Homeowners in the eastern states have been moving to regional areas, because strong property markets have either funded lifestyle changes or are not affordable for many first home buyers, according to the latest Regional Residential Building report from industry analyst and forecaster, BIS Shrapnel.
The report shows that throughout 2002/03 and 2003/04, population growth in many regional areas was quite high by historical standards. However, BIS Shrapnel found that this eased somewhat in 2004/05 as residential property markets in the three eastern capital cities softened, with turnover down by about a quarter. As a result, fewer households were in a position to finance a shift out of the metropolitan area.
As the residential property market in metropolitan areas slowed, so did the flow towards coastal regions close to the city: the Hunter and Mid-North Coast regions in New South Wales; Geelong and Gippsland regions in Victoria; and the Sunshine Coast and Hervey Bay in Queensland. Instead, the study revealed, areas away from the coast and towards some inland towns became popular, with stronger growth evident in Glen Innes, Tamworth and Wagga Wagga in New South Wales; Shepparton, Ballarat and Traralgon in Victoria; and Toowoomba and the Darling Downs in Queensland.
According to study leader, Jason Anderson, these trends reflect the continued edging of dwelling demand towards more affordable locations in the three eastern states. The pronounced migration shift towards regional coastal areas over the three years to 2003/04 had the effect of raising property prices and reducing affordability; as a result, household migration appears to have edged towards more affordable options away from the coastline.
Some coastal markets in the eastern states continued to enjoy strong expansion in dwelling demand in 2004/05 -- in particular, north Queensland and the Richmond-Tweed region of New South Wales. These regions had attractions in terms of relative affordability and so continued to show strong price growth in 2004/05, which attracted investor-financed construction of new housing.
Looking forward, BIS Shrapnel predicts that dwelling demand in metropolitan areas is expected to stabilise in 2005/06.
Construction in Sydney, Brisbane and the Gold Coast is currently well below underlying demand, and affordability should gradually improve.
While relative affordability will remain a factor behind net migration to regional areas, its importance should moderate. BIS Shrapnel argues that demographic trends will become more important over the next few years. Household formation is currently dominated by persons in the 50-64 years (`empty nesters') and 65+ (`retirees') age groups. These households will tend to be in a better position to sell their home in subdued metropolitan markets, given that their accumulated equity will be a substantial proportion of property value.
BIS Shrapnel believes that the demand from older households for coastal property in proximity to their `home' city will cause a rebound in dwelling construction in some regions in 2005/06.
For investors, BIS Shrapnel argues that attention will shift towards rental yield and away from capital gains. Markets that experience an extended period of under supply of new dwellings will tend to have strong rental growth and analysis indicates that there is a pronounced deficiency of dwellings in some regions.
Amongst the capital cities in the eastern states, BIS Shrapnel finds that Brisbane has the largest deficiency of dwellings, and the highest rental growth. On the other hand, a marginal surplus of dwellings exists in Melbourne, primarily in the inner city apartment market.
The situation in Sydney is changing rapidly. Dwelling construction in Sydney will be well below underlying demand in 2005/06 and 2006/07, and a substantial deficiency is developing, which should trigger strong growth in average rentals in 2006/07. However, with rental yields at long-term low levels, this process will take some time to stimulate a recovery in investor demand for new dwellings, which is not anticipated until 2007/08.
Outside the metropolitan areas, Far North Queensland and Richmond-Tweed have the largest deficiency of dwellings relative to annual underlying demand.
In Victoria, BIS Shrapnel has not found evidence of a significant deficiency of dwellings in many regions. The exceptions appear to be the Barwon and Ovens-Murray regions. The strong growth in property prices in some regional towns in Victoria has attracted investor finance for construction, which is expected to create a modest degree of excess supply. As a result, a downturn in dwelling construction is forecast for most Victorian regions in 2005/06.
