Property growth to ease

June 25, 2015
Linda Coates

My property forecast

We’ve now seen the end of the strong property growth in Melbourne for this economic cycle. Expect growth to moderate but not fall over the next 12 months.

What has happened recently

RpData reports that the median price of Melbourne houses rose 9.8 per cent in the past 12 months with units growing by just 2.9%. When combining houses and units they report 9.0% growth overall.

Compare this with a more sedate 2.5 per cent combined annual growth in the last 5 years and 6.4% over 10 years.

The reasons why price growth will moderate

Supply and demand is the strongest reason for house price changes. We’ve been building around 40,000 dwellings per quarter in recent years. During this time migrants settling in Australia and natural population growth have added about 90.000 – 100,000 extra people to our population every quarter. So we’ve been building about one dwelling for every additional 2.5 people. According to the 2011 Census there were 2.6 people per household, so new supply has barely met demand. It’s no surprise we’ve seen property prices grow in the two largest capital cities.

In the past year the number of approvals to build new dwellings has grown and remains near record high levels. Most of this is in Sydney and Melbourne. On the flip side, our population is growing at a lower rate and is trending further down. We are now building one house for every two people, a significant improvement in supply when we compare this with the 2.6 people per average household.

This fundamental change in supply and demand can only lead to reduced price pressure and will have a much bigger impact on property prices than rate reductions or increases by the Reserve Bank. But don’t expect to see a fall in property prices in Sydney and Melbourne while full-time employment continues to grow.

Other opinions

I originally published this blog on 6 June and it's good to see economic forecasters are now catching up! In NAB's Winter Housing Market report, just published, it's interesting to see their view echoes mine. "The NAB expectation is that average capital city house price growth will cool, although remain in positive territory at 6.4% through the year to end 2015."

Why you need to call us

Property prices don't move uniformly across the country so you may be interested in a Comparative Market Analysis report for a specific property, suburb or local government area in Victoria. Normally only available to our customers, I'm pleased to make a report available to readers of this article for a limited time. Please contact us to ask for your report.

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