After more than five years of little or no growth in Sydney property prices, recent indicators point to a significant growth period ahead – with the northern beaches set to be one of the stand-out performers.
The forces that influence price change in the property market are those same forces that influence the prices of every commodity in the marketplace – supply and demand. The difference between supply and demand of houses in NSW has never been as high as it is right now. Supply is simply not keeping up with demand and it is creating upward pressure for a steady cycle of significant capital growth in NSW.
The supply of housing in NSW
The two main measures of supply in property are stock deficiency (or surplus) and dwelling commencements. The Australian Bureau of Statistics (ABS) reports NSW as having a housing stock deficiency of 64,000 – more than twice that of Victoria, the state with the second highest stock shortage of 26,700 homes.
ABS records dwelling commencements for NSW to be 24,200, the lowest level in more than 40 years. This has been largely affected by lenders that have reduced the amount of credit available for developers since the global financial crisis (GFC) and it is putting further upward pressure on growth.
The demand for housing in NSW
While supply is at record lows, demand for housing in NSW is exceptionally high due to record levels of immigration and the biggest baby boom since 1971. According to BIS Shrapnel, NSW has the highest level of demand for housing in Australia at 48,500 homes followed by Victoria (47,300) and Queensland (41,900).
What this means for property prices
In a nutshell, the demand for housing in NSW is far outweighing the supply of homes. With supply and demand the key driver of prices, the chance of a sustained cycle of strong growth is highly likely. BIS Shrapnel, who are historically conservative, forecast more than 19 per cent growth over the next three years with an increase of 25 per cent in rental prices. ANZ Economics appears even more optimistic and expects rents and house prices to rise significantly as the housing supply remains on its current trajectory.
The early signs of this growth are clear with auction clearance rates hitting consistently strong numbers and growth rates for the last 10 months accelerating. According to Residex, since the property market bottomed about 10 months ago, Sydney median house prices have grown by 6.48 per cent (annualised to 7.8%) with 4.45 per cent growth in the last 3 months (annualised to 17.8 % pa). We have not seen this rate of growth in Sydney for some time and it is a very promising sign.
The northern beaches’ traditional lack of supply in the housing market, coupled with the current demand for houses suggests that a property price increase of this scale is also highly likely here. While most would agree the government’s first home owners grants have helped stimulate some of this growth, it can also be argued the fear of high unemployment has held growth back, so the net trend is still strong.
Since unemployment expectations have reduced and business confidence significantly increased, there are few reasons to believe there won’t be at least “reasonable” growth and a good chance of “very strong” growth over the next few years. All in all, there is a huge risk that any “wait and see” approach will only provide missed opportunity.
Richard Sheppard is the managing director of inSynergy Property and Finance Solutions. Located in Brookvale, inSynergy provides property investment advice, property market research and specialised mortgage broking services to help every day Australians achieve better returns with lower risk from property. inSynergy Property and Finance Solutions www.insynergy.net.au 1300 308 808.