The average hold period, or the average length of tenure for a property, is simply the average difference between when a property is originally purchased and when it subsequently sells. The analysis of average ‘holding time’ provides an indication of how long people are likely to own their property prior to it being sold.
Across the country, the average length of tenure has been increasing during recent years. Between 2000 and 2005 the average holding time remained relatively flat at around 6.5 years for houses and six years for units. Since 2005 the average length of tenure has shown a consistent trend upwards.
The reason for the reasonably steady average length of tenure between 2000 and 2005 is likely due to the fact that value growth was typically quite strong over the period and housing was more affordable than it currently is. As a result, there was greater market speculation in the market and property owners were prepared sell on a more frequent basis.
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Over the year to August 2010, houses which sold had been owned for an average of 8.3 years whilst units had been owned for 7.2 years. Ten years prior, houses were being owned for an average of 6.8 years and units 6.2 years.
Across each capital city the average length of tenure has increased over the past five years.
Properties in Melbourne were being held the longest five years ago and they still are today. It’s no coincidence that Victoria also has one of the highest rates of stamp duty which is likely to be a major contributor to owners holding their property for a longer period of time.
Nationally, the average hold period for houses has increased by 1.7 years during the past five years and by 1.4 years for units. During the period, the average holding time for houses has increased by as much as 1.9 years in Sydney and Canberra and by as little as 1.1 years in Melbourne. Across the unit market, the average length of tenure has increased by the lowest amount in Melbourne (0.5 years) and by as much as 2.2 years in Hobart.
During the five years to August 2010, house value growth within Sydney and Hobart has been lower than all other capital cities. This probably explains why property owners are holding on to their properties for longer as they await capital growth and the resulting boost to equity. Looking at the unit market, the average length of tenure has grown by the greatest amount in Hobart, Adelaide and Darwin and these three cities have actually recorded some of the strongest growth in unit values during the five year period.
Across Australia’s municipalities some regions have recorded substantial increases in their average length of tenure. Typically, the council areas listed are outside of the capital cities and have recorded above average levels of median price growth during the period. Nationally, houses within the Indigo council area have recorded the greatest increase in their average hold period, having increased by 4.3 years over the last five years.
Whilst the average hold period calculation is only calculated based on those properties which have sold over the preceding year, the results show that there is a clear trend towards vendors selling their properties on a less regular basis. With properties transacting less frequently it may result in greater difficulty in obtaining listings for agents, particularly in established areas which are unlikely to see a substantial introduction of new supply.
For retailers, builders, landscapers and similar businesses and services the result is good news. If people own their property longer they are more likely to spend money on furnishings, home wares, renovations and extensions for that property as it transitions from a short-term investment to a long-term place to live.
Tim Lawless is the Director of Property Research at RP Data.