Under-supplied Qld heading into growth phase

By Michael Matusik, 6th October 2012

Several readers have asked us – well more than the usual persistent few – to outline where we think the Queensland residential market is heading.  This recent spate of inquiry, I think, comes from the recent gloomy headlines about the end of the commodity boom and the imminent demise of the resources sector.

Australia’s housing markets are now showing more convincing signs of improving. With …

• interest rate cuts helping to ease the pressure on those servicing existing mortgages;
• affordability at near decade-best levels for prospective buyers;
• substantial pent-up demand for new housing in select markets, namely NSW, WA and Qld; and
• several sentiment surveys showing consumers starting to warm to real estate again

… the scene looks set for recovery.

Importantly - and despite these positives and a long-history of rapid, vigorous housing upturns in the pas - this current housing cycle, for many of Australia’s capitals, will show a much more gradual transition from stabilisation to recovery.

In contrast, many of the country’s regional towns – and, in particular, those larger centres associated with resources and mining - have actually seen prices and rents rise over recent years. Australia’s resource centres continue to experience extremely tight rental market conditions, with vacancy rates often well below 2%.

In addition, some of this reading may be skewed by state government policy changes.  The NSW, Vic, Qld and SA governments all recently made significant changes to bonuses and concessions for first home buyers and/or those building new dwellings. Queensland’s $15,000 first-home buyers boost towards new property stock is a case in point.

The Queensland economy is predicted to continue growing (at 4% per annum) well above the national average.

Resources principally drive Queensland’s growth. The Queensland Resources Council estimates there are $165 billion worth of resource projects in Queensland under way. Yet Queensland’s economy has a broad base with just 9% of the state’s production coming directly from mining. By comparison, one-third of Western Australia’s economic output comes from mining.

The ABS employment figures for FY2012 confirm that 21,700 new jobs were created in Queensland – half of which were in the Brisbane region.

As we have been saying for some time now, we believe that end values should start to grow during FY2013, accelerating in FY2014 as the economic upturn gains momentum and the underlying dwelling deficiency becomes more pronounced.

According to RPData, house prices over the last four months prices have risen by 3.2% across the country, with 1.4% lift in September alone. Australian house prices have inflated at an 8% annualised pace over the last four months even after accounting for seasonal factors.

Based on last year’s statistics, Queensland looks to be heading towards a massive under-supply, with 33,000 new dwellings needed during 2012, yet just 26,000 supplied – an under-supply to the tune of about 20%.

Queensland’s population growth is also on the increase, with a likely 75,000 increase during FY2012 – up 50% or 25,000 on 2010’s 50,000 annual increase.  History shows that the Sunshine State attracts a third of Australia’s annual population growth.

There are three phases to Australia’s resources boom – commodity prices; infrastructure expenditure and higher priced exports.  We are only part way through the second phase. Moreover, our proximity to Asia and their rising demand for household, business and financial services is very advantageous for the Australian economy.

There is much more to Queensland’s economy than mining and the current machinations in iron ore/coal prices.

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Michael Matusik

Michael Matusik is a leader in residential market analysis and property advice in Australia.

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