September 2006

Urban Consolidation

NSW still remains Australia's most populous state with 6.77 million residents, which account for almost a third of the national population. Our population grew by only 0.8 per cent last year or just 53,500 which is a drop from the year 2000 figures when our population frew by 1.2 per cent or 74,800. Still with an estimated 1.1 million more people residing in our State over the next 25 years (translating into 70 homes a day), we're beginning to feel the effects of urban consolidation. Urban consolidation simply means putting more housing into areas where there's already existing infrastructure. The NSW Government seems to be reticent about upgrading or building new infrastructure which if not addressed will create major problems in the future.

With an increasing shortage of inner city sites, tougher planning approvals and a shift in living needs, we're seeing a greater demand for high-rise homes. And it's not just the empty-nesters who are downsizing. Baby boomers, young couples, expatriates, entrepreneurs and singles are now opting for apartment living. As demographer Bernard Salt has pointed out, security and safety is a key driver in the rise of high-rise apartment dwellers. The concept of 'lock and leave' is particularly appealing, as are lifestyle factors such as recreational facilities, proximity to transport and other amenities, and views. For many, a water view may only be obtainable by living in an apartment.

Figures from the Australian Bureau of Statistics showed that in 2001 there were 8.7 per cent of Australians living in an apartment. more revealing was that 66 per cent of Sydney residents lived in a separate house on a block of land. It's a figure that's steadily climbing, and it will be interesting to see what this year's Census shows. The NSW Government has taken up the call for the Federal Government to allow first homebuyers to access some of their superannuation as a home deposit. Although Sydney's housing market is definitely not hot, it's still beyond the reach of many, and home loans in this State remain the least affordable in Australia. 

According to the Real Estate Institute of NSW, over the past two decades the number of people aged between 30 and 40 who owned their own home or were purchasing a house has dropped by 11 per cent. Access to voluntary superannuation contributions for first homebuyers to make a deposit on a home is certainly a great idea. Affordability has long been one of the most hotly debated topics amongst real estate groups and Governments.

Freeing up a portion of first homebuyers' superannuation (the NSW Government is advocating a maximum of $25,000) to give them a deposit for a principal residence makes a lot of sense. Importantly, it would enable those who might not otherwise be able to achieve full home ownership before or upon retirement to get into the property market.

Residential vacancy rates continue to plummet to new lows. According to the Real Estate Institute of NSW (REINSW) Residential Property Management Survey, vacancy rates in July fell to 2 per cent 0 and are continuing to fall rapidly. There just isn't enough homes to rent, and rents are climbing. Some are now predicting rental increases of between six and eight per cent over the next two years. BIS-Shrapnel is forecasting a leap in rentals of up to 40 per cent between now and 2010. On an inflation-adjusted basis, that's similar to the rental hike of the late 1980s.

As the REINSW warns, soon families and low income earners will have no alternative but to seek public housing unless the NSW Government steps in and encourages private property investment before its crisis in public housing worsens.  

Recently I have been asked by many Clients about my view of the future direction of our property market and although interest rates - compared with the last major property downturn - are still relatively low, the market has been greatly impacted by low confidence levels. The increased cost of consumer goods, particularly fuel costs, has been a major contributor to this. The follow on effect has been many purchasers have put off any future purchasing decisions until certainty returns to the market.

I think confidence has been a major factor throughout this current residential proeprty downturn. Even though we are enjoying low unemployment rates and interest rates are still comparatively low, the 'fear factor' has caused many to simply hold off buying or selling. The current climate is certainly not being helped by all the doom and gloom headlines which have been almost a daily feature of Sydney's media. I think the media are reaching a level of overkill and will probably soon change their tune. The consensus is the market will remain flat for at least 12 months. According to a recent report from valuation firm LandMark White, it is unlikely to anticipate recovery in the under $4 million residential market till late 2007/early 2008. 

From past experience the best way of assessing when the market might improve is looking at what the equity market and the astute developers who know the market best are doing. The equity market is definitely showing signs of instability in recent times and I have noticed many Developers seem to be getting themselves ready for the next market phase with site enquiries and sales on the increase.