Perth’s new apartment market recorded its strongest quarter of sales since Q4 2021, with 412 apartments sold in Q1 2026 and a record quarterly sold value of $537 million, according to Urbis’ latest Apartment Essentials results.

Urbis said the March quarter result reflects strong, highly product‑specific demand across both ends of the market, from more attainable projects delivering at scale, through to premium stock being absorbed by equity‑rich downsizers.&nbsp;

David Cresp, Partner at Urbis, said the key story in Perth is not demand, it is the market’s ability to convert demand into delivered housing.&nbsp;

“This is the strongest sales quarter since Q4 2021, and it reinforces that demand in Perth is real and it’s local,” David Cresp said. “But the task now is delivery, turning that demand into projects that can actually be built and completed.”&nbsp;

[smartcode_project:default project_id=110291 project_image_fid=302785]

<h2>Affordable product leads, premium demand remains resilient</h2>

Sales in Q1 were led by more affordable projects, with The Boulevard (SKS Group) recording 115 sales in the quarter, the presentation noting this is only the second time a single project has surpassed 100 quarterly sales. The project was able to offer more affordable housing product right next to a train station.&nbsp;

Palmyra West (Finbar) also delivered strong results with 28 sales in Q1, following 84 sales in Q4, with an average price of under $800,000, underscoring depth of demand for well‑located, attainable new stock.&nbsp;

At the premium end, Urbis said downsizer demand is continuing, with the results highlighting Romeo (Applecross, Finbar) recording 75 sales and reaching almost 50% sold in one quarter.

Jual (Shenton Park, Celsius Property) also posted a strong quarter with 28 sales, reaching 39% sold in one quarter.

Urbis noted that Perth apartment demand is not speculative, not investor‑led, and not uniform, describing it as localised, often equity‑driven and highly product‑specific, a pattern reflected in the polarisation between strong “attainable” performers and premium downsizer product.&nbsp;

[smartcode_project:default project_id=148957 project_image_fid=364102]

<h2>Prices underpinned by costs, and the delivery risk is growing</h2>

Urbis said pricing pressure is cost not demand‑driven: construction costs and delivery risk are now a central constraint, with the results noting build costs remain elevated and volatile, and that energy, fuel and labour uncertainty weigh on feasibility.

David Cresp said a growing challenge for private Build‑to‑Sell developers is simply securing a builder in the current environment.

“Developers are really feeling the pressure from a building market that was operating at capacity and securing a builder is challenging,” David Cresp said, adding that even where a builder can be secured, “trying to get to the price that makes the development financially viable is incredibly challenging in the current market.”&nbsp;

Urbis’ broader WA commentary also notes that industry remains at or above capacity with lot and housing creation, and that many builders are limiting new sales to manage stretched workforces and fixed‑price contract pressures, conditions that flow directly into apartment feasibility and delivery timing.

[smartcode_project:default project_id=108869 project_image_fid=317905]

<h2>Supply: improving later, but still constrained, and Perth lags eastern benchmarks</h2>

While near‑term supply remains constrained, Urbis’ forecast shows completions lifting “Supply is forecast to be back above 1,500 apartments per annum for the first time since 2019”, with 1,775 completions forecast for 2026, and volumes remaining above that level over the following years.&nbsp;

Looking further ahead, completions are forecast to reach 2,500 in 2028, with the report noting 32% of that total is social/affordable, reflecting the role of government‑supported delivery in rebuilding the pipeline.&nbsp;

However, Urbis said Perth remains behind comparable markets on pipeline scale. In a national comparison of projects under construction, the report shows under construction Perth Build‑to‑Sell (BTS) at 3,446 apartments versus the Gold Coast at 7,922. Mr Cresp said “The challenge for Perth is how to we grow the delivery pipeline”.

Urbis’ conclusion is that Perth’s market is increasingly defined by product discipline and delivery certainty, with the research identifying “delivery certainty is key” and calling out builder risk and procurement models as core success factors, alongside “timing and staging”.&nbsp;

Joel Robinson

Perth apartment sales hit strongest pace since late 2021 as builder capacity tightens

<a href="https://www.apartments.com.au/developers/sammut-developments">Sammut Group</a> has secured development approval for its latest Brisbane apartment project, marking the Sydney developer’s next step in expanding its Queensland pipeline following the success of its debut Gold Coast development, Coast.

The approved project at <a href="https://www.apartments.com.au/new-apartments/44-glen-road-toowong-qld-4066">44 Glen Road, </a><a href="https://www.apartments.com.au/developments/toowong-qld-4066">Toowong</a> will deliver a 15-storey riverfront apartment building with 42 residences, significantly increasing the scale of the site’s previous approval for a smaller luxury scheme. Designed by Bureau^proberts, the development will comprise a mix of predominantly four-bedroom and two-bedroom apartments positioned to maximise Brisbane River and city views.

Sammut Director Julian Sammut said the group had been actively searching Brisbane for several years before identifying Toowong as the right fit.

“Brisbane was the right step for Sammut,” Sammut said.

“With the success of Coast we thought we should definitely look to do more in Queensland alone. We then pushed up to look at Brisbane. We've been looking for I'd say two to three years actually and it was hard to find the right location.”

<img alt="Sammut makes Brisbane apartment play" data-entity-type="" data-entity-uuid="" src="https://res.cloudinary.com/dz9xllyip/image/fetch/f_auto,c_limit,w_1440,q_75/https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/field/image/Screenshot%202025-12-23%20at%203.27.14%E2%80%AFPM.png?VersionId=dYAVIL7qdcGA8ojvkslSrLjczXFejSSx" />

Sammut said suburbs including New Farm and Teneriffe were considered before the group ultimately focused on Toowong due to its strong downsizer demographic and limited supply of developable riverfront land.

The site was acquired off-market after what Sammut described as a lengthy negotiation and planning process, with the developer pursuing an uplift to the original approval.

“We are DA approved now which is very exciting,” Sammut said.

“We've had our change approval come through and we've obviously doubled the height, 15 storeys plus rooftop. We've got 42 amazing apartments that are going to be coming to market soon.”

<img alt="Sammut makes Brisbane apartment play" data-entity-type="" data-entity-uuid="" src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,dpr_2.0,q_auto:good/https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202025-12-23%20at%203.27.26%E2%80%AFPM.png?VersionId=ohkRkY0dIZlqdfME2EZePsCQavRiBadE" />

Bureau^proberts said the design responds to Toowong’s evolving urban character, balancing contemporary apartment living with the area’s established residential identity.

“A place where traditional Queensland living has taken place for centuries; Toowong is seeing a shift of contemporary influence, commercial and retail hubs mixed with well-considered residential offerings – all the while maintaining its character and charm,” the architect noted in planning documents submitted to Brisbane City Council.

The architecture practice said the project’s form was shaped by its riverfront setting, flood considerations, neighbouring building scales, and view corridors.

“They said the mix of four and two-bedroom apartments capture the ‘fundamental qualities of Queenslander living,’ translated into the context of a contemporary subtropical building.”

The development sits just off Coronation Drive within walking distance of Toowong’s retail precinct and the upgraded Regatta ferry terminal, while also benefiting from proximity to the incoming green bridge connection to West End. Sammut said the accessibility and amenity offering were central to the site’s appeal.

The approval adds to growing residential activity along the Toowong riverfront, joining nearby projects including Consolidated Properties’ Monarch Residences and Spyre Group’s ARC Residences.

Sammut secures approval for debut Brisbane apartment development in Toowong

Developer Lanevick is heading back into Sydney’s apartment market after focusing more heavily on the luxury townhouse and terrace sector in recent years.

Lanevick, founded and directed by Steve Maroun, is expecting to receive approval in the coming months for a new apartment development in Gladesville, with the aim to launch it to the market later this year.

The 51-apartment project, designed by Studio Johnston, will comprise a mix of one-, two-, and three-bedroom apartments positioned toward the Hunters Hill downsizer market.

“Traditionally it’s been difficult for people in that market to downsize because there just hasn’t been the right product available,” Maroun said.

“We’re targeting buyers who might have 30 to 40 per cent of their house value sitting in the bank after downsizing.

“They still want good spacious entertaining areas, they still want quality design, but they also want flexibility and the ability to enjoy life a bit more after working hard for a long time.”

The project sits near Boronia Park and within close proximity to the Parramatta River foreshore, an area Maroun says offers more of a Hunters Hill lifestyle than a traditional apartment precinct.

“From a lifestyle perspective, it’s really more Hunters Hill than Gladesville,” Maroun said. “You’re close to the foreshore, close to parklands, and still connected back into the village precinct.”

From level four and above, apartments will capture water views&nbsp;toward Sydney Harbour. Communal amenity will include rooftop entertaining areas, wellness spaces, and a gym tailored toward owner-occupier buyers.

“We’ve really designed these apartments around that buyer coming from the Hunters Hill LGA and what they’re actually looking for in their next chapter.”

The proposed development has also been designed to respond to the changing character of the broader Gladesville town centre, where a growing number of mixed-use and residential proposals are expected to emerge over the coming years.

“Gladesville presented a rare opportunity to deliver a genuinely design-led residential project within an evolving lifestyle precinct, just moments from the growing Gladesville town centre, and we’ve approached the project with a strong focus on architecture, liveability and long-term community value,” Maroun said.

Maroun said Lanevick saw a first-mover advantage within the precinct as planning controls continue to evolve to accommodate greater housing density.

“We think there’s a real opportunity there that hasn’t really been serviced properly yet,” he said.

“There’s going to be a broader evolution of the whole Gladesville village precinct over time, particularly with more activation and mixed-use outcomes.”

The Venus Street proposal will include a commercial and retail component at ground level designed to contribute to that evolving streetscape activation.

“A big part of the thinking was how do you activate that area properly and create more vibrancy and amenity, which is what Hunters Hill has been looking for,” Maroun said.

Lanevick’s focus since 2020 has largely been on smaller-scale luxury townhouse and terrace developments. The developer recently completed Royale Randwick, also designed by Studio Johnston, where prices reached $3.65 million. The project was featured in the UDIA NSW 2026 Professional Development Prospectus and was also named a finalist for Development of the Year.

&nbsp;

Lanevick to cater for Hunters Hill downsizers with new Gladesville apartment development

Property developer One Living, backed by former Macquarie banker turned investment manager Chris Green’s investment firm, has unveiled plans to bring more institutional capital into housing to help address the national supply crisis.

The New York-based investor has focused his firm, GreenPoint Partners, on addressing the supply shortage hitting middle market housing in Australia.

It is backing the new One Living business to develop more than 1000 units along the eastern seaboard. The new firm is starting with a development on Mona Vale Road, on the border of Mona Vale and Pymble, in Sydney’s Northern Beaches, with around 140 apartments planned. They are eyeing off more sites across the city.

With cost pressures rising in the industry, One Living’s model is to be a vertically integrated developer-builder, so it can respond directly to the housing gap by removing the cost inefficiencies embedded in traditional residential delivery.

“We are building a platform designed to operate at scale and starting in a market where there’s a clear need for quality, attainable housing,” One Living joint managing director Joseph Scuderi said.

“It’s that missing middle – it’s that attainable end of housing… that’s what most Australians invest into and what Australians can actually afford.”

<img alt="Mona Vale" data-entity-type="file" data-entity-uuid="798dfa93-4941-4db6-a696-31e9dc18e81c" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-05-28%20at%202.31.50%E2%80%AFPM.png?VersionId=mKBqi5C_DmeiXS.AtJkcR8LQIxqCqmFi" />

GreenPoint Partners brings years of experience assembling and scaling real estate operating businesses across major markets. And Green sees a big opportunity in Australia.

“For its size, sophistication and importance to the community, Australia’s living sector has remained largely under-institutionalised, which represents significant opportunity,” Green said. “GreenPoint identified that gap, assembled the right team, and is backing One Living to build a platform that is aligned to market needs.”

Green said being a builder-developer would give the company the capacity and flexibility it required to deliver reasonably-priced homes.

“We want it to be at that attainable level; not super high end luxury but at that attainable level,” he said.

<img alt="Mona Vale" data-entity-type="file" data-entity-uuid="74a5344a-4b26-4d4a-ada3-056b1220be77" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-05-28%20at%202.32.15%E2%80%AFPM.png?VersionId=vY8hXHO4reBMdO8ZXMWCNtGZJofUPQ3j" />

&nbsp;

One Living will undertake a component of affordable housing in its schemes, which it will own and operate, and it could also run build-to-rent on some sites.

Green praised local policy settings.

“The NSW government is being very supportive, strategic and pragmatic in terms of how do we generate more supply of housing,” he said. “We think it’s actually positive for development and the bit that’s been lacking at that attainable level is that it’s lots of relatively small private developers, whereas we want to create an institutional platform.”

One Living is also&nbsp;looking at high-density projects and could take on more institutional funding in the future.

“The way we will be able to achieve economies of scale is through size,” Green added.

One Living enters Sydney's new apartment market with Northern Beaches site acquisition

It's been several years since there's been an opportunity to buy a brand new townhome in Melbourne's coastal suburb of Mordialloc. Even apartment developments in recent times have been few and far between in the area.

Local developer LDS Property identified the gap in new housing, securing a site on White Street, directly opposite&nbsp;Woodlands Golf Club Mordialloc. They've recently launched&nbsp;<a href="https://www.apartments.com.au/new-townhouses/wm-residences-mordialloc-102-white-street-mordialloc-vic-3195">WM Residences</a>, just 13 townhouses which they have already started building.

Projects by Buxton Director Heath Thompson, who is selling WM Residences, says the townhouses x that perfect middle ground be

"Mordialloc residents have had limited options to downsize within the suburb, often forcing them to look elsewhere despite long-standing ties to the area," Thompson says.

"With very little comparable new supply coming to market, projects like WM Residences are well placed, particularly as buyers look to capitalise on current conditions amid constrained supply."

[smartcode_project:default project_id=134646 project_image_fid=6109]

The development, designed by regarded architecture firm&nbsp;<a href="https://www.apartments.com.au/architects/ewert-leaf">Ewert Leaf</a>,&nbsp;adopts a deliberately restrained architectural approach, focusing on simplicity, durability and liveability rather than overt design gestures.

The boutique scale is central to the offering. With only 13 three-bedroom residences, each home is configured to prioritise functional layouts and everyday use, supported by private terraces and secure two-car garages.

Ewert Leaf’s design response leans into a calm, neutral material palette. Interiors are defined by oak flooring, white walls and soft finishes, creating a consistent and understated backdrop. The approach avoids trend-driven detailing in favour of longevity, with an emphasis on natural light and spatial clarity.

[smartcode_project:default project_id=134646 project_image_fid=6110]

Beyond aesthetics, the homes are designed to meet contemporary performance expectations. Each residence targets a minimum 6-star energy rating, incorporating double glazing, comprehensive insulation and all-electric Bosch appliances.

The project’s location supports a walkable coastal lifestyle, sitting within close proximity to Mordialloc’s foreshore, Main Street retail strip and the train station. Local cafés and dining venues, including Suburbia Deli and Hendriks Café, are within a short walk, reinforcing the area’s established neighbourhood character.

[smartcode_project:default project_id=134646 project_image_fid=6116]

While <a href="https://www.apartments.com.au/developments/mordialloc-vic-3195">Mordialloc</a> is often defined by its beach and pier, the project taps into other areas of day to day living, offering easy access to local food, casual dining and transport, rather than positioning itself purely as a lifestyle retreat.

WM Residences reflects a continued trend across Melbourne’s coastal suburbs towards smaller-scale, design-led townhouse developments, particularly on infill sites where proximity to amenity is already established.

With construction commenced prior to its market entry, the project aligns with a growing preference among buyers for developments with visible progress and defined delivery timeframes.

[smartcode_project_cta:default project_id=134646]

WM Residences fills gap in Mordialloc townhouse market

Pete Wargent

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For much of the past two years we have seen a great deal of hand-wringing and uncritical reporting of ABS first home buyer figures, with countless media articles noting the apparent disappearance of first time buyers due to their being crowded out of the market by greedy Baby Boomer speculators.
It has been a compelling narrative, to be sure, but has been shown either to be a partial misunderstanding of market dynamics by theorists, or a prolonged exercise in confirmation bias.
As documented here and elsewhere many times previously, first time buyers never really disappeared.
What can be said is that over recent times the marginal buyer of property in our largest capital cities has altered significantly.
Anyone who works in the Sydney property market would know that many of those so-termed "speculators" have in fact been first time buyers themselves, oftentimes choosing to buy an investment property as their first step on the housing market ladder.
I cannot realistically speak for the Melbourne market being an infrequent visitor south of the border, but can only imagine that similar trends have been playing out there.
If you want to reduce the argument to semantic debate, you might say that first time investors are not buying "homes", but, whatever, they never went on strike.
The most populous cities have also being our strongest property markets, so for those listening to the data then the conclusions should have been obvious enough.
Theorists schooled by NAB data
The latest <a href="https://business.nab.com.au/wp-content/uploads/2015/04/Quarterly-Australian-Residential-Property-Survey-Q1-2015-PDF202KB.pdf" target="_blank">NAB residential property survey</a> for Q1 2015 was released last week.
It confirmed that more than a quarter of established properties continue to be purchased by a combination of first home buyers (15.8% in Q1 2015, down from 16.1% in Q4 2014) and first time investors (making up 10% of purchases).
 <img src="https://2.bp.blogspot.com/-979URyOQ_HU/VT4KFx5oxdI/AAAAAAAAU4o/hfdfjzgW0e4/s1600/FHBs.jpg">
 
Source: NAB
Trends in new residential property developments were once again broadly similar, with first timer buyers also accounting for around a quarter of sales.
Even more damningly a recent Domain survey found that 16% of "Gen Y" folk own two or more properties, which is almost as high a share as the "Gen Xs" (17%), or even the Baby Boomer generation who had apparently locked them out of the market (17%).
So much for the greedy old farts "devouring their young"!
It has rather more been a case of dog eat dog, or what is otherwise known as a "market".
This merely underscores the fallacy of dividing up Australia into convenient generational groups and stereotypes.
In the real world there are at least two score and 10 shades of grey, and markets are infinitely more complex and granular.
What this means...consequences?
There was also a theory doing the round some years ago that the disappearance of the first home buyer could cause the property markets to collapse in upon themselves, as the base of the real estate pyramid dissipated.
This has not proven to be the case - at least, not yet - with many first time investors favouring lower priced property with its more affordable entry points and potentially stronger yields.
However, these shifts being seen in our capital city markets may yet have unforeseen consequences.
First and foremost, the increased roles of the investor and the first-time investor have the potential to amplify the property market cycles, both on the way up and on the way down.
Who and what drives prices?
It has long been argued that unemotional and calculating investors don't push up property prices, while emotion-driven home buyers do.
There was probably an element of truth in this in times past.
Certainly it can be said that countries with high home ownership rates have also historically been more prone to boom-bust cycles, for where the status of home ownership is considered to be an essential, would-be buyers can on occasion stretch themselves to extreme lengths.
However, the first hand evidence I have seen tells me that investors today can push home prices higher just as much as home buyers can.
Why would a rational and calculating investor be prepared to bid high for a property?
Simply because within an illiquid market it may be another month or three before they have a further opportunity to buy, and in a hot or rising market environment they may fear paying $5,000 more for the privilege of so doing.
Downturn phases
A greater number of investors in the market could amplify the downturn phase of the property cycle too with some investors inclined to dash for the exits when prices are declining.
In reality, trading property frequently as is so often recommended by investment advisers and property writers is highly impractical due to prohibitive transaction costs, and a large number of investors instead look to adopt a long term buy and hold approach.
Greater volatility is most likely to be experienced in smaller property markets where volumes are thin, and indeed we have already seen some extreme examples in certain mining towns.
<a href="https://petewargent.blogspot.com.au/2013/11/planning-land-prices-and-house-prices" target="_blank">Experienced</a> housing market economists have long recognised that the larger property markets can often be more stable and far less impacted by increases in supply - even dramatic increases in supply.
The property markets of Melbourne have been an excellent case in point, refusing to crash despite an oversupply of experts insisting that they must, due to overbuilding and an excess of high rise stock.
Another trend which we might expect to see is that of a shorter market cycles, particularly in this modern era of instant gratification.
Perhaps to a certain extent this is already true, with Australia having experienced a number of mini-cycles over the past decade.
That said, this is likely also in part illusory, with the ebbs and flows of property cycles in times past masked by an economy which was off to the inflationary races.
In today's era of low interest rates and low inflation we should expect to see property prices falling in nominal terms far more frequently than was ever the case in times of higher or even raging inflation.
PETE WARGENT is the co-founder of <a href="https://allenwargent.com/" target="_blank" rel="nofollow">AllenWargent</a> property buyers (London, Sydney) and a best-selling author and <a href="https://petewargent.blogspot.com/" target="_blank" rel="nofollow">blogger</a>.
His book '<a href="https://www.bigskypublishing.com.au/Books/General-Interest/Four-Green-Houses--and-a-Red-Hotel/1015/productview.aspx" target="_blank" rel="nofollow">Four Green Houses and a Red Hotel</a>' is out now.
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pwargent-M4siyDbqQY

NAB survey debunks first home buyer strike: Pete Wargent

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Another day, another media article about over-building in Sydney which will apparently lead property prices to come crashing down.
This is something I discussed very <a href="https://petewargent.blogspot.com.au/2015/04/zinged" target="_blank">briefly here previously</a>, in response to an article on ABC which referenced my data. 
The problem in cities such as Sydney, is not an necessarily an undersupply of total dwellings per se.
We'll always manage to shoe-horn in enough new 50 square metre flats, no worries at all.
Rather, the issue is one of a gross <a href="https://petewargent.blogspot.com.au/2015/04/zinged" target="_blank">mismatch of supply</a>, and an <a href="https://petewargent.blogspot.com.au/2015/04/zinged" target="_blank">utterly chronic shortage</a> of land being made for development in relation to the demand for it.
Over the short term, nobody can say with any certainty what will happen to prices - there have certainly been enough dreadful predictions over the past 15 years to prove that to be true.
The longer term problem is that with so little land being made available for development, the replacement cost of housing is set to continue rising faster than household incomes growth. 
Land supply bites down hard in 2014
Indeed, a biting undersupply of land being made available for development is already launching land prices across Australia's capital cities into orbit. 
CoreLogic-RP Data released its excellent property capital cities markets report which you can read <a href="https://corelogic.com.au/resources/pdf/reports/capital-markets-report-march2015-online.pdf" target="_blank">here</a>.
It showed that over 2014 the median land price increased by a ripsnorting 17.4% to $283,000.
<img src="https://2.bp.blogspot.com/-tKOcqSbXJcY/VTh-65dEEHI/AAAAAAAAUw4/aGfTlmGDOoQ/s1600/land%2Bvalues.jpg"> 
Compounding land prices
CoreLogic-RP Data's analysis shows that land prices have continued to rise at a compounding annual rate of 8.2% per annum over the past two decades.
The nature of compounding growth is such that these increases over time can become outlandish, and in fact land prices have increased by 382% over the past 20 years, while median lot sizes are declining. 
This is partly a consequence of Australia's strong population growth, and also of employment growth which is focussed so overwhelmingly upon four capital cities plus regional Queensland.
20 years ago 684 square metres of land for residential development in a capital city would on average have cost you $58,750. 
Today, that same 684 square metre lot would set you back $365,256.
Not typically the dynamic one would associate with a longer term easing of dwelling prices, but you never know.
PETE WARGENT is the co-founder of <a href="https://allenwargent.com/" target="_blank" rel="nofollow">AllenWargent</a> property buyers (London, Sydney) and a best-selling author and <a href="https://petewargent.blogspot.com/" target="_blank" rel="nofollow">blogger</a>.
His book '<a href="https://www.bigskypublishing.com.au/Books/General-Interest/Four-Green-Houses--and-a-Red-Hotel/1015/productview.aspx" target="_blank" rel="nofollow">Four Green Houses and a Red Hotel</a>' is out now.
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There's a biting undersupply of land being made available for development: Pete Wargent

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According to Knight Frank Asia Pacific between 2009 and 2014 the total value of Chinese overseas investment skyrocketed from US$600 million to hit an estimated US$15 billion, with the thrust of this investment focused in the gateway cities of Australia, the US and the UK.
Australia witnessed the strongest growth in inbound real estate investment from China in 2014 at more than a 60% increase year on year.
Meanwhile, under the terms of the China-Australia Free Trade Agreement (ChAFTA) the threshold of Foreign Investment Review Board (FIRB) screening for Chinese investors targeting commercial real estate has been lifted from a comparatively trifling $54 million to a massive $1,078 million, in line with existing limits on private business investments.
It is no longer in question of “if” capital inflows from Asia are impacting our property markets, the questions should rather be “how exactly are they doing so?” and “to what extent?”
Here are four trends which became increasingly identifiable through the course of 2014.
1 - Developer capital forcing up city land values 
One outcome of the raising of the FIRB threshold is that Asian investment groups aiming to acquire Australian commercial property can, within reason, target any asset deemed to be attractive.
In the development space there have been several instances of Asian developers paying prices comfortably in excess of what is perceived locally to be “fair market value”, in certain cases 25 to 40% above what domestic developers might previously have been prepared to pay.
Having been swallowed up by China's Dalian Wanda Group for a thumping A$425 million, the tired Gold Fields House office block at Sydney’s 1 Alfred Street (opposite the Cahill Expressway at Circular Quay) will be turned into luxury apartments with stunning views of Sydney Harbour.
The acquisition of a prime site in Erskineville in Sydney's inner west by Hong Kong’s Golden Horse group for A$350 million was another landmark transaction, being the highest price paid to date for such a residential site in Australia.
It is important not to underestimate the potential scale of Chinese investment.  The state-owned Chinese property developer Greenland, constructors of the 600 unit Greenland Centre tower in Sydney's Central Business District, is one such example of a behemoth group, with an annual turnover which comfortably dwarfs that of any Australian company. 
The Greenland group sees “no ceiling” to the volume of funds it is prepared to invest in Australia, immediately declaring after the signing of the ChAFTA that agriculture assets would be targeted.  Moreover, purchasing power has increased as the Australian dollar has depreciated.
<img src="https://2.bp.blogspot.com/-kA8y9pqUea4/VTNSRGA-j3I/AAAAAAAAUrE/nZ3uQJOWZ8Y/s1600/chart7.jpg">
While Chinese developers can and frequently do add to the dwelling stock through residential development, land prices in the inner suburbs of Sydney and Melbourne are undoubtedly being pushed higher by Asian investment - and ultimately higher land values are likely to be built into the cost of the final product for the end user. This dynamic is also resulting in substantial windfall gains for some vendors.
2 - Approved purchases have doubled
The latest data from FIRB suggests that total approvals for foreign investment in residential property approximately doubled from $17 billion to $34 billion in 2013/14.
While the bulk of approvals continue to relate to new property at around 80% of the total (this $27 billion itself being a colossal 170% year-on-year swelling), the concentration of approved investment in Sydney and Melbourne is noteworthy.
Furthermore, the prior year comparative figures disclosed in the notes to the FIRB Annual Report showed that total approved investment in commercial real estate was double that of residential.
The sale of high-rise apartments has been one of Australia’s thriving export industries of the past half decade, with new developments in the three largest capital cities being fluently marketed via slick multilingual brochures and websites.
<img src="https://2.bp.blogspot.com/-iJsjBMCZ8GQ/VTNSBBQNvhI/AAAAAAAAUq8/jAgAJz3mccA/s1600/chart6.jpg">
Increasingly assured of their ability to peddle apartments offshore, developers have proceeded to commence the construction of record volumes of high-rise supply, and pleasingly this trend is helping to add significantly to the aggregate dwelling stock.
My analysis has shown here previously that this will result in an oversupply of high-rise apartments in a number of capital city hubs around Australia, which will drive vacancy rates higher and place an equivalent downward pressure on rents.
Indeed, unit yields across several tracts of Brisbane have already discernably declined over the past 18 months, a trend which has sometimes been masked in the reported macro level capital city figures by the “newness premium” charged on pristine new rentals.
3 - Record Chinese tourism spend
While there is no direct correlation between the impressively <a href="https://petewargent.blogspot.com.au/2015/04/export-values-decline">rebounding tourism sector</a> observed in our <a href="https://petewargent.blogspot.com.au/2015/04/export-values-decline">international trade data</a> and our real estate markets, record Chinese visitor numbers and tourism expenditure is inextricably linked to other longer term demographic trends, including the increasing popularity of Australia as a destination for Chinese capital.
<img src="https://4.bp.blogspot.com/-9OcqB8oSyN0/VTNRpMN-FzI/AAAAAAAAUq0/kyPRF2T780Y/s1600/chart5.jpg">
The economic impacts of tourism are bothersome to identify and isolate, but the best “control” or bellwether capital city property market is that of Hobart, a relatively small city which has played host to record Chinese tourism spend over the past year.
My analysis has shown that while both employment and population growth has remained muted in Tasmania, the depreciation of the Aussie dollar has seen the local economy improve and Hobart has begun to record moderate housing market growth.
4 - Capital flight from China
I've deliberated long and hard on this point before making claims which can't be substantiated or backed up with corroborative evidence. Look, it's happening, and dwelling price movements over this decade to date indicate where, that being our two most populous cities. While the value of approved foreign real estate purchases may appear immaterial in the context of a $5.4 trillion housing market, it would be naïve to think that Asian capital is not having an impact at the margin, particularly in a market where annual housing finance domestically is measured only in billions.
<img src="https://1.bp.blogspot.com/-Bcl5LJ9mYyc/VTNSp76y2kI/AAAAAAAAUrM/wceuzJOTr2k/s1600/chart8.jpg">
In today’s more fluid financial markets motivated Asian capital can find (and is finding) its way to Australia, and in sentiment-driven markets where perception alone can move prices, incontrovertibly this matters.
Picking winners
Observers should not be fooled into think that one high profile FIRB intervention at a Wolsely Road address is representative of a government desire to repel Asian investment in Australia. It's not.
As the mining investment boom unwinds and the Australian economy faces consequential commodity market headwinds, quite the opposite has been true, as evidenced by the detail of the ChAFTA and the promotion of the Business Innovation and Investment Visa (the subclass number  “888” affirmation enough of the program’s intention).
The sale of Australian assets results in windfall gains for some, but distorts the markets adversely for others.  The government wants and needs Asian investment, and that is what it is getting, and there is evidently minimal capacity or desire to get involved in picking winners.
PETE WARGENT is the co-founder of <a href="https://allenwargent.com/" target="_blank" rel="nofollow">AllenWargent</a> property buyers (London, Sydney) and a best-selling author and <a href="https://petewargent.blogspot.com/" target="_blank" rel="nofollow">blogger</a>.
His book '<a href="https://www.bigskypublishing.com.au/Books/General-Interest/Four-Green-Houses--and-a-Red-Hotel/1015/productview.aspx" target="_blank" rel="nofollow">Four Green Houses and a Red Hotel</a>' is out now.
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Asian capital is impacting our property markets (and here's how): Pete Wargent

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Property buyer's agent Pete Wargent gets a <a href="https://www.propertyobserver.com.au/https://www.abc.net.au/news/2015-04-15/housing-shortage-not-as-certain-as-we-think/6395326" target="_blank">zinging</a> from Michael Janda of ABC News today. No probs with that, I've been a long-time fan of Mike's work.
Below is my chart which initiated the debate on Sydney's housing shortage (or otherwise), which shows that over the past nine years, population growth in New South Wales has accelerated while dwelling completions have remained at or below their long run averages.
<img src="https://1.bp.blogspot.com/-Qyzz354APPQ/VRPWZSpyqyI/AAAAAAAAT-o/RgOP6BmiWes/s640/Dem9.jpg">
What Mike is arguing is that over the long run, New South Wales has built enough homes, and he has the <a href="https://www.propertyobserver.com.au/https://www.abc.net.au/news/2015-04-15/housing-shortage-not-as-certain-as-we-think/6395326" target="_blank">data</a> to back this up. 
Of course, in one sense this is inarguable - there aren't tens of thousands of people living on the streets in Sydney, so by definition the market has coped, and there is no easily quantifiable "housing shortage".
Housing markets are complex beasts, however, and my point is rather more nuanced.
In the simplest terms if Greater Sydney's population growth continues as it has been of late (<a href="https://petewargent.blogspot.com.au/2015/04/the-decline-of-regional-australia" target="_blank">massively outstripping regional New South Wales</a>), and as is projected, then based on historical dwelling completions data the market is likely stuffed, particularly at the granular level.
As I'll explore below, the reason is related to a mismatch of supply within Sydney's relatively confined boundaries.
<img src="https://4.bp.blogspot.com/-MxJUxCxWRI4/VRoinS4zV7I/AAAAAAAAUFc/c3Oq6k4IoXI/s640/RPG.jpg">
As alluded to above, the notion of a housing shortage is something of a nebulous concept, but here are three shortages that I believe do exist.
Shortage 1 - Land available for development
Over the past six years, in aggregate residential land values in New South Wales have increased by <a href="https://petewargent.blogspot.com.au/2015/02/sydney-land-it-goes-ballistic-supply-is" target="_blank">37%</a>.
<img src="https://3.bp.blogspot.com/--1QHYuB7c8Q/VS5BVDTdqTI/AAAAAAAAUkY/WuE-soJgDjA/s1600/Janda1.jpg">
But as Mike points out in his ABC piece, the use of averages can lead one to very average conclusions, and this figure disguises the intense pressure on Sydney's drip-fed land supply.
While regional Australia has generally only experienced benign land price inflation, lot prices in Sydney have been going ballistic, exploding <a href="https://petewargent.blogspot.com.au/2015/02/sydney-land-it-goes-ballistic-supply-is" target="_blank">19.7% higher in 2014</a>.
In some suburbs such as Kellyville land price inflation is bordering upon out of control, with prices rising 38.2% in 2014 alone, up to $912 per square metre. Median prices in Glenmore Park rose by 30.6%, in Riverstone by 20.2%, and in Pitt Town 26.4%. The median price of land in the south west soared by 25% to $350,000, while prices in Sydney's west, where lot sizes can be larger, rose by 8.3% to $410,500. Extrapolating existing trends Dr. Andrew Wilson of Domain Group expects Sydney's median land prices to increase by another $40,000 in 2015 until "the chronic undersupply of residential development land is effectively addressed". The system is not functioning as it should. Land supply in Sydney is in dire straits <a href="https://petewargent.blogspot.com.au/2015/02/sydney-land-it-goes-ballistic-supply-is" target="_blank">as I considered in more detail here</a>. Shortage 2 - Appropriate dwelling stock
Over FY14 Greater Sydney saw a measly 6,793 dwelling approvals in its inner suburbs, and only 18,610 in the middle ring suburbs (5 kilometres to 20 kilometres radius from the Central Business District).
There were a further 13,670 approvals in the outer and fringe suburbs, but as highlighted by the <a href="https://petewargent.blogspot.com.au/2014/05/rba-on-housing" target="_blank">Reserve Bank</a>, job density is increasing faster in the inner city areas, and thus so too is demand for residential property.
The <a href="https://petewargent.blogspot.com.au/2015/03/grattan" target="_blank">Grattan Institute</a> has arrived at similar conclusions highlighting how although nearly 60% of jobs are created with 10 kilometres of Australia's CBDs, the percentage of jobs which can be reached within 60 minutes by public transport quickly evaporates as one travels outward, making outer suburban living ever less desirable as traffic congestion increases.
The result, as found by both AHURI and the Reserve Bank, is that the <a href="https://petewargent.blogspot.com.au/2015/04/do-house-prices-rise-faster-close-to-cbd" target="_blank">gradient of house price growth</a> has remained skewed towards the inner Sydney suburbs, both over the long term and over the past decade.
Moreever, while there may be "enough" dwellings in aggregate, all that has really happened in terms of the supply response is that since 2010 we have been approving previously unthinkable volumes of "shoebox apartments" in high rise complexes (see the green line in the graphic below).
<img src="https://3.bp.blogspot.com/-rYuFPcmQ3MA/VS5Hj4AZMDI/AAAAAAAAUk4/SdbvE1Qyg00/s1600/Janda3.jpg">
Much of this stock is sold offshore to Asian investors, and in my opinion the underlying demand for it domestically is likely to be weak, both from tenants and home buyers. Meanwhile we are building far fewer houses, two-storey dwellings or stock which is actually like housing than was ever the case before.
The recent experiences of Melbourne suggest that this dynamic may not impact housing markets or housing affordability in the positive way that many expect.
Shortage 3 - A shortage of ideas
What I haven't seen any compelling evidence of is how Sydney is planning to absorb its projected 8 to 9 million population of 2061 effectively. 
<img src="https://4.bp.blogspot.com/-h-IfKvfV-qU/VS5Eb1zNC-I/AAAAAAAAUkk/qt1gvkZmEFg/s1600/Janda2.jpg">
I don't even know where to start with this as the numbers are mind-blowing. Are there realistic plans for public transport or infrastructure? Any encouragement for corporates to relocate their headquarters to regional centres? Or indeed, any genuine investment in regional employment growth at all?
I have believed for years that Sydney will end up as a housing affordability disaster zone, and while the property crash warnings keep coming as regularly as the tides at Bondi (or the traffic congestion reports from the Harbour Bridge), over the longer term I haven't yet seen anything to change my view.
That said, it's not all doom and gloom.
It's not so fashionable now that markets are so much tighter than they once were, but in times past it be said that a market "in equilibrium" should have a vacancy rate of 3% - and Sydney doesn't have anything like that yet, <a href="https://petewargent.blogspot.com.au/2015/04/vacancy-rates-rise-in-darwin-and-perth" target="_blank">sitting at just 1.6%</a>.
<img src="https://4.bp.blogspot.com/-QWGY4ErVhvQ/VRcVTWnxWDI/AAAAAAAAUB4/_7ftk2qsucA/s640/SQM%2Bvr.jpg">
However, vacancy rates are finally being nudged higher around a few key construction hubs, which will ultimately put upwards pressure on apartment vacancy rates and an equivalent downwards pressure on unit rents.
These include certain suburbs in the inner west (Erskineville), the inner south (Mascot, Green Square), north Sydney (Chatswood, North Sydney), and the surrounds of Olympic Park (Homebush Bay, Rhodes), to name a few.
In that sense, then, there is no actual "shortage" of dwellings, which I think on balance is Mike's point - in a downturn some of these investor hotspots could get clobbered, leading in turn to unanticipated adverse outcomes through the wider market.
The wrap
Mike is also correct that the current boom is now being led by demand. No arguments there, it's been largely an investor-led phenomenon through this cycle, although the latest data suggested that owner-occupiers are now gearing up due to a fear of missing out.
 <img src="https://3.bp.blogspot.com/-UP8AnS5iB2Q/VS5RmaVyEqI/AAAAAAAAUlI/tDnWAGJsvjM/s1600/LF1.jpg"> 
Supply can tackle housing affordability over the longer term, though I'm not convinced of how effective this will be. Over the shorter term only restricting credit and curbing or discouraging demand can work quickly. Over to APRA.
PETE WARGENT is the co-founder of <a href="https://allenwargent.com/" target="_blank" rel="nofollow">AllenWargent</a> property buyers (London, Sydney) and a best-selling author and <a href="https://petewargent.blogspot.com/" target="_blank" rel="nofollow">blogger</a>.
His book '<a href="https://www.bigskypublishing.com.au/Books/General-Interest/Four-Green-Houses--and-a-Red-Hotel/1015/productview.aspx" target="_blank" rel="nofollow">Four Green Houses and a Red Hotel</a>' is out now.
 
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Sydney's housing shortage is about a mismatch of supply: Pete Wargent

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Most of the debate surrounding so-termed "negative gearing" in Australia circles endlessly debating one point: were the rules regarding deductions to be quarantined again as they were previously in 1985, would rents increase at eye-watering growth rates?
<img src="https://2.bp.blogspot.com/-LekpHXdEyV4/VSebrNLNTaI/AAAAAAAAUYc/Fm6u0wlxNzg/s1600/VIc4.jpg">
In other words, are the existing rules an effective rental subsidy that are now pushing rental growth down below the rate of inflation. It's something of a hypothetical debate. Firstly that's because looking historically nobody knows the counter-factual (i.e. would rents have kept rising beyond 1987 had the rulings not been reversed?). And secondly, because to all intents and purposes there were no property investors in the lead up to 1985, so conditions today are completely different. In the year 1985 investor finance accounted for a miserly 13% of total housing finance, compared to a whopping 40% or a stonking <a href="https://petewargent.blogspot.com.au/2015/04/housing-finance" target="_blank">$139 billion of domestic investor finance</a> over the past 12 months alone. 
<img src="https://4.bp.blogspot.com/-6JnIgcfHRIA/VSeb36SW8dI/AAAAAAAAUY0/oK4u8WnVBU8/s1600/HF3.jpg">
I'm sure that nobody believes for a minute changes to the tax law would force rents higher in Kununurrra or Kurrajong, but research has consistently shown that there is a heavy concentration of investor-owned dwellings in the inner- and middle-ring suburbs of our largest capital cities - remove a portion of the rental stock in these locations and some increases in rents would be certain. Moreover, changes to the tax law would quickly undo the system which has succeeded in kick-starting the <a href="https://petewargent.blogspot.com.au/2015/03/building-approvals-smash-record-high" target="_blank">greatest residential building boom</a> in Australia's history, which will soon result in an oversupply of dwellings in at least six of our capital cities, and possibly eight of them. <img src="https://2.bp.blogspot.com/-c7hq4qdu59o/VPUtgH00IUI/AAAAAAAATfQ/HYH30ROsgMA/s640/Approvals3.jpg"> With a nascent boom in residential construction now underway and home starts <a href="https://petewargent.blogspot.com.au/2015/01/record-high-for-dwelling-commencements" target="_blank">breaking record highs</a>, the tax law won't be changed because it's creating the supply that's needed, estimated at more than 180,000 dwellings per annum. Budget impacts
The rents argument is a sideshow in any case. It's often also argued that negative gearing rules should be scrapped in order to "save" $4 billion from the budget and $2 billion per annum going forward but this is a flawed notion.
Between 1985 and 1987 the numbers on the New South Wales housing waiting list reportedly increased alarmingly by almost a third from fewer than 110,000 up to nearly 140,000 in only 18 months, a trend which was immediately reversed upon the re-introduction of the previous ruling on interest deductions.
In Britain, approximately 17% of households live in social housing. The problem in Australia is that at a measly 4.5% of total housing stock, public housing "cannot provide a realistic alternative to a private rental market for existing homeowners" - AHURI's 2010 <a href="https://www.ahuri.edu.au/publications/projects/p40561" target="_blank">report</a> on the future of public housing explains in detail the many reasons why:
"Through the stimulus package, the Commonwealth put $6 billion on the table to build 20,000 houses. That’s lovely. But the shortfall in social housing is 160,000 dwellings. So either they find another, whatever that is, another $50 billion - no way!".
Other estimates put the shortfall at up to 200,000 dwellings, and without adequate additions the social housing shortfall can only get worse.
<img src="https://4.bp.blogspot.com/-GB5kSEgYZoc/VShKLsYGTEI/AAAAAAAAUZY/A_AO-ngvJ84/s1600/AHURI.jpg">
Source: AHURI
As highlighted in AHURI's report, with Commonwealth and state elections held in 3-year cycles, committing large amounts of money for long-term capital housing investment is seen to be risky for politicians. It's just not going to happen. And indeed, there is no intention of addressing underfunding of the sector, with core funding declining in real terms by 26% between 1996 and 2008. Confirmed the AHURI report "there is no way that Commonwealth or state governments are going to kick-in capital funding which is going to enable social and affordable housing to grow at 2% per annum". Australia is projected to have <a href="https://petewargent.blogspot.com.au/2015/03/43-million-more-households-by-2036" target="_blank">4.3 million more</a> households in the 25 years to 2036, and (and<a href="https://petewargent.blogspot.com.au/2015/03/aussie-investing-until-2055" target="_blank">millions more</a> by 2055, particularly <a href="https://petewargent.blogspot.com.au/2015/03/big-australia-to-give-way-to-huge" target="_blank">if my assumptions on population growth are proved correct</a>) so the total demand for rental accommodation will be beyond huge. 
<img src="https://1.bp.blogspot.com/-ag1ZbNZWc3Q/VSitV8CD1LI/AAAAAAAAUZs/cJOsx22Ue9Y/s1600/AHURI2.jpg">
Source: AHURI
As I will discuss below, the solutions can only come from private individual and offshore investors, with upwards pressure on prices encouraging more construction, which is exactly what is playing out right now. 
Case study: Public housing in Victoria
Having been the subject of an <a href="https://www.audit.vic.gov.au/publications/20120328-Public-Housing/20120328-Public-Housing" target="_blank">audit</a> in 2012, public housing in Victoria is worthwhile case study. In my living purgatory as an auditor I wrote seemingly endless reviews and reports for Central Banks, Treasuries, Ministries of Finance, Government Finance Departments and the like - the reality is that such reports in draft form often promise to be somewhat spicy, but after internal reviews and by the time final reports are issued the recommendations tend to be watered down and uncontroversial. I don't think I've seen many more damning auditor reports than the one issued by the Auditor-General to the Legislative Assembly on the subject of "Access to Public Housing".
The main source of social housing in Victoria is public housing, yet as at the audit date there were fewer than 83,000 social housing dwellings in Victoria, 65,352 of which were public housing, owned and managed by the Department of Human Services (DHS).  Victoria's population, meanwhile is <a href="https://petewargent.blogspot.com.au/2015/03/help-commentary-on-demographics-and" target="_blank">rapidly approaching 6 million</a> and counting.
<img src="https://1.bp.blogspot.com/-gcUpwdaGmkk/VRPWXczZb7I/AAAAAAAAT-M/AWfaCu1AmRE/s640/Dem4.jpg">
The chart below shows those 65,253 public housing dwellings by type and location at 30 June 2011.
<img src="https://1.bp.blogspot.com/-mQRMvvwP1RI/VSebrJYBj0I/AAAAAAAAUYU/zR_qakFZrGc/s1600/VIC1.jpg">
Source: Auditor General 
A $17.8 billion property portfolio, housing around 127,000 Victorians, noted the auditor, requires “informed, cohesive and comprehensive asset management”, but condemningly the audit found no such systems in place. Here are four reasons that public housing is not a viable alternative to the provision of rental stock by private investors. 
This article continues on the next page. Please click below.
<hr class="system-pagebreak">
Reason one - The public housing financial model is unsustainable
The situation for public housing was found by the auditor to be “critical” and public housing’s operating model “unsustainable”.
Funding for the division in 2011–12 was $402 million, with set aside $169 million for social housing activity, and the audit found that the operating model for public housing, with costs comfortably increasingly exceeding revenues, to be unsustainable. 
The review found that in 2011 operating costs exceeded rental revenue by a thumping 42%, up from 30% in 2002. The review further forecast that the division's deficit would more than double from $56 million in 2011 to $115 million by 2015 and that all cash reserves would be exhausted by within two years.
<img src="https://1.bp.blogspot.com/-mbA3FPTqdHg/VSebr1fo_1I/AAAAAAAAUYg/fAUj9uATIRk/s1600/Vic2.jpg">
Source: Auditor General
The division’s short-term strategies to address its financial position had only deferred and compounded the problem using short-termist band aid solutions to address its dire financial situation.
Such short-term solutions included the reduction of stock acquisitions, the deferring of preventative maintenance, and funding deficits by utilising cash meant for long-term programs - which only compounded the issue, particularly the growing maintenance liability.
While rent and other property income had increased by 7% (in nominal terms by $24 million between 2007 and 2012), operating costs had spiralled by 27% or $92 million in nominal terms over the same period.
Reason two - Public housing stock is grossly inadequate and under-supplied
The Auditor-General found that demand for public housing had easily exceeded supply over the preceding ten years - the cost of living and household numbers had increased and the availability of affordable housing had decreased. 
The demand for public housing is measured as the number of households that have applied for public housing and are on the public housing waiting list.
The audit found that as at 30 June 2011 there were more than 38,000 households on the waiting list – and once applicants are approved for public housing, they still have to wait to be housed. 
In 2009–10, applicants who had received a priority allocation waited an average of 8.5 months for housing, and non-priority applicants wait several years. 
Reason three - Public housing stock is grossly mismatched
The tenant profile of public housing has changed substantially over time.  Large estates built in the 1960s were intended for working families on low to moderate incomes as a transitional measure before moving into private housing. Most properties were accordingly built to meet the needs of families as opposed to an increasingly single and older tenant group.
Today, however, public housing now serves an increasing proportion of elderly, single and economically and socially disadvantaged tenants.
Thus the need for one-bedroom dwellings has increased dramatically while the need for larger dwellings has decreased. The chart below shows the mismatch between public housing stock, and demand as reflected by the public housing waiting list.
<img src="https://4.bp.blogspot.com/-AOPBSIO7JD4/VSebrPFmwMI/AAAAAAAAUYY/oOr3pbg_uxo/s1600/VIC3.jpg">
Source: Auditor General
Unfortunately, legislative, regulatory and policy settings prevent authorities from actively trading public stock to help finance necessary dwelling upgrades (or from expanding stock levels by changing the mix of densities, dwelling types and locations to match the needs of target households). As was shown in the above graphic, at the audit date it would have required almost 100% turnover of households in one-bedroom properties to meet waiting list demand, as compared to only 25% for three-bedroom properties. The National Housing Supply Council projected that the demand across Australia from older householders for single households would increase from 86,500 to 189,800 between 2010 and 2029.
Reason four - The quality of public housing stock is in sharp deterioration 
The public housing portfolio was found to be in a seriously deteriorating condition with the division estimating that 10,000 properties (or 14% of the total) would reach obsolescence over the following four years, and a significant mismatch of properties to tenant needs.
The asset base was found to be deteriorating awfully with 42% of housing stock being over 30 years old. Of course, properties of this age generally require more frequent and larger scale repairs, maintenance and upgrades. 
Yet the division was found not to have articulated any long-term objectives or plans at all for public housing.
A property portfolio approaching $20 billion in value housing 127,357 Victorians, requires an "informed, cohesive and comprehensive asset management system", but in fact no such systems were found to be in evidence.
In 2011 well over 14,000 dwellings (25%) had not been assessed for over three years, with 2,400 of those not inspected for over five years, in spite of the supposed divisional policy to assess all properties at least three-yearly.
The division also estimated that, due to limitations within the system, maintenance costs of $298 million across the portfolio were, on average, understated by a whopping 138% for each property.
The wrap
As concluded by AHURI, is very little optimism that public housing can or will play a significant role in the overall housing system, or contribute in any significant way to addressing the supply of affordable rental housing stock. Perhaps more importantly, there is no political will at all to invest in public housing. Private housing is all there is, and government policy has clearly concluded that the road ahead will necessarily involve incentives for Mum and Dad investors to provide rental accommodation. Institutional funds and the private sector won't touch the sector because rental returns are too low. Indeed the Treasury was approached with a request for investment from the Future Fund and the response was exactly that - the Future Fund will not invest in residential property because rental returns are too low. So if the private sector won't invest in rental housing because the returns are too low, and the Australian government won't invest its money there either, the only remaining alternative is to incentivise individual investors to do so. And that's why the negative gearing rules won't be squashed. 
PETE WARGENT is the co-founder of <a href="https://allenwargent.com/" target="_blank" rel="nofollow">AllenWargent</a> property buyers (London, Sydney) and a best-selling author and <a href="https://petewargent.blogspot.com/" target="_blank" rel="nofollow">blogger</a>.
His book '<a href="https://www.bigskypublishing.com.au/Books/General-Interest/Four-Green-Houses--and-a-Red-Hotel/1015/productview.aspx" target="_blank" rel="nofollow">Four Green Houses and a Red Hotel</a>' is out now.
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Four reasons negative gearing won't be squashed: Pete Wargent

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The ABS released its <a href="https://www.abs.gov.au/AUSSTATS/abs@.nsf/allprimarymainfeatures/3685CE437B16298ACA257AFC000E9FB3?opendocument" target="_blank">Detailed Labour Force</a> figures for February 2015 and for the quarter, and the news was somewhat mixed.
This data series is not seasonally adjusted, and total jobs growth over the past 12 months was surprisingly strong, with the total number of employed persons surging to 11,762,700. Employment growth was driven overwhelmingly job gains in Melbourne, Sydney, Perth and Brisbane.
It will be interesting to see whether this strength is ultimately mirrored in the seasonally adjusted Labour Force data in due course. Let's take a look in four short parts.
 Part 1 - Mining and manufacturing jobs go
While it can hardly be a surprise, the fall in the number of employees in the mining sector has been dramatic, tailing all the way from 270,000 to just 220,400, with nearly 50,000 positions cut in just 12 months.
Manufacturing industries have also shed -23,500 jobs over the past year.
It has long been my contention that the end of the mining investment boom will represent adverse news for many of Australia's regional property markets, a number of which had performed surprisingly well through a once-off decade long resources investment boom.
The decline in manufacturing employment is also in my opinion likely to represent a significant headwind for the city of Adelaide, though for the purposes of balance I do note that a number of other commentators strongly disagree with me on this point.
 Part 2 - Services employment increases
On the positive side of the employment ledger there now is some evidence of rebalancing over the past 12 months, with construction and services jobs helping to more than offset the jobs losses in mining and manufacturing.
As I noted <a href="https://petewargent.blogspot.com.au/2015/03/sydney-construction-boom" target="_blank">in by blog post last week</a>, despite the inevitable contraction in the resources sector, total construction employment is still pumping with a net +45,800 jobs added over the past 12 months.
Meanwhile professional, scientific and technical services employment surged by +98,800 from 889,000 to 997,800.
Other non-trivial gains were seen in accommodation and food services (+43,500), arts and recreation (+31,300) and media and telecoms (+24,500).
Generally speaking this is good news for the four largest capital cities, and not such happy news for regional Australia or Adelaide.
Part 3 - Employment by region
Over the past year the greatest absolute employment growth has been seen in Melbourne (+94,800) and Sydney (+49,600).
<img src="https://2.bp.blogspot.com/-2x2GN1SDvR4/VQstUPtkehI/AAAAAAAAT2U/1I5VHfnHuFQ/s1600/dlf3.jpg"> <a href="https://2.bp.blogspot.com/-2x2GN1SDvR4/VQstUPtkehI/AAAAAAAAT2U/1I5VHfnHuFQ/s1600/dlf3.jpg"></a>
By contrast, regional employment growth has been weak leading to a divergence in unemployment rates in New South Wales in particular - a dearth of employment growth on a net basis over the past two years has seen regional unemployment in NSW rising to above 8%.
This has partly been driven by mining jobs losses in the coal sector, and on a smoothed moving average basis, the unemployment trend becomes clear.
<img src="https://3.bp.blogspot.com/-VRGNTMkVQ_k/VQstS3JQr7I/AAAAAAAAT10/g1Y5NxzVWvQ/s1600/DLF6.jpg"> <a href="https://3.bp.blogspot.com/-VRGNTMkVQ_k/VQstS3JQr7I/AAAAAAAAT10/g1Y5NxzVWvQ/s1600/DLF6.jpg"></a>
In other states, both Perth (+35,700) and Brisbane (+33,200) have recorded robust employment growth over the year to February 2015, with residential property construction having a key role to play.
However, regional employment growth has been weak in Queensland and Western Australia too.
Meanwhile over the past two years total employment in Adelaide has declined (-11,900), with further job losses expected due to Holden's departure.
<img src="https://3.bp.blogspot.com/-j5Fbcz5JmlA/VQstTP_yWKI/AAAAAAAAT14/_IwGI2MHbT8/s1600/DLF4.jpg"> 
Looking at these results across a range of time horizons shows how the bulk of employment growth has consistently been seen in the four largest capital cities plus regional Queensland.
<img src="https://1.bp.blogspot.com/-H0qMSobbRjc/VQstUFb7chI/AAAAAAAAT2M/TqSSOhV5yzo/s1600/dlf5.jpg">
 Part 4 - Unemployment The month to month unemployment figures are very volatile, but for completeness here they are.
<img src="https://4.bp.blogspot.com/-h4KjNZbSYBw/VQstSpeAdvI/AAAAAAAAT1w/tiQH1F2qcbo/s1600/DLF2.jpg">
In order to make some kind of sense of the capital city unemployment rates (which are not seasonally adjusted) I've run them below on a smoothed moving average basis.
One key takeaway point here for mine is that the unemployment rate in Perth has been trending upwards fairly sharply since 2013, continuing a trend away from near full employment in the period leading up to 2008.
There has been some talk of weakening employment markets in Darwin, though in truth there has not been much evidence of this in the data to date.
On the other hand, the outlook in Tasmania is improving with the unemployment rate beginning to decline and a number of other positive data releases being recorded here on this blog over the past 12 months, including for <a href="https://petewargent.blogspot.com.au/2015/03/retail-trade-lifts-in-january" target="_blank">retail trade</a> and <a href="https://petewargent.blogspot.com.au/2015/03/economy-grows-by-25-percent-in-2014" target="_blank">state final demand</a>.
<img src="https://4.bp.blogspot.com/-BY7T7X-PgAY/VQstTtPwl8I/AAAAAAAAT2A/hpM-pOCOLeY/s1600/dlf1.jpg">
In fact, while I don't recommend on this blog that anyone dashes out to invest in property in Hobart (or for that matter, anywhere), the Tasmanian capital could well be the surprise package property market of the next few years.
Firstly, this is because so many years of inertia have seen the <a href="https://petewargent.blogspot.com.au/2015/03/vacancy-rates-tighten-in-february" target="_blank">rental market tightening considerably</a>.
And while population growth and employment growth have certainly been very weak in Tasmania over recent years, the "X factor" could be Chinese investment capital, with record numbers of Chinese visitors enjoying the fresh produce and fresh air of the Apple Isle.
I haven't been down to Tassie since spending a month there while the dollar was busily crippling the forestry industry, but I've heard from more than one source this week that Chinese tourism is dribving a rebound.
I even received a Tweet to that effect:
<img src="https://4.bp.blogspot.com/-ZhgL4zMboQM/VQtGIsykihI/AAAAAAAAT2o/NzT7qlnfH-I/s1600/TAS.jpg">
Moreover, Tasmania has a small enough population that new investment could impact markets more materially at the margin.
Regional unemployment
I'll cover the regional unemployment rates data in a separate blog post, but the areas of concern include:
<ul>
<li>Central Coast</li>
<li>Hunter Valley ex-Newcastle (now 12.4% unemployment in February 2015 as coal mining job losses bit)</li>
<li>Newcastle and Lake Macquarie</li>
<li>Richmond Tweed</li>
<li>Logan-Beaudesert</li>
<li>Moreton Bay North</li>
<li>Mackay</li>
<li>Wide Bay</li>
</ul>
 
PETE WARGENT is the co-founder of <a href="https://allenwargent.com/" target="_blank" rel="nofollow">AllenWargent</a> property buyers (London, Sydney) and a best-selling author and <a href="https://petewargent.blogspot.com/" target="_blank" rel="nofollow">blogger</a>.
 
His book '<a href="https://www.bigskypublishing.com.au/Books/General-Interest/Four-Green-Houses--and-a-Red-Hotel/1015/productview.aspx" target="_blank" rel="nofollow">Four Green Houses and a Red Hotel</a>' is out now.
 
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Employment rebalances to capital cities and services: Pete Wargent

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I recently <a href="https://petewargent.blogspot.com.au/2015/02/australia-23750000" target="_blank">looked here</a> at how Australia's population increased from just 15 million in 1981 to more than 23.75 million today.
If you look closely you will see that the rate of population growth began to accelerate through the mining boom.
<img src="https://2.bp.blogspot.com/-jsW8asScJ4s/VOL4RMMnsHI/AAAAAAAATKc/MZxB5ny-jcY/s640/ABS%2BPOPULATION.jpg">
Last week saw the Treasury release of the fourth <a href="https://petewargent.blogspot.com.au/2015/03/aussie-investing-until-2055" target="_blank">Intergenerational Report</a> ("IGR") which showed Australia's population as being projected to increase to just shy of 40 million over the next four decades.
<img src="https://3.bp.blogspot.com/-ORinnuJ7Hb0/VPjv5nNgWKI/AAAAAAAATls/9jzrEwmTBqc/s1600/Population%2Bto%2B39.7%2Bmillion.jpg">
However, as <a href="https://petewargent.blogspot.com.au/2015/03/aussie-investing-until-2055" target="_blank">I wrote in this blog post last week</a>, the report seemed to be based upon a number of dubious assumptions and the projections in my opinion seemed far too low.
Why these projections are too low
In the absence of immigration, as life expectancies increases Australia would be set to be characterised by a problematic ageing population.
By 2055, life expectancy at birth is projected to be more than 95 years for men and more than 96 years for women, while there are projected to be approximately 40,000 people aged over 100, which is a huge increase.
A greater proportion of the population will also be aged 65 and over and the number of Aussies in this age group is projected to more than double by 2055 compared with today.
Given this it seems most unusual that the projections used in the IGR were based upon net overseas migration gently sliding all the way back down to just 0.5% per annum as a%age of the population over time.
<img src="https://2.bp.blogspot.com/-EClWzBrl3Y0/VPjv4nvcz0I/AAAAAAAATlU/ZMeLvqgctv4/s1600/Net%2B%2Boverseas%2Bmigration%2Bto%2Bfall.jpg">
Trend is up 
Successive IGRs have seen assumptions around net overseas migration increase.
In the 2002 report, the long-term net overseas migration assumption was just 90,000 persons per, by the 2007 report the assumption was 110,000, and by the 2010 report, the assumption was up to 180,000.
For the central scenario presented in the 2015 Intergenerational Report net overseas migration has been assumed to be 215,000 per annum from FY2019.
This takes the population projections for 2050 to be some 1.9 million higher than the 35 million figure which prompted the original "<a href="https://petewargent.blogspot.com.au/2015/03/the-debate-is-over-big-australia-won" target="_blank">Big Australia</a>" debate.
And this figure for net overseas migration is expected to stay at a constant 215,000 for the full 40 years considered by the IGR, which is unrealistically low.
There is also a case to be made for the forecast fertility rates being stunted too with birth rates declining as parenthood was potentially postponed by some during the financial crisis, but let's assume here that these projections prove to be accurate.
Well below forecasts
It is my contention that the Treasury and government know full well that its net overseas migration estimates are far too low.
After all the Department of Immigration's <a href="https://www.immi.gov.au/media/publications/statistics/immigration-update/nom-sep-2014.pdf" target="_blank">own forecasts as at Q3 2014</a> showed net overseas migration accelerating to 256,900 by as soon as 2018!
So much for a constant figure of 215,000 then!
On that basis it appears extremely unlikely that net overseas migration will be capped at 215,000 in perpetuity from FY2019 onwards.
This is particularly so in light of the remainder of the IGR, which effectively tells us that:
<ul>
<li>lower immigration would lead to slower economic growth</li>
<li>lower immigration would lead to an ageing population</li>
<li>lower immigration would lead to lower participation rates and adverse consequences on the tax take</li>
</ul>
With these viewpoints so deeply entrenched in the IGR, it seems highly illogical for net overseas migration to be capped or steadily reduced over time in%age terms as assumed in the report.
 Softly softly...
Why then wouldn't the Treasury document include more realistic forecasts in the IGR?
Presumably because no government would be keen to release a report showing an explosion in the Australian population lest this be unpopular.
It is rather a classic case of politicians saying one thing while doing another.
Towards 143 million
You'll note that I didn't make any projections or estimates of my own. For one thing, forecasting population is a fool's errand given the number of parameters involved and unknown variables.
However, models and simulations can be built be demographers - for example, see <a href="https://theconversation.com/population-growth-could-go-far-beyond-igr-projections-38490" target="_blank">this article here</a> at The Conversation which discusses many of these same points in a more intelligent fashion.
Of course, Australia can't continue to import immigrants forever and continue to reap the same benefits, for the younger immigrants won't stay young forever.
The demographic <a href="https://www.demographic-research.org/volumes/vol26/14/26-14.pdf" target="_blank">research</a> suggests that after 43 years the benefits of immigration would begin to diminish and the employment-to-population ratio would fall into decline.
But 43 years is a long time in the future.
Forecasts could be wildly low
The research also shows that if net immigration and fertility were to continue indefinitely at the IGR's assumed annual levels of 215,000 and 1.9 births per woman respectively - and the current life expectancy were to prevail - then over the very long run Australia’s population would grow over the very long run to an enormous 143 million.
While looking so far into the future is pure conjecture, it seems overwhelmingly likely that the forecast population of just under 40 million by 2055 is much too low.
Immigration will continue rising simply because the economic benefits will prove irresistible to successive governments of the future, just as has been the case over the past 15 years.
It is of course incredibly difficult to model given the variables in fertility rates, life expectancies, age of immigrants and so on, if the rate over net overseas migration in Australia remains close to 1% per annum (instead of declining back to 0.5% per annum as per the IGR). then the 40 year population projections will miss wildly on the low side.
PETE WARGENT is the co-founder of <a href="https://allenwargent.com/" target="_blank" rel="nofollow">AllenWargent</a> property buyers (London, Sydney) and a best-selling author and <a href="https://petewargent.blogspot.com/" target="_blank" rel="nofollow">blogger</a>.
His book '<a href="https://www.bigskypublishing.com.au/Books/General-Interest/Four-Green-Houses--and-a-Red-Hotel/1015/productview.aspx" target="_blank" rel="nofollow">Four Green Houses and a Red Hotel</a>' is out now.
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Big Australia to give way to Huge Australia: Pete Wargent

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The ABS released the <a href="https://www.abs.gov.au/AUSSTATS/abs@.nsf/Lookup/5206.0Main+Features1Dec%202014?OpenDocument" target="_blank">Australian National Accounts</a> for Q4 2014 which showed the economy growing by an underwhelming 0.5% in the quarter and 2.5% over the year.
In trend terms growth was just 2.3% over 2014, which is below the long run average.
Looking on the bright side this completes a remarkable 93 consecutive quarters since Australia experienced a recession.
<img src="https://4.bp.blogspot.com/-xEIAcp4LYc0/VPaSsFjrqjI/AAAAAAAATgw/pKuWUjzn7KU/s1600/GDP1.jpg">
In truth, though, this was another soft result and a slowing rate of annualised GDP growth which appears to be commensurate with further monetary policy easing.
<img src="https://4.bp.blogspot.com/-4cGxCCHnBag/VPaSsRwfC2I/AAAAAAAATg8/0-OVfUsFlXA/s1600/GDP2.jpg"> 
Domestic demand led by Sydney
The Domestic Final Demand picture showed that as expected the strength of the housing markets in Sydney and Melbourne have boosted demand locally.
Dwelling construction and <a href="https://petewargent.blogspot.com.au/2015/03/building-approvals-smash-record-high" target="_blank">record high building approvals</a> are firing in both capital cities and the "wealth effect" of rising dwelling prices has <a href="https://petewargent.blogspot.com.au/2015/02/retail-volumes-increase-in-q4" target="_blank">improved consumption in both New South Wales and Victoria</a>.
State Final Demand which is at best only an indicative measure remained weak in Canberra (ACT) and in the southern states of South Australia and Tasmania.
The negative year on year readings for Western Australia and Queensland are not unexpected, reflective of mining construction tailing away and a number of <a href="https://petewargent.blogspot.com.au/2015/03/death-of-thousand-cuts" target="_blank">diabolical regional economies</a> at the local level.
<img src="https://1.bp.blogspot.com/-fntRY-bk6b0/VPaSsVG5YXI/AAAAAAAATg0/RlVdkNmSgGo/s1600/GDP4.jpg">
Contributors to growth
GDP growth of 0.5% for the quarter was held aloft by net exports. While non-residential construction acted as a drag it was heartening to see new housing investment contributing 0.2ppts to growth. 
<img src="https://3.bp.blogspot.com/-5DRqvlhjVfQ/VPaSuxcDSwI/AAAAAAAAThc/4O1cOiPstc8/s1600/gdp3.jpg">
Dwelling investment
Indeed the "new dwellings" component of dwelling investment improved substantially by 12.4% over the past year, and the Reserve Bank will be keen to see this continue over the next couple of years as mining construction declines.
Note that major renovations contributed absolutely zip to GDP - a stunning 0.0ppts.
Although Sydney has been through a renovations mini-boom, across the rest of the country the trend is at best moribund.
<img src="https://3.bp.blogspot.com/-wLlfIgjgeuk/VPaStGcwTqI/AAAAAAAAThk/JcrrI8BAVyk/s1600/GDP5.jpg">
National and household income 
While real net national disposable income increased by 0.4% in Q4 to be 0.5% over the year, in per capita terms this reading did not increase in Q4 and was negative in 2014. 
Meanwhile the most recent <a href="https://petewargent.blogspot.com.au/2015/03/weak-commodity-prices-pave-way-for-more" target="_blank">commodities index release</a> showed that Australia's terms of trade are set to continue declining in Q1 2015.
At the household income level employee compensation growth has slowed markedly following on from a <a href="https://petewargent.blogspot.com.au/2015/02/wages-rise-25-percent" target="_blank">wage price index at a survey low reading</a> of +2.5%, although gross disposable income fared somewhat better across 2014.
<img src="https://4.bp.blogspot.com/-GYBsvfA-FOw/VPaStX6RBOI/AAAAAAAAThE/zA9HcTQqyn0/s1600/GDP6.jpg">
While interest paid on dwellings began to rise again through 2014 - and logically we should expect to see this chart rising over time due to Australia's high rates of immigration - mortgage serviceability for existing homeowners on variable rate mortgages has improved enormously since Q3 2008.
<img src="https://3.bp.blogspot.com/-G6fajQbUcCc/VPaSuWaqblI/AAAAAAAAThU/2iXR0cYE7P8/s1600/GDP8.jpg">
The shape of the above chart mirrors the findings of the Reserve Bank's own submission to the <a href="https://www.rba.gov.au/publications/submissions/inquiry-affordable-housing/" target="_blank">Inquiry into Affordable Housing</a> which found that repayments on new housing loans when charted against household disposable income had improved dramatically to be way below the average for the past decade.
Anyone with a variable rate mortgage over the past six years will attest to the same - not that this is much consolation for first home buyers in Sydney, granted. 
 The Wrap
Not entirely unexpectedly this was a soft result which marginally missed expectations and won't do a great deal to change the view that interest rates are likely be cut again before the end of H2 2015.
PETE WARGENT is the co-founder of <a href="https://allenwargent.com/" target="_blank" rel="nofollow">AllenWargent</a> property buyers (London, Sydney) and a best-selling author and <a href="https://petewargent.blogspot.com/" target="_blank" rel="nofollow">blogger</a>.
His book '<a href="https://www.bigskypublishing.com.au/Books/General-Interest/Four-Green-Houses--and-a-Red-Hotel/1015/productview.aspx" target="_blank" rel="nofollow">Four Green Houses and a Red Hotel</a>' is out now.
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Major renovations contributed absolutely zip to GDP: Pete Wargent

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On Tuesday the Reserve Bank of Australia (RBA) will host its March board meeting, with the outcome of this meeting seemingly hanging in the balance.
At the close on Friday, futures markets priced a cut as more likely than not at a 62% likelihood, with another cut to a cash rate of 2% by May considered all but certain.
Implied yields on November 2015 cash rate futures contracts are now plumbing new depths at just 1.69%, reflective of two further cuts being fully priced in for this calendar year.
<img src="https://1.bp.blogspot.com/-jjQdy6E0Ezc/VPIa0sqb_-I/AAAAAAAATcg/fA3eX9iObMg/s1600/rba.jpg">
Viewpoints are split on this month's decision. Via the medium of Twitter, I enquired of Shane Oliver of AMP if he was sticking with a cut forecast for March, and given that his response was only three letters long he seemed fairly unequivocal.
<img src="https://1.bp.blogspot.com/-Diznv4gA8ts/VPIbZcjHk7I/AAAAAAAATcs/UeaIF__2FYs/s1600/RBA%2Bshane.jpg">
Bill Evans of Westpac has also taken the view that if further rate cuts are indeed deemed necessary then they should be cut now rather than later, perhaps seeing this as the so-termed "path of least regret".
Evans would prefer to see an immediate cut with an explicit easing bias, regardless of whether that bias was later acted upon.
On the other hand, Terry McCrann took to the format of <a href="https://www.heraldsun.com.au/video/id-BlMjJuczrpI2Doztmk7QglEBHVae9MLb/Private-profits-and-public-losses" target="_blank">video</a> on Friday in order to predict rates staying on hold, which at least should keep debate centred upon monetary policy this month rather than his use of <a href="https://www.forexlive.com/!/terry-mccrann-is-a-big-fan-of-forexlive-20150204" target="_blank">punctuation</a>.
Risks to each decision
A number of factors which I have previously looked at in turn in greater detail <a href="https://petewargent.blogspot.com.au/2015/02/all-about-that-baseno-trouble" target="_blank">here</a> suggest that the labour market, investment outlook and inflation may each be soft enough to warrant another cut, but the RBA has itself identified a risk that lower rates could ignite a rocket under Sydney's buoyant housing market.
However, given that markets are presently torn between rates staying on hold or being cut, a decision to stay on hold presumably also risks sending the dollar back up and away from the assumed ~75 cents that the Board would likely prefer to see.
Interest rate history
While interest rate movements and expectations are far from being the sole driver of our property markets, the impacts of adjustments to monetary policy are likely to be felt more keenly than they were prior to the <a href="https://petewargent.blogspot.com.au/2014/05/interest-rates-more-important-than-they" target="_blank">deregulation</a> of financial markets.
Over the past quarter of a century we have seen the commencement of five easing cycles, and in every case dwelling prices have subsequently responded by rising within the following 24 months, although, as one would expect in illiquid markets, there can be a lag.
<img src="https://2.bp.blogspot.com/-RGvWXrHD5-Q/VPIa0k6TnCI/AAAAAAAATcc/yRH1912tvtU/s1600/Rba%2Brate%2Bhistory.jpg"> <a href="https://2.bp.blogspot.com/-RGvWXrHD5-Q/VPIa0k6TnCI/AAAAAAAATcc/yRH1912tvtU/s1600/Rba%2Brate%2Bhistory.jpg"></a>
What we can conclude from the above is that interest rate cuts are rarely "lone wolves" and that they tend to come in a salvo.
The RBA's rhetoric over the past year has certainly indicated a clear preference towards interest rate stability, but after a long period of inaction the February decision to ease by 25bps to 2.25% betrayed a view that more than one cut is deemed likely to be required.
Discount rates and fair values
Just as the <a href="https://petewargent.blogspot.com.au/2014/05/value" target="_blank">Gordon growth model</a> fulfils a simple method of share price valuation, it is of course possible to model a fundamental or fair value for housing markets. Such a model can be used in order to weigh up a rent versus buy decision through discounting expected future cash flows and using real mortgage rates as the discount rate.
However, if you have ever undertaken such an exercise you will have quickly discovered just how sensitive the outcome is to assumptions relating to real rental growth and expected capital appreciation. It has always been my contention that while sustained real rental growth is likely in certain land-locked capital city areas due to growing demand and inelastic supply (e.g. inner ring Sydney), it is unrealistic to expect this to occur in most regional or more elastic outer suburban markets over the longer term.
Assuming real rental growth in a fair value model increases the present value of future cash flows from rental payments (or the implied user cost) net of running costs such as repairs, rates and insurance. These same forces are also what give rise to expected future capital appreciation - although to some extent this is offset by the discounting applied to the final capital gains upon sale.
These two key inputs are inter-related, and generally suggest that home ownership is marginally more attractive than renting where real rental growth is expected, though only for longer term owners due to the high transaction cost associated with Australia housing. While the future of course in unpredictable, a widespread belief that mortgage rates will be lower in the future than they were in the past are a key input into the fundamental value of housing - and by taking on greater household debt, the market has pushed in turn paradoxically pushed the <a href="https://petewargent.blogspot.com.au/2014/04/what-is-neutral-interest-rate-are-low" target="_blank">"neutral" rate</a> of interest lower.
Real estate cycles
Capital city markets with an expanding population will always cycle as construction and therefore dwelling supply ebbs and flows in response to demand.
<img src="https://4.bp.blogspot.com/-CddOt596vnw/VPIj9J3GmDI/AAAAAAAATc8/YGDZrlSbvfw/s1600/AW1.jpg">
But, as I looked at in more detail <a href="https://petewargent.blogspot.com.au/2013/08/market-psychology-sydney-property" target="_blank">here</a>, when it comes to property market psychology expectations of dwelling price movements - and the emotions of fear and greed which these suppositions engender - play at least as important a role in the near term and therefore accentuate the cycles.
This is precisely why another interest rate cut in this easing cycle will likely send Sydney's property market soaring for the stars - with 2015 forecasts already ranging from <a href="https://images-2.domain.com.au/file/2015/02/27/6304392/2015%2520Property%2520Guide.pdf?rand=1425011523149" target="_blank">7 to 12%</a> capital growth and risks to the upside - simply because recent history leads to a critical mass of those active at the margin to an ingrained belief that prices will rise. CoreLogic's preliminary weekend auction clearance rates from Melbourne (and possibly even to a certain extent Canberra) and a huge surge in the <a href="https://petewargent.blogspot.com.au/2015/02/housing-finance-straps-on-jet-pack" target="_blank">latest housing finance data</a> suggest that it is not only folk in Sydney who presently feel this way.
I should add that from the hordes of people I witnessed at viewings on Saturday, the inner ring Brisbane market now appears very likely to heat up too. For all of the above, real dwelling price growth through this cycle outside the largest cities has been weak, suggesting that the easy gains in Australia's housing markets took place further towards the left of the interest rate history chart above. One of the issues facing property market commentary has been recency bias which has led to some unrealistic expectations of real growth in perpetuity in more elastic markets where this was never probable, or even likely. Greater Sydney has suffered from a chronic <a href="https://petewargent.blogspot.com.au/2015/02/sydney-land-it-goes-ballistic-supply-is" target="_blank">supply deficiencies</a> which should have been obvious to observers close to a decade ago, and despite an increase in approvals, the lack of appropriate supply is now coming home to roost. There is an avalanche of data due out this week, so stay tuned for that!
PETE WARGENT is the co-founder of <a href="https://allenwargent.com/" target="_blank" rel="nofollow">AllenWargent</a> property buyers (London, Sydney) and a best-selling author and <a href="https://petewargent.blogspot.com/" target="_blank" rel="nofollow">blogger</a>.
His new book '<a href="https://www.bigskypublishing.com.au/Books/General-Interest/Four-Green-Houses--and-a-Red-Hotel/1015/productview.aspx" target="_blank" rel="nofollow">Four Green Houses and a Red Hotel</a>' is out now.
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Will interest rates fall again on Tuesday? Pete Wargent 

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Is investing (or should one say, "speculating") in single industry towns a good idea?
In a word – no.
Single industry towns are typically offer a poor risk versus return equation and can represent excessively perilous locations in which to purchase an investment property.
Two of the main advantages of residential property are that everyday investors can generally use greater leverage than they can in other asset classes, and due to only a small percentage of the housing stock turning over in any given year, price movements generally tend not to be volatile.
However, just as a sportsman's greatest strength can also be his Achilles heel, so it is in real estate investment.
Using high levels of debt in an illiquid asset where there is a sustained or drawn-out price reversal means that punters can be stuck with a leveraged investment which is steadily declining in value, which is just about the worst thing an investor can do.
That's why I only recommend investing relatively close to the centre of the largest and growing capital cities for the long-term.
Risk v return
Of course, the concept of risk v return holds that if you pick the right town and you are not using excessive leverage, then it is possible to make fast gains in single industry regions.
Massive price gains in the Pilbara during the mining construction boom proved this to be true.
But the flip side is that if you don't get out again before the market peaks, there may be very few willing buyers on the way back down the price curve.
We have seen this in the Pilbara too, plus plenty of other regions which were tipped as hotspots in 2012 based upon the false premise of a mining construction boom that was - somewhat ridiculously – supposedly going to go on for decades.
Cash buyers or those with 50% plus deposits may be more willing to take on such a risk, but generally speaking, it is too risky a proposition.
Macroeconomic environment
OK, with all the above caveats and disclaimers out of the way, are there any towns or regions which are set for such a boost in 2015 and beyond?
Indeed there are.
If you study and have a basic understanding of Australia's macroeconomic environment then the answer to this question should write itself.
Australia is now coming down the other side of the mining construction boom with intention surveys suggesting a capex bust which could be one for the ages.
Meanwhile, as engineering construction collapses globally bulk commodities markets have been flooded with supply as the new mines come online and pump export volumes out at a record pace.
What does this mean for property markets?
Two things – a cash rate set to decline to a record low of perhaps 1.75% by 2016 – which will fire up some of the investor-heavy inner ring capital city markets - and a currency which has rapidly dropped off a cliff from around 110 US cents to below 78 cents.
 <img src="/images/2015/02/23/usd.png" alt="">
What about regional towns and cities?
Summarily, the towns and regions which are likely set for a property market boost include tourism regions and those with a heavy emphasis on dollar-exposed industries.
There are several regions which immediately spring to mind.
Firstly, these include a couple of Queensland's major coastal tourism regions.
Secondly, there is also a conurbation in tropical north Queensland which is long overdue to pick up after suffering a diabolical property market performance for the past decade and a half.
Be wary, however, as unemployment rates are elevated up in parts of the north, and these can be both volatile and illiquid markets.
And thirdly, while parts of Tasmania were clobbered by the dollar as it soared towards 110 cents against the US dollar, there should correspondingly be some relief as the dollar has  been dumped all the way back to 78 cents.
A word of warning, though – some of Tasmania's industries such as forestry will never regain their former glories - one of Australia's most established companies Gunns was thrust into administration an subsequently there were suggestions by the administrator of the grand old company having traded while insolvent.
Hobart's property market appears to be tightening considerably, which suggests a "landlords' market" is finally arriving after no price growth in real terms over the past decade.
There are several such regions and towns which could well see a 20% or more uplift in property valuations.
But I still wouldn't recommend investing in them. Sure you might get a 20% uplift, or perhaps even more, but then what?
Article continues on the next page. Please click below.
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Investment strategy
Investing in residential property in growing capital cities can work well over the very long-term as an inflation hedge since new properties must be built to house the immigrant population and they will always be built in today's dollars and at today's construction and labour costs.
High transaction costs and capital gains taxes upon subsequent sale reflect that property does not generally work well as a regularly traded asset.
Over the long-term dwelling prices can be driven higher by:
<ul>
<li>a growing population; and</li>
<li>the growing wealth of that population.</li>
</ul>
While you might see either or both of these in a single industry town for a period of time, it is unlikely to be a sustained dynamic, and much of the wealth from an economic boom tends to filter back to capital cities in any case,
If property prices do genuinely take off in region then land is often released for development resulting in a glut and a corresponding market crash, as we have seen in some of Queensland's coal towns, including Moranbah.
Ask yourself how would you cope with a four week vacancy? Or a 4four month vacancy? If the answer is "not too well" then steer clear.
Furthermore if you hear vested interests in a market using phrases such as the following, alarm bells should probably begin to chime:
"Only 15-20% of employment in this region is employed in mining/tourism/forestry/other industry" – directly perhaps, but what about indirectly in related services industries.
And anyway, if unemployment rates are rising, 15-20% is a very significant figure.
"It's only a blip, this will blow over" – is the commentator qualified to opine on the industry outlook? Particularly if until only recently they thought the boom times would last for decades?
Timing the market is tough
Of course, like most markets, residential property is chock-a-block full with folk who think they are smarter than the market.
But, just as most drivers on the roads believe they are "better than average", by definition they cannot all be correct.
And indeed, they aren't.
You only have to look at some of the recommendations by expert advisors in the media over the past six or seven years – in fact, even over the last three - to know that picking regional property hotspots can be a hit-and-miss game.
Since the market bottomed in 2009, meanwhile, we have seen capital growth of around 78% in London on the Office for National Statistics indices.
In Sydney we have seen capital growth of around 60 since that time, with another massive year of price growth ahead.
For long-term sustainable capital growth - and a more accessible price entry point - investors should also consider inner ring Brisbane, in those suburbs with constrained supply (there are several which are not) and very low unemployment.
Instead as a property investor you should leave the single industry towns for the gamblers and construct a plan to compound or snowball your wealth for as long as you live.
The wrap
Remember, businesses and industries tend to have a life cycle, which is why for most average investors it is much safer to acquire assets which they can onto hold forever, such as an index fund.
This "all caps" approach works because all industries will not simultaneously decline, and if one company falls upon hard times, then another business from a different industry steps up to take its place.
And it's a bit like this when investing in property in capital cities.
The majority of jobs in the modern era are in the services sphere, with finance, banking, insurance and healthcare likely to be amongst the most thriving sectors.
Basic common sense dictates that investors should acquire property within easy commuting distance of where the great bulk of those jobs are located, in landlocked and supply-constrained suburbs, and hold on to them for the very long-term.
PETE WARGENT is the co-founder of <a href="https://allenwargent.com/" target="_blank" rel="nofollow">AllenWargent</a> property buyers (London, Sydney) and a best-selling author and <a href="https://petewargent.blogspot.com/" target="_blank" rel="nofollow">blogger</a>.
His new book '<a href="https://www.bigskypublishing.com.au/Books/General-Interest/Four-Green-Houses--and-a-Red-Hotel/1015/productview.aspx" target="_blank" rel="nofollow">Four Green Houses and a Red Hotel</a>' is out now.
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