What s Driving Housing Demand and Prices

1. What’s Driving Housing Demand and Prices Brendan Crotty

2. Demand Drivers Employment Immigration & Population Growth Demography & Occupancy Rates The Wealth Effect of Rising House Prices Poor Performance of Equity Markets & Super-annuation. Shortage of New Product in Key Locations

3. NSW Employment Growth

4. Victorian Employment Growth

5. Full Time Employment Growth – Other States

6. Growth of the Part Time Work-Force Since 2000 & % Female

7. Immigration & Population Growth Population growth rate for Australia- 1.4% Melbourne SD – 1.5% -Balance of Vic-1% Fastest LGA Growth – Melb City 5.5%, Melton 8.5%, Casey 4.5% Sydney SD-1.25% - Balance of NSW – 1% Fastest LGA Growth - Still Blacktown & Liverpool National immigration increased to 140,000 persons /yr. High proportion of immigrants coming to Sydney and Melbourne and government selection criteria means they buy sooner rather than 3 years after arrival.

8. Demography and Occupancy Rates Average age of growth LGA’s is 31and 40 in Kuringai. Market is being driven by baby-boomer requirements, rather than first home buyers. National household occupancy rate has fallen from 2.63 persons per dwelling to 2.56, during last 5 years, but is much lower in the capital cities. This has increased national demand by 200,000 or 40,000 dwellings per yr.

9. The Wealth Effect of Increasing House Prices. Median Price of Housing has increased between 1982 and 2003 from $91.9k to $460k in Sydney and from $49.3k to $380k in Melbourne. 2003 median prices in Brisbane and Perth are 4 times the corresponding 1982 figure. Baby boomers are on the escalator, every $ increase in value represents increased equity. Closed loop effect of flow of funds is driving the housing market higher, as few are cashing out.

10. Poor Performance of Equity & Super Funds Average loss by superannuants in the 50 plus age group during the last 18 months is in the $100k to $150k range. International equity fund losses ranged from -5% to -17% in 02/03. Only property security funds (+11%) and conservative/capital stable funds (+2 to +6%) produced positive returns. No prospect of capital growth and property security funds may be toppish.

11. Shortage of New Product in Preferred Locations Shortage of land in Sydney. Council delays are constraining industry’s capacity to respond to higher demand. Majority of people in the market have a preference to live within 20 klms. of CBD. When demand exceeds supply, prices must rise. Affordability is a big issue, but only for those who don’t already own a property.

12. Houses as % fall from 45% to 35% & apartments now provide 45% of total supply.

13. Housing vs Apartments-Melbourne

14. Market Facts Rental vacancy in Sydney is declining – inner city has been below 4% for 2003 after peaking @ 5.1% in June ‘02 - ALZ vacancy rate is 2%. Rental vacancy is only an issue in one Melbourne locality. Inner city vacancy rate @ June = 8.7% Market analysts are factoring reductions in Melbourne supply for next 3 years – demand and supply will be in balance by mid 2006. Production of houses and apartments in Sydney and Melbourne will be constrained for different reasons. Melbourne people’s housing needs will not be significantly different from Sydney-siders Greater dependency on Melbourne infill and apartments as 2030 strategy bites. Sydney is going to be very short of land, for the foreseeable future and demand is likely to exceed supply. Fundamentals of Brisbane and Perth are generally very sound.