth hurdles in 2013.
The prospects of the Canberra property market are causing some division amongst analysts, with some expecting values to continue to push upwards and others predicting sideways movements and potential declines.
Australian Property Monitors (APM) data reported Canberra striking a new house median high in 2012, with the June quarter figure coming in at $575,825, edging out the previous high median of $573,829, recorded in the March quarter, 2011. This signalled that Canberra had become the first capital city to officially recover from a nationwide adjustment phase, according to Andrew Wilson, APM’s senior economist.
“Canberra has been very solid and has recorded its highest median price on record,” says Wilson. “The height of its next house price cycle can now move to the next level.”
Wilson puts Canberra’s success down to a general shortage of accommodation, being fought over by dual income households with plenty of borrowing eligibility. The result is a lofty entry level and thick midsection.
“In 2012, Canberra had probably the highest bottom end of the market, in terms of median house prices, for all the capitals,” Wilson says. “Then, there is a very dense middle part of the market and that’s driven by the constant pressure from below. It also reflects a low unemployment rate.”
During 2012, Canberra managed to stave off some doubts over whether the market could withstand cost-cutting measures undertaken by the federal government, in a bid to bring the budget back to surplus by the promised 2013 deadline. For some, this only means the same challenge will be faced in the coming year.
“Everyone has been quite pessimistic about the ACT for the last 12 months on the basis that the government is trying to rein in spending,” says Paul Braddick, ANZ head of property research. “But if you look at the labour statistics for the public sector and the broader ACT economy, they have been strong. Rather than job cuts, employment has grown so the housing market has held up.”
Braddick remains cautious going forward, noting that if substantial cuts were to occur, the damage could be extensive.
“The public sector is extremely important for the ACT,” he says. “There is virtually no industrial base to speak of. The commercial base surrounding the broader public service is there just to supply and service that sector. If you start seeing public sector job cuts, it will be a situation like Tasmania, where a lot of younger professionals will leave the ACT. Big scale job cuts would be a worst case scenario, but not an unreasonable one.”
Supply and demand factors
1. Affordability
Canberra households continue to enjoy the benefits of healthy, professional wages and often in dual income situations. Favourable pay conditions have seen the nation’s capital retain its position as Australia’s most affordable state or territory housing market for the sixth year in a row, according to the latest Adelaide Bank/REIA Housing Affordability Report.
Furthermore, affordability improved on previous years for Canberra families, with a proportion of just 17.2% of household income required to meet mortgage repayments. This figure represented a 1.6% decrease from the June quarter of 2011 and is nearly 15% below the national average of 31.9%.
The quarter also saw a 1.9% increase in the number of first home buyers, indicating a number of new market entrants sought to take advantage of the affordability.
2. Record construction
A long-term housing shortage is likely to ease in 2013, with a large number of properties expected to come onto the market following a period of substantial construction.
The QBE LMI Housing Outlook says that a strong shift from renters into owner-occupied dwellings resulted in a substantial increase in demand for stock, particularly in areas close to the CBD and on the foreshore between 2009 and 2011.
“New dwelling activity rose to a record 5,100 starts in 2010-11,” the report says. “As the construction pipeline works its way through to completion, the ACT market has moved into an oversupply estimated at 1,200 dwellings at June 2012.”
The report estimates that the dwelling excess will increase to 2,300 by 2013, 3,200 by 2014 and 3,400 in 2015.
3. Increasing vacancy rate
The new availability of housing is likely to see vacancy rates move upwards in Canberra, which will put downward pressure on rental values. The QBE LMI report has the vacancy rate currently at 2.8%, after being below 2% for the previous two years. According to RP Data, some negative movements have already begun.
“Despite price resilience, there has been some recent weakness in the Canberra rental market,” says RP Data national research director Tim Lawless. “House rents [are] down 3.3% over the past 12 months, while unit rents showed a 1.4% improvement.”
Unit rents may have improved in the past 12 months, but much of the new stock yet to emerge on the market will be units, meaning a potential negative impact.
4. Population fl ow
In the past, strong population growth has boosted competition in both the rental and purchase markets. ABS statistics show that the ACT enjoyed an average population increase of 1.9% between 2006 and 2012. This was well above the national average of 1.55% and put the territory into second place, behind only Western Australia with 2.83%.
BIS Shrapnel is forecasting this to slow over the next three years, to an average of 1.16%, which would place it below the expected national average of 1.73%. Angie Zigomanis, BIS Shrapnel senior manager (residential property) believes the extent of any population slowing will depend largely on government expenditure.
“Any spending cuts will have an effect on the number of people migrating from other states,” Zigomanis says. “Overseas migration usually stands up pretty well, but I think this is based largely on student numbers. They have ANU there, which probably has a bit of street cred from overseas students wanting to study in Australia.”
