The myth of house price relativity
Housing in SEQ has been experiencing quite a sharp upward price profile since the middle of 2020 when the public started to understand just what the pandemic looked like…at that point anyhow. As house prices have continued to escalate, the narrative has again started around affordability, something that hasn’t been an issue for well over a decade.
Over the years, there has been the often quoted expression that Brisbane house prices follow those of Sydney, and to a lesser extent Melbourne. If this was true, what would Brisbane’s median house price actually look like if it did follow those trends?
If the house sales volumes were to be considered, there is a reasonable correlation that shows the markets have acted with some degree of comparability. Certainly not exact, but close enough to suggest that the broader economic and demographic dynamics were having similar influences across the east coast. Maybe not to the same extent if one was to consider international migration, but macro inputs such as interest rates, investment activity and APRA’s interaction were all largely uniform.
As at June 2021, the ABS listed Brisbane’s median house price at $650,000. At June 2006 in the lead up to the GFC, Brisbane’s market was very firm at a median price of $330,000, just $15,000 short of Melbourne and $165,000 short of Sydney. Fifteen years later, Brisbane would be $245,000 below Melbourne and $537,500 under Sydney.
If Brisbane had followed the same trajectory for its house price growth as Sydney, its median house price would now be circa $835,000. Had it had the same rate of growth as Melbourne following exactly the same peaks and troughs, then Brisbane’s median house price would be $895,000. Affordability would be stretched to a completely new level excluding a much greater segment of society.
The rhetorical question we often get asked is, “Could Brisbane narrow the gap again between Sydney and Melbourne?” The short answer is yes; just don’t ask me to pick a timeframe over which this may occur. The gap may already be starting to close as the demographic trends at present favour Queensland over all other States. The September quarter data will shed more light on this given the high number of auctions, auction attendees and agent’s unable to know what “fair value” actually is, through no fault of their own.
The second rhetorical question that usually follows is, “Do we actually want the median price to be closer to Sydney and/or Melbourne?” In some respects this suggests that the levers that impact house prices can be pulled enough in a particular region to determine growth outcomes. This is both possible and achievable, however very challenging to attain. One simple answer is to ensure that the quantum of available, developable land actually keeps in front of demand. This occurred throughout the middle of the last decade where unprecedented investment activity actually saw very little price growth, despite enormous demand. The number of apartment sites that could be developed never really reached a point where developers were forced to the middle ring suburbs. This will probably happen during the next boom investor cycle. The addition of greenfield sites though has proven to be highly constrained and becoming more infill in nature, which drives the acquisition costs up significantly. These costs can’t be absorbed by the developer so the end result has only one way to go, the customer.
However you can’t stop interstate migration and this is very difficult to plan for. International migration is considerably more transparent and predictable. One has to wonder whether the market activity in SEQ right now is not dissimilar to 2000-2003, where the amount of available land created a shortfall, population growth peaked at closer to 2,000 people per week and the capacity to add land quickly was challenging, but far easier than it is today. If this high level analysis is actually right, then Brisbane may well see prices continue to escalate for the next few years, which will reduce interstate migration as the reason to move diminishes. In the meantime, those new to the market trying to purchase a house will find their choices pushed to the fringes, some renters will be forced to relocate to more affordable accommodation and those already in the market will continue to leverage off their growing equity.
The expression, “This time is different” continues to ring out amid the Pandemic, and there is some truth to that. There are also a lot of similarities to the start of the century. The challenge will be to ensure that the infrastructure and supply of property will be up to the challenge, which will only loom larger through interruptions to supply pipelines and escalating construction costs.
Matthew Gross | Director | mgross@nprco.com.au
