News & Tips

On Monday, March 18^th, the UDIA National Congress 2024 kicked off with the Welcome Night, an event traditionally sponsored by Oliver Hume. The event was held at the Great Hall at the National Gallery of Victoria. Almost 500 attendees were addressed by members of the UDIA as well as Julian Coppini, CEO of Project Marketing at Oliver Hume. Julian’s candid speech addressed the challenges confronting the property market and highlighted the contrasting buying patterns observed across various states of Australia.

 

Julian Coppini, CEO Project Marketing Speech:

 

I’d like to begin by acknowledging the Traditional Owners of the land on which we meet today. I would also like to pay my respects to Elders past and present. 

 

The Australian property market is currently facing some unique and challenging circumstances.

 

Some would say we are facing a crisis of unprecedent scale.

 

And others, perhaps more optimistically, are confident that we can navigate the challenges as we have done so many times before.

 

Of course – the number one challenge we face is the housing affordability crisis – which is directly linked to the housing shortages.

 

In Australia, at face value - the demand and supply fundamentals seem to be operating.

 

And if we break that down – supply is simply not enough while demand (largely through migration) is around record highs.

 

Consequently, this means that prices are rising nationally.

 

In contrast, it would seem that financial or monetary fundamentals are having little impact on house prices.

 

So, we find ourselves in the strange world of BOTH high interest rates and high property prices.

 

Not only do we have high property prices – but they have continued to increase month on month over much of the time that the RBA has been aggressively raising interest rates.

 

Of course, where high interest rates have had a direct impact – is on reducing sales volumes as affordability and borrowing power have declined.

 

The question of, where to from here, is a difficult one as it appears our housing crisis will get worse before it gets better.

 

I will return to this.

  

It is also important to point out that, it is not bad news across the board.

 

Instead, we actually have a two-tiered market.

 

We have buoyant markets in South Australia, Western Australia, and Queensland.

And underperforming markets in Victoria and New South Wales.

 

What is the difference?

 

Put simply, it is affordability and people being able to transact.

The average lot price in the greenfield suburbs of Perth is $255k and in Adelaide it is $274k.

In Sydney it is just under $700k and in Melbourne it is just under $400k.

So Western Australia, Adelaide and Queensland are enjoying stronger and well above average sales volumes.

And Victoria and Sydney are producing some of the lowest volumes on record.

Put simply - on a national level, we are in midst of a housing affordability crisis with no end in sight and our two largest cities are at the epicentre of this crisis.

 

 

USA key findings 

 

In terms of the affordability crisis, we are not isolated in this regard.

 

Prices in many residential property markets around the world are continuing to rebound.

 

On this point, my team and I recently completed a study tour in the United States.

 

What became very apparent is that many cities in the US have identical affordability issues.  

 

The affordability challenges are mainly driven by the undersupply of housing (again similar to Australia) - but largely driven by the differing mortgage market structure. Most of the mortgages are fixed interest for 30 years, so no-one who is locked in at 2.5% wants to upgrade and refinance to a higher rate. And hence there is not enough supply coming into the market.

 

Which brings us to Dallas.

 

We spent a few days in Dallas as part of this tour.

 

Dallas reminded me very much of Adelaide.

 

Very similar populations, very strong economic fundamentals, lots of infrastructure investment.  And importantly, Dallas has been a very affordable market.

 

So what is happening in Dallas is the same thing that is happening to Adelaide.

 

Dallas has been re-discovered and it is now one of the strongest performing economies, driven by the mass migration into Dallas and the rest of Texas. It is important to note that the migration has been from both other states and from overseas as well.

 

People need affordable housing solutions and Dallas, for many, has been the answer.

 

Of important note though, is that the property values in Dallas have quadrupled in the past 5 years.

 

Again it comes back to the fundamental of supply and demand - strong migration demand (both overseas and intrastate) and supply not keeping up.

 

The message here is that people will buy if they can afford it. And you need to come up with product both in terms of design and price to meet the market.

 

 

Back to Australia

 

So coming back to Australia, it would appear that the RBA has a very difficult decision.

 

To cut rates now, may make the affordability crisis worse.

 

At Oliver Hume however, we believe the RBA will consider a whole range of variables including house prices and the broader property market – but will remain laser focussed on inflation .

 

Once inflation is brought under control, and it looks like we are making good progress on that front, we believe that the RBA will look at unemployment levels as the trigger to start the rate cutting cycle.

 

It now looks like the unemployment rate is on a firm upward trajectory, as the economy and labour market continues to weaken because of high interest rates.

 

Most commentators it would seem, however, agree that that the RBA will cut rates later in the year.

 

The only question is by how much.

 

My personal view is that we are unlikely to see interest rate reductions until 2025.

 

Irrespective of the timing, this raises the question about what will happen to residential property prices when the RBA does cut interest rates.

 

Which brings us back to the housing market.

 

Part of the South Australian success story has been the tremendous support and pro active Greenfield push by the State Premier and his Government. For clarity this also includes tremendous support for FHBs looking to enter the market. 

 

On the other hand, in Victoria, unfortunately, the State government continues to be ANTI residential greenfield development at a time when we are experiencing an unprecedented housing shortage.

 

The consequences of not taking sufficient action is clear.

 

Sydney provides a picture of the future when demand outstrips supply.

 

Some of you might be following ongoing media commentary regarding the lack of affordability in Sydney.

 

Quoting from a recent article:

 

“Sydney has a major problem.

 

Australia’s largest city, once a vibrant and exciting place to live that ranked on par with global icons like New York and London, is haemorrhaging young people.

 

A major driver is the skyrocketing cost of housing, where it’s not even homeownership that upcoming generations worry if they’ll ever be able to afford – but rent.”

  

Similarly, Bernard Salt published a good article in The Australian last month - and he talked about the importance of greenfield development.

 

To accommodate for growing populations and changing buyer behaviour - he specifically talked about Millenials and how they colonised the inner city as singles and couples.

 

And how they are now transitioning to the growing family stage of the life cycle.

 

They will need affordable housing solutions and more space and he believes greenfield development is well and truly part of the solution…..

  

Only ongoing collaboration amongst industry players gives us the best chance of succeeding.

 

Here in Victoria, whilst we are certainly feeling the pressure, surely the only way is up…