A decade in review

Across the capital city residential property market, the last 10 years has seen home values almost double with an annual rate of growth of 9.4%. Today the capital city median dwelling price across the country sits at $451,000 with houses recording a median of $485,000 and units at $400,000. If you bought a home 10 years ago, you were probably looking at a median price of less than $200,000 for either property type.

As the capital city market pricing graph shows, there has been distinctive periods of growth during the last decade. Between 2000 and 2003 there was a strong growth period which was following a long period of negligible value growth. Following this boom, values nationally showed little growth again until 2007.

In fact, the majority of value growth recorded between 2004 and 2007 was due to the Perth market which was undergoing a significant surge in values due to unprecedented strength in the mining and resources sector.

Conversely, in parts of Western Sydney in particular, some areas recorded significant falls in property values over this period. During 2007 there was another strong growth period which occurred in all cities except Perth and Sydney.

During 2008, the global economy stalled as a result of the global financial crisis and values slumped 3.8% nationally from their peak during February 2008 to the trough in December 2008. Larger falls were recorded in Perth and Brisbane. In 2009 property values jumped again, this time in all cities as a result of the lowest interest rates in 49 years which has lured buyers back into the market, the boost to the first home buyers grant and a dramatic housing undersupply.

Over the decade, sales volumes were strongest between 2001 and early 2004, which was the time that nationally, property values were undergoing significant growth. Once the slowdown hit in mid-2004 volumes dropped by around 10,000 sales each month as the market cooled.

During 2007 when markets such as Melbourne, Brisbane, Adelaide, Hobart and Darwin were performing particularly well, volumes again picked up but never reached those heights witnessed between 2001 and 2004. Once the GFC hit, sales volumes slumped to the lowest levels seen at any time over the last 10 years. It’s not surprising as many with non-core assets such as holiday homes were forced to sell, as did some of those who lost their jobs or ran into financial difficulty. At this time there was plenty of willing sellers however, the problem was a significant lack of willing buyers at that time.

Finally in 2009, as values rebounded and recorded growth only slightly below that recorded during 2007, sales volumes rebounded, although not to the same levels as those recorded during 2007.

On a city-by-city basis Hobart has actually seen the greatest value growth over the last 10 years, with dwelling values increasing on average by 12.8% annually (to November 2009). It’s no real coincidence given that Hobart prices came from a very low base. Despite this, Hobart still provides the most affordable capital city housing.

What is probably most interesting is the performance of the three largest cities (population wise). Sydney prices have dramatically underperformed the national average with average annual growth in dwelling values of just 6.3%. Melbourne has only just outperformed the national average seeing average annual growth of 9.7%, while Brisbane has recorded growth of 11.0% p.a. The national figure is weighted by population and property type so given this it is clearly influenced by the larger population centre’s such as Sydney and Melbourne.

It’s also imperative to remember that Sydney and Melbourne have had higher property prices and because of this fact growth rates tend to be lower as they are coming from a higher base.

Looking specifically at the last five years, values have grown at an average annual rate of 6.5% which is much lower than the 10 year growth rate, showing just how significant the boom was in the early part of the decade.

Over the last five years the standout performers have been: Darwin (17.2% p.a), Perth (13.6% p.a) and Adelaide (8.4% p.a). Sydney has by far and away been the worst performer during the last five years, recording average annual growth of 2.3% p.a. The other poorer performing markets have been Hobart (6.8%) and Brisbane (7.5%).

Given what has occurred over the last 10 years it will be very interesting to see what the next 10 years holds. Undoubtedly, property prices are expensive in most capital cities and the provision of affordable housing must be imperative.

However, it appears that to-date governments are unwilling or unable to provide affordable land supply with the necessary infrastructure. As population growth looks set to remain at high levels and we continue to fail to build enough dwellings to cater for demand, upwards price pressures on property is likely to persist.

Tim Lawless is the Director of Property Research at RP Data.