Over the last 10 years capital city property values have increased at an average annual rate of 9.2% but the first half of the decade has recorded far superior growth to that of the second half.
During 2010, capital city property values have increased by a total of 4.7% which was the lowest growth in values over a calendar year since 2008 when property values fell by -2.6% (both figures in seasonally adjusted terms). Despite the improvement in value growth during 2010 compared with 2008, the capital gains were much lower than the 12.1% annual growth recorded during 2009.
During the year, property value growth was strongest within Melbourne at 8.3% and despite the robust level of growth, it was significantly lower than the 17.7% growth during 2009. At the other end of the spectrum, Perth was the weakest market with values falling by -2.3% during the year and in comparison, property values increased by 10.1% in the city during 2009. Overall, capital city property values have softened by -1.5% since their peak in May 2010.
Taking a longer term look at the market, property values across the combined capital cities have increased by a total of 9.2% annually over the past decade. Over this period Hobart (which also happens to be the most affordable capital city) has recorded the strongest growth with values increasing at an average annual rate of 13.1%. On the other hand, the country’s most expensive capital city, Sydney, has recorded the lowest level of average annual value growth at just 6.2% over the same period.
The capital gains recorded within each of the cities over the past 12 months, except for Sydney, has been well below the average annual growth in values recorded over the last decade. This outcome is the result of interest rates returning to and in excess of average levels after being quite low and the subsequent affordability constraints returning to the housing market following strong value growth during 2009.
Although the capital city property markets have generally recorded strong growth in values over the last decade, the growth in values was significantly stronger during the first five years of the decade than it has been over the most recent five years.
Between December 2000 and December 2005 capital city dwelling values increased by an average annual rate of 11.8% compared to the 10 year average annual growth rate of 9.2% In each city except Melbourne the growth in values during the first five years of the last decade was in excess of the decade growth rate.
Obviously at the beginning of the decade property values were much lower than they were now enabling more residents to get on to the property ladder. Also, there was the substantial run-up in prices between 2001 and 2003/4 which exacerbated growth during this period.
During the most recent five years, capital city property values have increased by an average annual rate of 6.8% which is well below the 10 year average annual rate (9.2%) and the rate of growth during the first five years of the decade (11.8%). Interestingly, during the first five years of the decade six of the eight capital cities recorded average annual value growth in excess of 10%, during the second five years only Darwin recorded average annual growth which was greater than 10%. Only Darwin and Melbourne recorded superior growth in values during the second five years of the last decade. Meanwhile, value growth in Brisbane, Perth and Hobart during the most recent five years was less than half that of the previous five years.
If the most recent half decade is anything to go by, double digit annual growth is going to be harder to achieve. In saying this, opportunities within the property market will likely still abound. If all levels of Government remain unable to work out a solution to supply issues, upward pressures on values will persist (although they may not be as strong as in the past). Rental accommodation remains an important part of the overall property picture and despite the fact that property values may not be expected to rise as quickly as they have in the past, the cost of housing is still likely to be restrictive for students and lower and middle income earners. This will likely lead to improved rental returns for those who own investment properties, particularly within capital city markets. Overall the fundamentals of the market remain strong just don’t expect the boom periods to be as strong as they have been historically in the coming years.
Tim Lawless is the Director of Property Research at RP Data.