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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Over the past 15 years or so there have been many articles about an apparent "property bubble" in Australia. Some have made very valid points, others have been pure Mary Poppins stuff.
There has been further debate this week about the role of credit in asset price inflation which cited declining populations (within towns which clearly aren't actually declining) and that most tenuous of housing market measurements, the "growth" in median prices at the suburb level.
If you were to take a moment to access a subscription sales database and track any actual property resales it would immediately become evident that typically "price growth" in small towns is merely a shift in the sales mix derived from a tiny handful of transactions.
That said, I do tend to agree that many of Australia's smaller regional cities and towns have property markets which are built upon flimsy foundations, as we will likely discover in the next couple of years as the mining construction boom turns into a <a href="https://petewargent.blogspot.com.au/2015/01/capex-bustlook-out-below" target="_blank">capex bust</a>.
All land is not create equal
Nonetheless the behaviour of housing markets in small towns tells us nothing useful about likely trends in large and growing capital cities.
As I looked at in more detail <a href="https://petewargent.blogspot.com.au/2013/11/planning-land-prices-and-house-prices" target="_blank">here</a>, previously the notion that land prices were going to deflate in Sydney was always flawed, since the incumbent system allows landbankers to drip-feed land onto the market at such a leisurely pace.
Further, where the ratio of new stock to existing stock is low, the impact of new stock on the price of existing dwelling prices is diminished.
For all that, despite what is often implied by commentary, dwelling prices have not simply kept rising inexorably in Australia.
In Sydney, for example, dwelling prices declined in 2004, 2005, 2008 and from the middle of 2010 to the middle of 2012 - three distinct downturn periods in the past decade.
But with Greater Sydney's population expected by the latest projections to explode from around 4.6 million today to approximately 8 to 9 million by around 2060, it has always seemed very likely that land values were heading higher over time.
Residential land values have risen over time
Enough theoretical discourse and back into the real world. While the total value of commercial land and rural land is not increasing at a fast rate, the aggregate value of residential land in Australia is easily set to surge to past $3.5 trillion in 2015, probably to around $4 trillion by the end of the calendar year.
<img src="https://3.bp.blogspot.com/-rUpZJhx-WTU/VOgfuRX8bRI/AAAAAAAATQA/lIui6-gxW78/s1600/Land1.jpg"> 
Over the six financial years to June 2014 aggregate residential land values increased by 37% in New South Wales, by 46% in Victoria, by 21% in Queensland, by 33% in South Australia and by 11% in Western Australia, having previously already boomed in Perth. 
<img src="https://4.bp.blogspot.com/-XYmxTZTbM5k/VOhKvtifmVI/AAAAAAAATQg/n7GtdgeFB8I/s1600/Land2.jpg"> 
All land is not created equal Of course, as the population continues to expand <a href="https://petewargent.blogspot.com.au/2015/02/australia-23750000" target="_blank">past 23.750,000 as it did last week</a>, as new land supply is released and developed to house the expanding headcount, and as inflation pushes the price of goods up - we do expect to see land values rising in aggregate. However, all land is not created equal. Some property advisors recommend investing in properties on remote regional land where demand is relatively low, and - more importantly - there are swathes of land available for release. With the land price component of outer suburban and regional property so low, the potential for capital growth over time can be constrained.
Be careful about investing in outer suburban or fringe city areas where land is not a scarce commodity.  A $200,000 outer suburban house may comprise only $50,000 of land value, so even in the unlikely event that outer suburb land values boom by 50%, the total value of the investment only increases by $25,000.
Why is this the case? Because outer suburban housing is readily substitutable with more fringe housing.
For obvious reasons, I believe that inner ring suburbs of capital cities will outperform over time. As I looked at <a href="https://petewargent.blogspot.com.au/2015/02/capital-city-land-prices-soar" target="_blank">here</a>, capital city land prices soared by 4.7% to a record high over Q3 2014 to be 10% higher over the preceding twelve months. There is in aggregate comparatively very little upwards pressure on regional land prices and thus they only increased marginally, and broadly in line with inflation by 0.7% in Q3 2014.
 <img src="https://1.bp.blogspot.com/--wjLB6aM2A4/VOg7HRfGCeI/AAAAAAAATQQ/ZWnFqETpeNs/s1600/HIA.jpg">
In its own assessment the Housing Industry Association (HIA) cited the role of chronic undersupply no fewer than six times in its one short media release, including in this short excerpt: "There are clearly pressures building in terms of the available residential land supply.  "Acute supply bottlenecks are affecting Australia's residential land market.
"The number of transactions fell while price growth accelerated. Turnover decreased by 16.7% in the quarter while at the same time prices grew by 3.3%.
"These are the classic hallmarks of a market which is fast running into supply problems.
"The process of delivering new land supply and infrastructure is too slow and too expensive. Policymakers have to intervene to ensure Australia's long term housing needs are met."
Sydney land goes ballistic (supply is atrocious) My chart packs tell me to expect that the Greater Sydney population is likely to increase by 80,000 to 90,000 persons across this financial year. Given that this rollicking rate of population growth brings massive demand for the land within a relatively small radius of the city, as recorded over the years I have unerringly expected to see prime location Sydney land values to appreciate over time. Well-located land supply in the present system never stood a snowball's chance of keeping pace. Sydney land prices boom 20% in 2014
In this context it is no surprise therefore to note that it was land values in Sydney that really boomed in 2014 with land prices jumping by an rip-snorting 19.7% to $390,000. This median price has surged well ahead of Melbourne - a city which has released greater land supply over time - at $245,000, and Brisbane at $237,950. This 20% boom in land prices is the fastest annual rate of Sydney land price growth in a decade. 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".
Land is a factor of production
It was this simple dynamic which led me to own most of my property portfolio in cities such as London *where house prices are now a ridiculous 13 times median earnings) and Sydney - and importantly, never to sell a single property when every year there are myriad predictions of dramatic market corrections - because the long term trend in prime location land values is up. In short, supply does matter. Always.
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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pwargent-M4siyDbqQY

Sydney land prices booming (but supply is atrocious): Pete Wargent

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A lot of debate happening in the Twittersphere this morning about whether housing supply is relevant to Australia's dwelling prices.
I'm not sure why people try to argue that's it isn't relevant, but anyway, my view is obviously that it is.
Without further ado, moving on to today's release from the Housing Industry Association (HIA), and we can see that due to a lack of supply, Australia's capital city land prices are soaring, with median lot prices in Australia accelerating higher over Q3 2014.
The HIA data showed that median lot values jumped by another 3.3% over Q3 2014 to a record high.
<img src="https://3.bp.blogspot.com/-chTRaaM3txg/VOVWGanXncI/AAAAAAAATNY/62vdu3jsWt4/s1600/HIA.jpg">
Gains all driven by capital cities
It is essential to note, however, that this acceleration in prices is not in any being driven by regional land prices, with median lot values increasing only marginally by 0.7%.
However, capital city land prices roared higher - going almost vertical - jumping by a massive 4.7% over the last quarter to record 10% growth over the past year alone to another all-time high.
Tim Lawless of CoreLogic RP Data noted that the decline in the number transactions does not bode well for dwelling approvals over the medium term, which sounds logical enough.
Accelerating prices are due to slow supply
In the words of the HIA:
"There are clearly pressures building in terms of the available residential land supply. Acute supply bottlenecks are affecting Australia's residential land market.
"The number of transactions fell while price growth accelerated. Turnover decreased by 16.7% in the quarter while at the same time prices grew by 3.3%.
"These are the classic hallmarks of a market which is fast running into supply problems.
"The process of delivering new land supply and infrastructure is too slow and too expensive. Policymakers have to intervene to ensure Australia's long term housing needs are met."
Quite.
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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Capital city land prices keep on soaring: Pete Wargent

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The ABS released its <a href="https://www.abs.gov.au/AUSSTATS/abs@.nsf/Lookup/5671.0Main+Features1Dec%202014?OpenDocument" target="_blank" style="font-size: 12.1599998474121px; line-height: 1.3em;">Lending Finance</a> data for the month of December, and the figures were a neat microcosm of the challenges facing the Reserve Bank of Australia. 
Commercial finance - a data series of which property investor loans are a subset - fell by another 2.9% in December and the trend has now moved beyond its November peak, with the trend in total lending looking increasingly weak.
Yet as we saw <a href="https://petewargent.blogspot.com.au/2015/02/housing-finance-straps-on-jet-pack" target="_blank">earlier in the week</a>, we know that owner-occupier housing lending had begun to pick up again, even prior to the February rate cut.
<img src="https://3.bp.blogspot.com/-xTRQNODakoc/VN3BJcOB5YI/AAAAAAAATHo/ZRrhvaa5jkQ/s1600/investor1.jpg">
And it was the dramatic pre-rate cut <a href="https://petewargent.blogspot.com.au/2015/02/housing-finance-straps-on-jet-pack" target="_blank">6% surge</a> in investor lending which really caught the eye, with investor lending surging by a massive 24.6% higher on a rolling annual basis over the past 12 months.
<img src="https://4.bp.blogspot.com/-e2ZnpHK7Kfc/VNrNgQSSKgI/AAAAAAAATDQ/Ewma_NojTxo/s640/HF2.jpg">
The detailed investment lending figures are hidden within the data above. Let's take a look to see where property investors are buying.
Sydney goes parabolic The Lending Finance data tells us where the investment loans are being written - in a word, Sydney.
And how! An extraordinary $5.7 billion of New South Wales lending in December was yet another all-time record month of lending, easily eclipsing the record $5.26 billion state record set in November (which itself beat records set in September and October respectively). This comes off the back of New South Wales owner-occupier commitments which ripped through a state <a href="https://petewargent.blogspot.com.au/2015/02/housing-finance-straps-on-jet-pack" target="_blank">record $6 billion</a> in the same month.
The accelerating rate of investor growth is the really astonishing point of note - another 8% surge even before interest rates were cut again suggests that the annualised lending volumes for New South Wales could now be anything...perhaps heading towards $65 billion or even $70 billion plus.
This is both extraordinary and unprecedented. Throw in the increasing weight of foreign capital as the Australian dollar depreciates and the inner Sydney housing market could be in for a blockbuster 15 months.
<img src="https://2.bp.blogspot.com/-WdOgEKF7_Hc/VN3BHX-6X_I/AAAAAAAATHs/ctzwK3pzKDs/s1600/Investor%2Bloans.jpg">
While this has already led to a predictable bout of "property bubble" hysteria, it is worth noting here that there has been no such surge in investor lending in South Australia (Louis Christopher of SQM Research described the Adelaide market as "dead as a door nail" - a touch harsh perhaps, but there's certainly no boom apparent), the Northern Territory, Tasmania or the Australian Capital Territory where prices are falling. Meanwhile the burst of activity in Western Australia is now clearly tapering off.
The <a href="https://petewargent.blogspot.com.au/2015/02/housing-finance-straps-on-jet-pack" target="_blank">housing finance</a> and lending finance data series do suggest that the Melbourne market appears to be having something of a second wind - but high volumes of construction and a material stock overhang should help act to keep a lid on dwelling price growth in the Victorian capital henceforth.
Sydney to boom - all bets are off, but for how long?
What is unfolding in Sydney is now a law unto itself - albeit not surprising to long-term readers of this blog - due to inner Sydney's inherent undersupply of dwellings which has allowed rents to rise in concert with prices, a dynamic which simply wouldn't have existed without an undersupply. Preliminary auction clearance rates on Saturday of a massive 83.3% reported suggest that a red hot Sydney market has kicked off once again in 2015. The monthly level of investor lending in this seasonal series is now incredibly more than 2.5 times the volumes we were seeing only 3 years ago, and still rising fast.
<img src="https://3.bp.blogspot.com/-kS-MNC7RSXA/VN3BHggxj9I/AAAAAAAATHY/ASCoIH0viGs/s1600/Investorsloans2.jpg"> It is imperative that those buying in the harbour city have a clear understanding of which suburbs have already blown off (cf. the inner west in particular) and which have yet to kick forward so materially in this cycle.
Buyers should also consider forthcoming transport and infrastructure links which will be key market drivers over the next five years.
Market defies gloomers
Not only have prices not crashed, activity in the market appears to be accelerating - how did Sydney's housing bears get it so unfathomably wrong?
On balance, the main reason is likely that they neglected to note the chronic undersupply of dwellings in inner Sydney caused by the best part of a decade of under-building, which only now is being addressed by <a href="https://petewargent.blogspot.com.au/2015/01/building-approvals-hit-record-high-we" target="_blank">record high unit approvals</a>.
Even in 2014 median apartment rents continued to increase by another 3.85 to 4.3% depending on your data source.
The median unit price in Sydney at the end of Q4 2014 was around $606,500, with median apartment rents of around $540/week implying gross yields of approximately 4.6%.
Vacancy rates in inner Sydney are <a href="https://www.reinsw.com.au/imis15_prod/web/Posts/Media_Releases/201412/MR_Sydney_residential_vacancy_rates_remain_low_APRA_findings_unfounded.aspx" target="_blank">still only around 1.5%</a> (despite the onset of an apartment construction boom with <a href="https://petewargent.blogspot.com.au/2015/01/record-high-for-dwelling-commencements" target="_blank">all-time record home starts</a>) which is a veritable world away from the elevated <a href="https://petewargent.blogspot.com.au/2014/04/vacancy-rates-tighten-further" target="_blank">vacancy rates which helped to pull up stumps on the preceding boom</a> in 2004.
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How much longer will this boom run?
One thing that we can now say with 100% certainty is that high interest rates will not be responsible for calling time on this property boom.
Just as in 2003/4 this market boom may simply have to die of "old age" when gross yields fall to unacceptably low levels, perhaps with vacancy rates rising significantly helping to drag down rents.
How low investors will be prepared to bid gross yields is unknown for we are now into uncharted territory, both in terms of the volume of loan approvals and in terms of mortgage rates.
By way of comparison the cash rate in December 2003 was hiked by 25bps to 5.25% - today the cash rate is just 2.25% with a 71% chance of it being cut by 25bps to only 2% as soon as 3 March.
Futures markets see a 2% cash rate this calendar year as getting close to a stone dead certainty.
<img src="https://1.bp.blogspot.com/-qWN-NRzeFA8/VN8Sx8UlcsI/AAAAAAAATIg/1jIH5gy08Xc/s1600/RBA1111.jpg"> 
 Consider a stylised example within which median apartment rents were to increase by another ~4% over the next five quarters to $560 per week. If this seemingly endless supply of investors was prepared to bid gross yields 0.5% lower - broadly reflecting expected shifts in the cost of borrowing - all the way down to 4.1%, then this simple model implies that the median apartment price would soar by another 17% or more than $100,000 to above $700,000 - which is a frankly terrifying prospect for first homebuyers.  Could this happen? With five year fixed rate mortgages available from under 4.7%, three year fixed rates from under 4.3% and 1 year fixed rates even advertised with a 3 handle, it is far from inconceivable, particularly with February's rate cut already adding further fuel to the fire. Whether or not this plays out will now be decided by how quickly apartment completions come online and whether APRA intervenes directly in the mortgage lending market.
Queensland 
Investor activity is also robust in Queensland, although commentators will in all likelihood be wrong-footed by this year's data for the Sunshine State.
While property viewings in the inner suburbs of Brisbane are increasingly crawling with interested buyers, this will be offset by a number of regions within which property markets are in a significant decline, particularly certain mining towns and regions impacted by the collapse in coal prices.
On the ground we are clearly seeing more and more evidence of interstate investor activity and buyers agents at work in inner Brisbane suburbs (as well as hearing of the same from agents with raised eyebrows).
<img src="https://1.bp.blogspot.com/-xwyjXfsgXnE/VN3BHj6frAI/AAAAAAAATHc/-E49cnxE3Dc/s1600/Investors3.jpg">
Queensland - affordable markets
While on the face of it the level of housing affordability is what causes our housing markets to ebb and flow, it's as likely to be demographic shifts, labour force trends, dwelling supply, the cost of borrowing and the availability of credit in Australia which drives property market movements. 
The unemployment rate has been at a historically low level but has been rising steadily through 2013 and 2014.
The issue of affordability is an ongoing one, and being an emotive issue, the dynamics of how housing markets actually work in practice are often not considered.
The great paradox of today's rising asset prices is that the prevailing low interest rate environment has improved affordability considerably for existing homeowners but made bridging the deposit gap correspondingly more challenging for first-time buyers as market entry prices rise.
Older hom eowners often come to me expressing wide-eyed surprise at the level of their surplus income, the driver of which has clearly been the structural shift to low inflation and lower interest rates over the past 25 years. 
Article continues on the next page. Please click below. 
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Multiples of income The way in which housing markets from different countries are compared to each other is most often by taking the median price of a house and dividing it by an average measure of household income to produce a multiple. Looking at how long it would take to pay off an average house with an average income is a handy shortcut measure of housing affordability and a very easy means of comparison.
However this is not how capital city housing markets work in reality, since it flatly ignores the role of the cost of debt and the differing financial situations and stages of life that buyers and owners of property are in.
This widely favoured methodology fails to consider mortgage repayments - a housing market where prices are a lower multiple of incomes yet has mortgage rates of above 15% may still not necessarily be an affordable market.
In other words, the multiple of incomes method works on the flawed assumption that everyone is a first home buyer with a 80-100% loan.
There are essentially four different types of buyer, and issues of affordability affect each of them differently.
1 - No finance
The percentages fluctuate each year, by city, by state and by region, but between a quarter and a third of properties tend to be bought with no financing.
How so? Well, there are some lucky folk whose parents buy their homes for them, but most often this happens due to the sale of an existing home. Empty-nesters and downsizers form part of this phenomenon.
Other older buyers who are mortgage free opt to move to a similarly-sized home and thus require no debt financing.
The Reserve Bank's financial aggregates <a href="https://petewargent.blogspot.com.au/2015/01/strongest-credit-growth-since-2009" target="_blank">show that</a> Australia has approaching $1.5 trillion of outstanding housing credit, with the split allocated as 34.3% investors and 65.7% owner-occupiers. <img src="https://4.bp.blogspot.com/-hqJMoJFPS8U/VMtgAm0WtPI/AAAAAAAASw8/MInuRZXGuJE/s640/RBA2.jpg"> Yet even the sum total of all forms of household debt is comfortably dwarfed by the huge value of Australia's 9,448,300 dwellings <a href="https://petewargent.blogspot.com.au/2015/02/sydney-and-brisbane-lead-dwelling-price" target="_blank">as estimated by the</a><a href="https://petewargent.blogspot.com.au/2015/02/sydney-and-brisbane-lead-dwelling-price" target="_blank"> Australian Bureau of Statistics</a> at a massive $5.4 trillion.
Cash buyers are affected little by rising or falling interest rates, and often they remain unaffected by the base value of housing, since the asset which they are selling may rise in tandem with the asset they opt to buy.
2 - Investors
As our capital city housing markets mature and the population expands largely through immigration, it is expected that the number of properties owned by investors will also increase.
Australian Finance Group (AFG) consistently recorded that around 40% of loans written in Queensland in 2014 were for investors. In cities such as Sydney around half of loans presently written are investment loans.
Australia-wide one of the gauges or indicators over time of how much property is bought by investors is the rate of home ownership, which seems likely to slide in the decades ahead.
With some investors choosing to own multiple properties, investors tend to comprise a significant%age of capital city property purchases.
Affordability is not really an issue for most investors in the prevailing low interest rate environment, since rental income pays the bulk (if not all) of the mortgage, while there are tax deductions available for on-paper losses.
In Brisbane gross yields on apartments can be as high as 5.5%, although in some suburbs vacancy rates are clearly significant and unit rents may well ease in time as supply comes online.
Investors generally elect to buy property at times when rental yields are acceptable as compared to other available investments and in regions where they expect to see capital growth. Most property investors are looking for locations where the population is expected to grow over time and therefore they have been very heavily focused on capital cities such as the inner suburbs of Sydney, Melbourne, and next up, Brisbane. 
3 - Existing mortgagors
Again, the percentages fluctuate each year and by state, but around a third of the market of property buyers tend to be existing mortgagors who have equity in their home.
So the issue for these buyers of affordability is largely governed by interest rates and the price gap between the property they own and the one which they want to own.
Note therefore, that housing affordability for these buyers is correspondingly unrelated to the base value of their existing property, and is instead much driven by their own aspirations.
4 - First home buyers
The remaining 14% or so of property buyers are first home buyers according to the ABS (AFG has still not amended its reporting mechanisms which are recording first home buyers in Queensland at a nonsensical 3.7% of loans written), which is the one sector of the market for whom repayments versus household income is a genuinely important measure.
For this sector of the market the challenges to be overcome include the deposit gap and whether mortgage repayments can be well covered in the event of future interest rate hikes.
The first home buyer demographic which has access to a deposit and mortgage finance is driven by another equation: the cost of renting versus the expected mortgage repayments - which have plummeted - if a home is purchased.
The Wrap
The statistics show that housing affordability in Brisbane is relatively good for the majority of buyers since mortgage rates are now at previously unthinkably cheap levels.
In inflation-adjusted terms Brisbane prices are 13% below their March 2008 peak, so it would be no surprise in the current low interest rate environment to see median dwelling prices rise by 15 to 20% over the next three years.
That said, there are a great many new apartment developments coming online in the suburbs discussed on my blog previously, so price growth in generic unit stock is likely to be weaker. 
How long Sydney's boom will run for is anybody's guess, but it seems that only regulatory intervention will deter investors now. 
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 investor activity turning parabolic - how long will the boom times run?

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Way back in 2013 there were a slew of articles doing the rounds warning us that Sydney's housing market was set to slow imminently.
Some commentators were wrong-footed by the regular mid-year falls in CoreLogic RP-Data's home value index. Others felt banks would be unable to fund further growth due to inadequate deposit growth leading to a dearth of credit availability.
As I noted back at that time, you can study charts until the ink falls off the page, but unless you are in the market buying properties, there is always a risk that you will miss a key intangible - sentiment - and as noted on this blog I felt that 2013 and 2014 would be very strong years for Sydney property. December 2013 was perhaps the most marked month of buyer mania that I experienced - with fear of missing out abounding - but generally the market has remained very robust throughout. Sydney's home values have been rising at a rate of well over $2,000 per week for more than 18 months.
<img src="https://1.bp.blogspot.com/-YFWkDFQTu_A/VNco0X3VXKI/AAAAAAAAS_g/R8Ih_7ujW9E/s1600/SYd1.jpg">
Will the market stall?
It's a truism, of course, to say that the market will stall eventually, for trees don't grow to the sky. But will this eventuate this year?
Two main reasons have been given by commentators as to why the market Sydney's market may now stall. Firstly, market regulators might stamp on lending practices, killing off demand. And secondly, it has been said that there aren't enough owner-occupiers in the market to keep upwards pressure on prices.
It is certainly the case that the monthly number of owner-occupier loans being written in the Sydney market has been looking peaky for a long time - since Q2 2013.
<img src="https://1.bp.blogspot.com/-AqOjWGUcIMY/VNco0k34quI/AAAAAAAAS_c/5UByv9BHFLs/s1600/Syd2.jpg"> 
However, movements in dwelling prices are set at the margin, and both average mortgage values written and the price that home buyers are prepared to pay for Sydney dwellings have been soaring since around February 2012.
<img src="https://2.bp.blogspot.com/-5QjVB_rShPA/VNco0RLmbjI/AAAAAAAAS_Y/XZSOrBAkPmE/s1600/SYD3.jpg"> 
Markets are forever granular. I feel that 2015 will be a bumper year for Sydney's inner ring suburbs where investors are running riot; the outer suburbs it's more difficult to say, for I have less first-hand evidence with which to work. 
Below are seven other reasons why the Sydney inner ring market may continue to fire through this calendar year.
<img src="/images/2014/07/04/yellow-one.jpg" alt="">Reserve needs a consumption boom
In its <a href="https://www.rba.gov.au/publications/smp/2015/feb/html/index" target="_blank">Statement on Monetary Policy</a> (SOMP) released on Friday, the Reserve Bank of Australia (RBA) detailed its latest growth forecasts. The growth forecasts seem remarkably optimistic, with GDP growth expected to rebound quickly towards 4% by 2017.
 
 <img src="https://3.bp.blogspot.com/-U3qUyY0VwMg/VNaD0ACtstI/AAAAAAAAS-I/tDQ82nJLtm4/s1600/RBA1.jpg">
 
These forecasts seem particularly upbeat when one considers the component parts of demand and output growth as at the end of Q3 2014.
Although exports are clearly ramping up at speed and housing construction activity is solid, mining investment had collapsed by more than 15% over the preceding year, and 5% in the latest quarter alone. 
Our chart packs show that this <a href="https://petewargent.blogspot.com.au/2015/01/capex-bustlook-out-below" target="_blank">will continue</a> through 2015.
<img src="https://4.bp.blogspot.com/-tCivMyc7VwM/VNaD0ZZ10ZI/AAAAAAAAS-Q/iR5HrnpWOoo/s1600/RBA2.jpg"> 
How then, is the RBA hoping to restore growth to the economy aside from rising export volumes and hopefully a spurt in non-mining capex? 
Two of the planned drivers of growth feature house prices implicitly. 
Firstly, rising house prices are expected to keep the residential construction boom ("dwelling investment") running stronger for longer, although this alone will only comprise perhaps 3.5% of GDP.
And secondly wording of the SOMP is quite explicit in that the Reserve Bank expects rising house prices "should provide further support to consumption growth" via the associated wealth effect.
In fact, the SOMP notes that investor credit growth is likely to continue at its current pace, while also highlighting that mortgage prepayments "are at a high level".
Realsitically, the RBA needs a consumption boom, and the desire to constrain mortgage lending appears very muted, almost an after-thought. 
<img src="/images/2014/07/04/yellow-two.jpg" alt=""> Interest rates have been falling anyway
Mortgage rates are not set by the RBA, but by lenders, and funding costs for Australia's banks fell through 2014.
The average interest rate on outstanding housing loans has continued to slide over recent months - even prior to the February cash rate reduction.
This trend has largely been driven by the replacement of more expensive pre-existing fixed rate loans written prior to 2013.  Over the past year there also have been reductions in advertised interest rates on fixed rate and variable rate loans, in particular the 5 year fixed rates on offer from the majors.
Competition for lending is clearly very strong and both interest rate discounting and broker commissions have increased over the past year.
 <img src="https://4.bp.blogspot.com/-ANPexV15AWg/VNaD1WU_kLI/AAAAAAAAS-Y/rnMnDjxZxqw/s1600/RBA4.jpg">
 <img src="https://2.bp.blogspot.com/-jE6YOzM0C8E/VNaD1urnMlI/AAAAAAAAS-c/e71pXbz4vBc/s1600/RBA5.jpg"> 
On top of this, less than a week ago, the cash rate was cut to just 2.25%. 
Major lenders passed on the full 25bps cut, while Westpac passed on 28bps on its standard variable mortgage rates.
Moreover, analysis of averages often leads to average conclusions. Remember, housing markets are frequently driven by trends at the margin. 
By way of an example of products available to new market entrants, U-Bank announced that it had cut its variable rate to just 4.68%, with a 0.33% discount for new customers. 
If variable mortgage rates from 4.29% don't light a fire under Sydney's housing market I don't know what will.
<img src="/images/2014/07/04/yellow-three.jpg" alt=""> Interest rates will fall even further
One thing we can be certain of is that the RBA would not have cut interest rates in the past week had it felt that only one cut was needed - rate cuts tend to come in pairs. 
In fact, for those paying close attention, the SOMP signalled loud and clear the RBA's intention to cut rates further. 
The key wording is here:
"In preparing the domestic forecasts, a number of technical assumptions have been employed. 
"The forecasts are conditioned on the assumption that the cash rate moves broadly in line with market pricing as at the time of writing."
In short, GDP growth is expected to rebound, but with the help of a cash rate falling to 2% or lower. Markets are pricing in another interest rate cut in the first half of 2015, with implied yields on January 2016 cash rate futures contracts dipping as low as 1.88%, representing some 37bps of further cuts priced in.
 <img src="https://3.bp.blogspot.com/-QR3jiQQbx1w/VNdLdgjmcRI/AAAAAAAAS_4/ZoGm8Do_Hec/s1600/CRF.jpg">
Just in case this wasn't clarity enough, the RBA even marked a line on its cash rate chart to match what cash rate futures markets have already been foretelling - that interest rates are likely to be cut again in due course to 2%. 
<img src="https://3.bp.blogspot.com/-A5H1zPjWRhU/VNaD0lKX1gI/AAAAAAAAS-M/QdBb4xV3LkI/s1600/RBA3.jpg"> 
Article continues on the next page. Please click below. 
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<img src="/images/2014/07/04/yellow-four.jpg" alt=""> Investor loans are exploding
The potential peak in the number of owner-occupier loans written is one thing - what is happening with Sydney's property investors is quite another.
The $5.26 billion of loans written in the last month of available data was by some margin the greatest month of investor lending in any state in Australia's history.
<img src="https://3.bp.blogspot.com/-hEcu8sGi144/VNaGryGMk1I/AAAAAAAAS_I/YxPEELHwh4g/s1600/ILBS.jpg"> 
Cheaper lending rates are only set to be more fuel for the bonfire. <img src="/images/2014/07/04/yellow-five.jpg" alt=""> Nobody's leaving Sydney any more
Sydney's housing market has just about gotten away without building very much for the best part of a decade because in years gone by 20,000 to 30,000 persons per annum typically departed the state, bound for cheaper or sunnier climes.
Not any more. Net interstate migration from New South Wales has fallen to the lowest level on record as Sydneysiders opt to stay put for superior employment prospects.
 <img src="https://4.bp.blogspot.com/-5RwDFcVMSYw/VNaFAFPV4TI/AAAAAAAAS-8/2b-05yuOKSI/s1600/NIM.jpg">
<img src="/images/2014/07/04/yellow-six.jpg" alt=""> There's no stock overhang
Vendors in Melbourne sensing a market peak have been ploughing stock onto the market for some time now, and with an inherent stock overhang 2015 appears likely to be a slower year for dwelling price growth in the Victorian capital.
However, <a href="https://sqmresearch.com.au/pdf/StockmarketJanuary2015.pdf" target="_blank">SQM Research</a>'s figures show that Sydney's stock on market has tightened yet further, falling below 20,000 in January 2015.
<img src="https://2.bp.blogspot.com/-x5ynSdB6S34/VNaD17WJ4MI/AAAAAAAAS-k/-EwQ5mUhHXQ/s1600/SQM.jpg"> 6 - Foreign buyer 'crackdown'?
What about the mooted foreign buyer 'crackdown'? 
Mr Hockey has noted that: "We are actually delivering tougher laws on foreign investment at the same time as ensuring we continue to welcome record levels of foreign investment into Australia”.
Hardly convincing, and the kind of double-speak that would make even Winston Smith blanch - and it's been three decades since 1984.
Hockey has also pointed out that he will soon announce the introduction of an agricultural land register, and a requirement for all purchases of such to be subject to "approval over a certain financial point".
Ditto.
<img src="/images/2014/07/04/yellow-seven.jpg" alt=""> Risk on
Finally, term deposit rates are now at previously unthinkably low levels in Australia, with most products featuring a "three handle" and deposit rates looking set to decline yet further.
If you're looking for a bellwether for risk asset appetite, check out the share price performance of Commonwealth Bank (CBA) or other yield plays over the past three weeks.
Meanwhile the ASX 200 (XJO) has recorded 12 positive trades on the bounce, the longest such run in its history. Inner suburban rents have <a href="https://petewargent.blogspot.com.au/2015/01/inflation-mixed-bag" target="_blank">continued to rise</a> in Sydney, and investors do not need to look too hard to find gross yields of 4.5% on attached dwellings.
The Wrap
Commentators have been calling a slowdown in Sydney's markets for at least 18 months now, but it looks more than likely that 2015 will be another year of strong capital growth in the inner ring suburbs.
Expect Sydney auction clearance rates to kick off in the high 70% range in 2015 as the market finds its feet. Consistent readings of above 80% are typically indicative of boom-like growth.
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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Seven reasons why the Sydney inner ring market may continue to fire: Pete Wargent

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A very interesting inflation release last week.
The headline inflation figure of 0.2% for the quarter was very soft, taking the December 2013 to December 2014 reading down to only 1.7%, below the bottom end of the target range.
 <img src="https://1.bp.blogspot.com/-KMDhr1NH0Q4/VMhGBmEMdPI/AAAAAAAAStk/lfZ6LqA8Uus/s1600/CPI1.jpg">
As expected, the plummeting oil price played a key role in that.
<ul>
<li>The most significant price rises this quarter were for domestic holiday travel and accommodation (+5.8%), tobacco (+4.8%) and new dwelling purchase by owner-occupiers (+1.1%).</li>
<li>The most significant offsetting price falls this quarter were for automotive fuel (-6.8%), audio, visual and computing equipment (-5.2%) and audio, visual and computing media and services (-3.8%).</li>
</ul>
Despite this very soft headline print, the figures reported for the less volatile and preferred trimmed mean/weighted median for the December quarter came in stronger than expected at 0.7 and 0.7 respectively.
<img src="https://3.bp.blogspot.com/-m9hniWdCr8Q/VMhlIigckfI/AAAAAAAASu0/_usRuzQeaAc/s1600/CPI.jpg"> 
With downward revisions to earlier quarter figures the annualised underlying figures for these two key underlying measures came in at 2.2% and 2.3% respectively.
These readings are obviously at the lower end of the 2 to 3% range but the twin 0.7 prints for the quarter might just be enough to keep interest rates on hold in February. 
Rents grow at 2.4% An interesting data series hidden within the inflation data is to be found in the sub-indices for rents. Rental growth seems to have stabilised nationally at 2.4% growth over the past year.
<img src="https://3.bp.blogspot.com/-bpuoDW_Mhng/VMhGB1tsnsI/AAAAAAAASts/Zhrk1piLMSQ/s1600/Rent%2Baus.jpg"> 
However this 2.4% reading masks significant variations in fortunes by capital city. Rental growth remains robust in Sydney (+3.0%), Melbourne (+2.4%) and Brisbane (+2.0%).
Rental growth is, however, softer in Adelaide (+1.7%) and falling sharply in Perth (+1.5%).
 <img src="https://2.bp.blogspot.com/-3Jo-zDo2dyM/VMhGDNGrZ-I/AAAAAAAASuE/vJRCe226Ze8/s1600/Rents1%2B-%2BCopy.jpg">
In the smaller capital cities rental growth is also looking very soft.
The rate of rental growth continues to nosedive in Darwin (still +2.7%, but down from above +8% in 2013), remains soft in Hobart (+1.0%) and has turned sharply negative in Canberra (-1.8% and still declining).
 <img src="https://3.bp.blogspot.com/-DovzgHQgLcM/VMhGSEWjGdI/AAAAAAAASuU/yWUFTnDt4-w/s1600/Rents2.jpg">
It is probably worth noting here that despite rental growth being "softer" than it has been, in nominal terms - which is what matters to property investors who own property - the rental index continues to climb to record highs by the quarter.
 <img src="https://2.bp.blogspot.com/-x39Nfj-7YzY/VMhGDzoXgBI/AAAAAAAASuA/QhXqofg4ezU/s1600/Rents3.jpg">
Mixed bag for inflation figures
A bit of a mixed bag here for the inflation figures, then, and a data series which might easily be interpreted either way.
A very soft headline inflation reading of 1.7% suggests that the next move in interest rates is still likely to be down, particularly given that we have weak GDP growth, uncertain business confidence and low wages growth (hardly a recipe for persistent inflation, one would have thought!).
But trimmed mean and weighted median readings of 0.7% in the quarter will probablyconvince the Reserve Bank to keep interest rates on hold in February.
Nevertheless, annualised core inflation of 2.25% seems unlikely to preclude another interest rate cut should one be deemed necessary. Currency markets weren't entirely convinced about how to interpret the figures either, with the Australian dollar first shooting up and then dribbling back down a bit, then stabilising around 79.9 cents.
Tough to call. If I was a betting man I'd take a punt on a cut in the official cash rate in March to 2.25%.
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Fastest credit growth in six years
The Reserve Bank today released its Financial Aggregates data for the month of December 2014.
The figures showed credit growth ticking up to 5.9% over the past year, which is the strongest rate of credit growth since the start of the 2009 calendar year.
Housing credit once again lead the way with another 0.6% growth in the month of December to notch up 7.1% growth over the past year.
Business credit also recorded an improved 0.5% growth to grow by 4.8% over the past 12 months.
Personal credit grew by only a paltry 0.9% year-on-year.
<img src="https://4.bp.blogspot.com/-EcW2Y5cR3EE/VMtgA59-w4I/AAAAAAAASxA/oQyaw8PWlig/s1600/RBA5.jpg">
Part one - Business credit growth improves
An improved month for business credit with a slack 0.3% growth in November 2014 being bettered by 0.5% growth in December.
<img src="https://1.bp.blogspot.com/-VnHrs-25fio/VMtgCQQD82I/AAAAAAAASxY/AEG1VMT56HU/s1600/rba4.jpg">
The 4.8% year on year growth in business credit growth is the strongest annualised result since March 2009, although clearly we are coming from a low base.
The chart below shows that while Australia may have avoided a technical recession through the financial crisis, some Australian businesses may have experienced recession-like conditions for a couple of years from the middle of 2009.
<img src="https://1.bp.blogspot.com/-V7hJ0tQq9Q4/VMtgCaExgjI/AAAAAAAASxg/BoOnjDT2qXk/s1600/rba6.jpg">
With housing credit growing faster than business credit this will lead to further debate as to whether property investors are somehow "crowding out" small business lending.
It seems a dubious conclusion, since lending is said to be available for ventures with a sound business case, while it is simpler for many of us as small business owners to use lines of credit secured against housing for the purposes of business expansion. Moreover it's a great deal cheaper, since banks tend to lend at a materially lower rate against an immovable asset such as a house. I looked at this conundrum <a href="https://petewargent.blogspot.com.au/2015/01/housing-investor-credit-accelerates" target="_blank">in much more detail previously here</a>.
The latest stock exchange (ASX) <a href="https://www.asx.com.au/about/market-statistics.htm" target="_blank">Market Statistics</a> shows that there is a bit happening in terms of both initial and secondary capital raisings.
<img src="https://2.bp.blogspot.com/-IcaGs9yqxJI/VMtjAyOhQZI/AAAAAAAASyA/vX7Rrg5zV_k/s1600/RBA8.jpg">
In terms of what businesses at the upper end of town are up to, $29 billion of IPO capital has been raised on the ASX in the past year, which as high as we have seen.
There is also plenty of volume in terms of secondary capital raisings - $35 billion through 2014 - although nothing like the almighty flood of capital raised in 2009 as listed companies licking their wounds looked to shore up their balance sheets.
<img src="https://3.bp.blogspot.com/-JExHmljt-_U/VMtf6vogLTI/AAAAAAAASw0/WpYh2Luwh5s/s1600/RBA7.jpg">
Article continues on the next page. Please click below. 
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Part two - Property investors dominate
On to housing credit growth, and the month's data once again showed investor credit (+0.8% seasonally adjusted) continuing to rise at a significantly faster pace than owner-occupier credit (+0.4%).
In fact the rate of owner-occupier credit growth slowed a touch in seasonally adjusted terms in December, while investor credit has simply kept humming along.
<img src="https://4.bp.blogspot.com/-hqJMoJFPS8U/VMtgAm0WtPI/AAAAAAAASw8/MInuRZXGuJE/s1600/RBA2.jpg">
In terms of rolling annual credit growth, we naturally expect that these figures will remain lower than in decades past, since we are of course starting from a much higher base.
Below we can see the daylight between the growth in owner-occupier credit and investor credit which has grown by 10% over the past year, and nearly as quickly in rolling annual terms.
<img src="https://1.bp.blogspot.com/-7kdlTSdDvCE/VMtgfZbLXTI/AAAAAAAASx0/3P8ST3jnH7I/s1600/rba.jpg">
The will raise the interest of APRA, with the regulator having stated that it will be monitoring lenders which are growing their investor loan books at "materially above" a double digit pace. What "materially above" actually means is another matter, and the general view seems that APRA is keen to wait until it has more data before considering stepping up its role any further.
Unsurprisingly low interest rates have led to investors taking a new record share of total housing credit at 34.3%.
<img src="https://2.bp.blogspot.com/-aR6__55nUK4/VMtgBwGNFQI/AAAAAAAASxU/OBC3CJXFuek/s1600/rba3.jpg">
With Australia continuing to pump relatively high levels of net overseas immigration heavily focussed upon our four largest capital cities, I expect this trend to continue towards a 40% share over time, although this will take a long time to play out.
There is growing evidence to suggest that younger Australians are increasingly choosing to buy an investment property as their first step onto the housing ladder (in fact, it's long been obvious to those in the industry). 
While unconventional this may not be entirely irrational if the duration of the average employment contract is to shorten - particularly given the high frictional costs associated with trading property (most notably stamp duty, but also other acquisition and disposal costs).
The wrap
With interest rates appearing likely to be cut again in the months ahead - and perhaps more than once - 2015 is surely going to be another big year for property investors. 
It will be interesting to see whether the slowing pace of owner-occupier lending continues. 
This suggests that the property types and locations which will outperform are, quite simply, those favoured by investors, which typically means inner- and middle-ring properties in the capital cities.
The data shows <a href="https://petewargent.blogspot.com.au/2015/01/record-sydney-investor-lending-again" target="_blank">Sydney absolutely miles out in front</a> in terms of investor lending growth, although investor finance in Queensland has been <a href="https://petewargent.blogspot.com.au/2015/01/record-sydney-investor-lending-again" target="_blank">steadily increasing</a> now in rolling annual terms since August 2011, and significantly is more than <a href="https://petewargent.blogspot.com.au/2015/01/record-sydney-investor-lending-again" target="_blank">20% higher over the past year</a>. 
The housing finance data suggests that Brisbane will have a strong 2015, although there is likely to be a very significant variance across property types given the mismatch between the new supply and what is in demand by the market.
Business credit growth is now at it highest level in nearly six years, but uncertainty abounds in this sphere and surveys suggest that progress is at best likely to be tentative.
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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Interest rates to fall again - and investors set to dominate: Pete Wargent

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The latest round of <a href="https://www.abs.gov.au/AUSSTATS/abs@.nsf/Lookup/8762.0Main+Features1Sep%202014?OpenDocument" target="_blank">ABS Engineering Construction</a> data for the third quarter of 2014 - a fair proxy for mining and resources project construction - showed another sharp decline.
Let's take a look at what we can learn in three short parts.
<h3>Part one - Engineering activity tanks</h3>
Engineering construction activity dived by 3.7% to $28,394 million in the third quarter in chain volume measures terms to be some 13.3% lower than a year ago.
After an extraordinary run mining construction is set to act as a material drag on the economy over the next few years as activity reverts back towards its long run average. Given recent market action in the commodities sector, the decline could be pretty rapid.
<img src="https://1.bp.blogspot.com/-hkV8qHfCdC0/VLssCrnQv9I/AAAAAAAASio/O1zg89pKaiA/s1600/CA4.jpg">
While Western Australia and Queensland are busily ramping up export volumes, at the same time construction activity is dropping off a cliff. In fact only the Northern Territory has seen a mining construction activity spike of late, partly due to some big spend on the Inpex Ichthys LNG project.
<img src="https://1.bp.blogspot.com/-_bW4kDt9yT4/VLssBtReQHI/AAAAAAAASiQ/SGn_WQzJWRQ/s1600/CA3.jpg">
It isn't possible to forecast with any level of accuracy what will happen to mining construction in any given reporting period, but the first chart above shows that total activity is likely to have a long way to fall yet.
<a href="https://www.abs.gov.au/ausstats/abs@.nsf/Latestproducts/5625.0Main%20Features3Sep%202014?opendocument&amp;tabname=Summary&amp;prodno=5625.0&amp;issue=Sep%202014&amp;num=&amp;view=" target="_blank">Capex intention surveys</a> do suggest that there is likely to be an uplift in investment in other industries. However, the engineering construction work commenced figures, which are always necessarily wildly volatile by their very nature, show that work commenced in the third quarter was well down on a rolling annual basis.
<img src="https://2.bp.blogspot.com/-WeYUc-2rC_Y/VLs0fMw60VI/AAAAAAAASjY/VizRfpWgYmc/s1600/commenced.jpg">
<h3>Part two - All change in construction sector</h3>
During the past week we already noted that the <a href="https://petewargent.blogspot.sg/2015/01/record-high-for-dwelling-commencements" target="_blank">value of building activity</a> for the third quarter came in at an underwhelming $22,287 million, although this did represent a moderate 5% increase over the past year.
The good news was that there were an <a href="https://petewargent.blogspot.sg/2015/01/record-high-for-dwelling-commencements" target="_blank">all-time record 52,380 home starts</a> in the September quarter, so there will surely be a marked uplift in residential building to follow in the year ahead.
<img src="https://1.bp.blogspot.com/-jXnVtpaKTNw/VLmnPAb7NvI/AAAAAAAASgo/2WIB5hYmkPE/s1600/CA1.jpg"> 
The above chart shows that even if residential construction can ramp up by a couple of billion in 2015, this alone cannot offset the likely decline in mining activity and there will be more lifting to be done elsewhere in the economy.
Piecing this all together, total <a href="https://www.abs.gov.au/ausstats/abs@.nsf/mf/8782.0.65.001?OpenDocument" target="_blank">construction activity</a> in the ABS data series declined by 2.5% over the quarter and 6% over the past year.
<img src="https://2.bp.blogspot.com/-p1tqV4mDoSY/VLs1uvdx5iI/AAAAAAAASjo/znxfueuadTA/s1600/CA2.jpg">
Article continues on the next page. Please click below.
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<h3>Part three - Macro trends to watch in 2015</h3>
So what can we expect to see as a result of this? Here are three macro trends to watch out for.
<ul>
<li>i) Interest rates to fall to 2%</li>
</ul>
We have had <a href="https://petewargent.blogspot.sg/2015/01/bang-bang-finish-to-2014-jobs-growth" target="_blank">two strong employment reports over the past two months</a> - at least, we have on a dubious seasonally adjusted basis - but it would be a brave call at this stage to suggest that interest rates are not heading lower in 2015 given the collapse in engineering construction work in the pipeline.
There are no complete and up-to-date figures available for Western Australia (or the Northern Territory for that matter) but the underlying data available for categories such as roads and highways points towards an ongoing decline.
<img src="https://1.bp.blogspot.com/-QiNG8Nz8I6E/VLsuLLJ4weI/AAAAAAAASjE/NhiLjBDiNbQ/s1600/CA6.jpg">
Futures markets are therefore all but pricing in two interest rate cuts by H1 2016 which may well give a few of Australia's floundering property markets a timely boost.
<ul>
<li>(ii) Mass migration back to capital cities </li>
</ul>
<a href="https://petewargent.blogspot.sg/2014/05/rba-on-housing" target="_blank">Recent demographic studies</a> have shown that a migration back towards the capitals is already well underway with both population growth and employment growth increasingly focussed around the centre of our four largest capital cities, and regional population growth in most locations well below the national averages.
The construction phase of the mining boom is the labour-intensive phase - labour required for new mines and LNG projects is typically only a third of that needed through the project construction stage.
This need not all be doom and gloom. For one thing resources export volumes are punching out record highs by the month (albeit with diminished commodity prices) which is, after all, the point of the preceding mining and resources construction boom.
The Reserve Bank of Australia has also <a href="https://www.rba.gov.au/publications/bulletin/2014/dec/pdf/bu-1214-2.pdf" target="_blank">released detailed research</a> to outline its rationale for believing that mining construction employment skills are directly transferrable to residential property construction - and remember 2015 and 2016 will be record years for the building of housing.
The RBA's figures show that the number of construction workers alone in the resources sector leapt from around 15,000 in the mid 2000s to around 90,000 by 2013. We can expect to see an equivalent retrenchment as resources projects are completed, with some 60,000 resources construction positions to be terminated between 2014 and 2018. 
Offsetting this around 20,000 operational positions were created in 2013 and 2014 with another 10,000 to come ove rthe next few years. Totting that up net resources employment is set to decline by about 40,000 between 2014 and 2018.
Residential construction boom
The good news is that the latest residential <a href="https://petewargent.blogspot.sg/2015/01/building-approvals-hit-record-high-we" target="_blank">building approvals hit their highest ever level</a> at nearly 200,000 on a rolling annual basis up to November 2014.
The ensuing residential construction boom will be predominantly a capital city affair, with the capital cities approvinga combined record 74,397 houses and 75,320 units over the past year. Thus more than 75% of dwellings constructed will be in the capital cities and more than two thirds of them in only Greater Sydney, Melbourne, Brisbane and Perth.
This is important for the respective economies of those four cities since residential construction has such as <a href="https://petewargent.blogspot.sg/2014/07/construction-multiplier" target="_blank">healthy economic multiplier effect</a>.
<ul>
<li>(iii) Regional property markets to underperform in aggregate</li>
</ul>
 "Location, location, location" is one of the greatest cliches in real estate, but like many such mantras it has a grain of truth in it.
Over the long-term, well located capital city property will generally outperform regional centres where economic growth and the expansion of household wealth tends to be less robust or diverse. 
For a while it was claimed that regional centres could even record the same average price growth as landlocked capital city suburbs - and indeed, as Australian households went on a one-off debt binge as interest rates fell this was true for a while, although the debt expansion binge ended fairly abruptly around 2007.
There are some exceptions to this rule, of course - Queensland has been home to a number of thriving regional centres, for example. But generally studies have shown that our large capital cities are the <a href="https://petewargent.blogspot.sg/2014/07/x" target="_blank">wealth-creating engines of Australia's growing economy</a> and house price growth tends to be stronger close to the centre of cities. 
It is the case that many parts of regional Australia have benefited from a surge in employment during the once-in-a-century mining construction boom - one which lasted much longer than many of us expected.
However that boom has now officially ended and less of the economic value from the export phase of the boom will be captured by the regions as employment levels fall into decline.
Instead as export tonnages ramp up vast sums accrue into state-level royalty offices, while dividend returns frequently leak to overseas shareholders or head office executives back in the capital city ivory towers, wolfishly raking it in from their latest ZEPOs.
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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Mining construction in sharp decline: What does it mean for our regional property markets?

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Rumours of the imminent demise of the residential construction boom were somewhat exaggerated, it seems. Only yesterday morning I mused in the Twittersphere that we would need to see a proverbial "king wave" of building approvals for the month of November to reinstate the data series to a record high...
<img src="https://2.bp.blogspot.com/-eRHnncJlYUw/VK6c4jalVHI/AAAAAAAASW4/Rc1gJIDLC_g/s1600/pete.jpg">
...and, in the event, that's exactly what we got. Buoyed by a sizeable increase in attached dwellings over the past year, a further total of 18,245 <a href="https://www.abs.gov.au/AUSSTATS/abs@.nsf/DetailsPage/8731.0Nov%202014?OpenDocument" target="_blank">building approvals</a> in November took total approvals to the highest annual level on record at 199,173. Over the past year there have been approvals for 113,734 houses (+4%) and 85,439 units and apartments (+18%) representing an excellent supply response to low interest rates and the ensuing increase in dwelling prices. The 18,245 approvals seasonally adjusted in the month of November also smashed the previous two decade old monthly record of 17,745 set way back in August 1994, by more than 3%.
The below chart thus indicates an impressive volume of approvals in the pipeline. With population growth sliding in most states outside New South Wales this generally points towards cooling dwelling price growth in many market sectors as supply steadily comes online. 
<img src="https://2.bp.blogspot.com/-MhBxXFt4g18/VK5xJqYxgII/AAAAAAAASVw/qMPFy9uGRSg/s1600/BA1.jpg">
Let's take a run through the key facts and figures in three short parts, commencing with...
Part one - Australian economy
November 2014 was a monster month for the value of residential building jobs at a seasonally adjusted $5,465 million - this is by a huge margin the greatest monthly figure on record, thereby taking the total value of building jobs to new record heights on an annualised basis.
<img src="https://3.bp.blogspot.com/-dIEWm7ZsazM/VK5xLJsWHFI/AAAAAAAASV8/X9K1KZdNKYc/s1600/BA6.jpg"> 
Victoria has been the kingpin of residential construction for some years now. Yet while this provides some short-term juice for the local economy, an oversupply of apartment stock is nurturing a systemic risk in that market as detailed in part three below.
As <a href="https://petewargent.blogspot.co.uk/2014/11/construction-work-done-sounds-alarm-on" target="_blank">analysed here previously</a> residential construction alone doesn't stand a snowball's chance of successfully offseting the forthcoming declines in mining construction, particularly as "alterations and additions" (major renovations activity) has contributed so little to GDP over the past year, though commercial and infrastructure construction will assist.
The other state which has really embraced a building boom has been New South Wales - but contrary to popular belief the surge in the number of cranes on the Sydney skyline is not leading to an oversupply of residential property.
<img src="https://4.bp.blogspot.com/-tdP6OgG_zPI/VK5xLkYK-kI/AAAAAAAASWI/IszyJS7S8Zk/s1600/BA7.jpg"> 
In fact the enormous boom in building jobs values and construction has to a significant extent been driven by infrastructure and commercial projects.
These include some of those initiated by LendLease (ASX: LLC) such as the gargantuan $6 billion Barangaroo project, of which the enormous office towers "T1, T2 and T3" have been progressing apace since the middle of 2014 (see some of my <a href="https://petewargent.blogspot.co.uk/2014/06/hanging-gardens-of-barangaroo" target="_blank">site photos here</a> among various places on this blog for an idea of the scale).
<img src="https://4.bp.blogspot.com/-f-3HPevuKmU/VK5xMzGRPjI/AAAAAAAASWY/GbYiABmaz2s/s1600/BA8.jpg"> 
Article continues on the next page. Please click below. 
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Part two- Capital cities
Rather than imbue readers with a chronic case of "chart fatigue" we will omit the state level data today other than to note that Victoria is approving huge volumes of supply, but approvals in New South Wales are now sliding.
Let's skip directly to what is happening at the more interesting capital city level where Greater Melbourne is being joined by Greater Perth in approving the largest number of houses.
 <img src="https://1.bp.blogspot.com/-fMSl5a7IuzE/VK5xNiypVfI/AAAAAAAASWg/uZXBFmckqK4/s1600/ba2.jpg"> 
However it is the supply of inner city apartment stock that holds most intrigue for us in this data series. 
The trend data for Sydney apartment approvals peaked way back in September 2013 and continues to slide on a rolling annual basis - now down to a level at around 24,000 which can be easily absorbed by the growing market demand (population growth in the city could tip in at up to around 90,000 this year). 
Notably some commentators have called an oversupply of residential building in Greater Sydney. I can see why you would think that given the construction that is visibly taking place. 
But much of this is commerical in natue and the numbers tell another story - with the exception of a few small pockets in inner south and inner city suburbs, the market remains tight.
In reality much of desirable inner suburban Sydney has precisely the opposite problem with planning permissions generally difficult to come by and vacancy rates contracting to their <a href="https://petewargent.blogspot.co.uk/2014/12/perfect-storm-for-sydney" target="_blank">lowest level in more than 22 months</a> - since February 2013 - at just 1.5%.
Not only is the new construction not causing an oversupply, in most locations it has barely even begun to address the inherent undersupply.
 <img src="https://1.bp.blogspot.com/-nWgP2Dzi2AY/VK5xN-zJObI/AAAAAAAASWk/pfebfudDE-Y/s1600/ba3.jpg"> 
Greater Brisbane continues to approve a higher number of units and apartments than has been historically typical.
Therefore although we feel that Brisbane is likely to be Australia's best performing property market over the next few years, we would suggest avoiding those inner suburbs where there is a raft of new projects coming online as detailed here previously.
The problem child is Greater Melbourne. The month of November saw an extraordinary pre-election surge of 3,931 attached dwelling approvals (to add to more than 22,000 detached house approvals in the last 12 months).
Despite there already being a glut of apartment stock on the market and elevated vacancy rates, this takes rolling annual attached dwelling approvals to an unprecedented level for Melbourne at more than 25,000, and trending rapidly towards a figure with a "3 handle".
Article continues on the next page. Please click below.
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Part three - Melbourne going highrise bonkers
The value of approvals in Victoria as charted below - while promising an attractive short-term sugar hit to the local construction economy - also hints at an underlying muddle.
 <img src="https://2.bp.blogspot.com/-nqwGVFyEW6I/VK5xJwi7UaI/AAAAAAAASWE/PpY6yV-ab18/s1600/BA5.jpg">
The number of high rise units continues to break new record levels, largely thanks to the prevailing trend towards constructing towering apartment structures to be exported to offshore investors. 
In localities such as Docklands a high percentage of units are thought to stand vacant as well highlighted at the suburb level in a recent Prosper report entitled Speculative Vacancies in Melbourne 2014.
Drilling into the number of apartments approved by number of storeys below highlights the crux of the issue. More than 3,000 units of four or more storeys were approved in November alone (!) taking the rolling annual total close to 15,000. This is well over double the figures being notched as recently as 2009.
 <img src="https://1.bp.blogspot.com/-DhYEmGMmWq0/VK5xJxa6XRI/AAAAAAAASV0/JPMIZKQo-jQ/s1600/BA4.jpg"> 
Put another way, across the last five years Victoria has approved an extraordinary 62,837 "high rise" (four plus storey) units - well over triple the 18,705 approvals in the preceding five years (New South Wales has been doing something similar in recent years but Sydney is playing catch-up after six years of woeful undersupply).
In short there is clear oversupply of highrise apartments set to land squarely in the city of Melbourne. 
Of course, over the long-term this will easily be absorbed as the city population grows and the largest Australian cities adopt a more Asian city feel and style of high-density living.
Over the short-term, however, this presents a systemic risk and may result in a painful correction in that sector of the market. 
The wrap
From a macroeconomic perspective this was a big result in November both in terms of the number and value of building approvals, which bodes well for this residential construction cycle pushing through until 2017.
At the capital city level apartment approvals have continued to ease back in Greater Sydney meaning that those waiting to see a harbour city oversupply are likely to be disappointed. 
Melbourne, on the other hand, is continuing to wave through high rise approvals at a maniacal rate. This may mask malignant adverse consequences.
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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Building approvals hit record high: We need to talk about Melbourne

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The Reserve Bank's Chart Pack is always worth a gander, being consistently and independently produced... and free from spin.
You can view the full chart pack <a href="https://www.rba.gov.au/chart-pack/index" target="_blank">here</a>.
Let's run through what the Reserve Bank of Australia (RBA) has found this month for households and the housing market.
Part 1: Households and finances
Retail sales growth is humming along both in terms of values and volumes, largely driven by Sydney retail.
<img src="/images/2015/01/8/graph%201.gif" alt="">
Savings ratios have been elevated since the financial crisis as households shored up their finances, but the ratio now appears to be gradually declining again as low interest rates encourage investment in growth assets.
<img src="/images/2015/01/8/graph%202.gif" alt="">
Consumer sentiment has been knocked around a little by budgets and other adverse news, but remain fairly close to where it has been averaging for the last 34 years.
<img src="/images/2015/01/8/graph%203.gif" alt="">
Household wealth in Australia is now at record highs in absolute terms. In terms of net worth as a percentage of annual household disposable income, asset values are growing nicely, and liabilities are holding steady.
<img src="/images/2015/01/8/graph%204.gif" alt="">
Interest paid as a percentage of household disposable income has declined in tandem with mortgage rates . Indeed, mortgage serviceability is at its best level in more than a decade.
<img src="/images/2015/01/8/graph%205.gif" alt="">
Part 2: The housing market
Stimulated by rising dwelling prices, building approvals brushed record highs, but have now seemingly passed their peak. We will see an oversupply of dwellings <a href="https://petewargent.blogspot.co.uk/2014/12/melbourne-continues-to-hammer-high-rise" target="_blank">in a few regions</a> – one would be wise to steer clear of these, of course.
<img src="/images/2015/01/8/graph%206.gif" alt="">
Housing loan approvals rise to record highs, largely driven by investors in this cycle, the direct result of low borrowing rates.
<img src="/images/2015/01/8/graph%207.gif" alt="">
And finally, to housing prices. As we expected some years ago, due to an inherent undersupply of dwelling stock and infrastructure, Sydney prices are soaring towards $1 million.
With both the M2 and the M7 closed again earlier this week, and barely a day passing without news of diabolical traffic woes, expect there to be a continuing surge of demand for properties located close to key transport hubs such as rail or light rail links.
<img src="/images/2015/01/8/graph%208.gif" alt="">
Elsewhere, Melbourne has been looking peaky for months but has held up reasonably well to date.
Perth's market is trending slightly up but only moderately, while Canberra is now all set for a downturn. The Adelaide market – and particularly its economy – remains unconvicing,
Counter-cyclical investors should be scoping out opportunities in Brisbane, where housing finance is gathering momentum – as reconfirmed this week by <a href="https://www.afgonline.com.au/mortgage-index-january-2015/" target="_blank">AFG's December Mortgage Index data</a>.
 
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How Australian households will look in 2015

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2014 was an interesting year for investors.
In an era when fixed interest investments have been widely expected to be dud performers, returns on Aussie government bonds delivered surprisingly strong returns of around 10% over the calendar year with interest rate expectations imploding as the calendar year progressed.
The Australian share market seemed to be tracking solidly as expected but then nosedived at the end of the third quarter to relinquish all of its previously garnered capital gains before a face-saving rally in December left the chart in positive territory for the year.
In terms of global shares the Dow Jones yet again performed very well in 2014 and the S&amp;P 500 even better, thereby further proving the folly of trying to predict short-term market gyrations.
Commodities generally had a rough ride last year with both copper and gold again finishing the year lower than where they began it, although in truth returns on gold often reflect a currency hedge as much as they do the quoted US dollar return.
Meanwhile 2014 was also a year during which commodities such as iron ore and crude oil were obliterated.
Residential property
"Total returns" from residential property came in at an uncommonly strong 12%.
How returns are measured from residential property for individual investors are largely relevant to how assets are financed - total returns may be a useful measure for those of us who have owned property since the mid 1990s or earlier, but for more recent buyers using higher leverage capital growth is the metric of interest.
In terms of growth capital city dwelling prices rose by a further 8% in 2014 following on from 10% growth in 2013.
<img src="https://3.bp.blogspot.com/-7LOC4nR1e08/VKlTo2qp9MI/AAAAAAAASR0/p5nndmF20FU/s1600/RPD.jpg">
Historically the Core Logic RP Data Home Values Index - which is not seasonally adjusted - tends to produce a dip in valuations around the middle of the year as can be seen in the above chart, but has continued to record solid gains over time.
Over the last two calendar year capital city home values have increased by 18% - the equivalent of an $90,000 price increase on a $500,000 property.
Post GFC Returns 
Since December 2008 capital city home values have increased by more than 36% reflecting a solid 5.3% compounding annual return.
For those using leverage returns have been potentially outstanding - the use of 80% leverage can magnify returns (both positive and negative) by five times before transaction and holding costs, thus reflecting gross capital returns of more than 180% over that time - returns that are rarely matched easily in other asset classes. 
In reality the home values index return is heavily tilted by the outstanding performance of Sydney which has recorded prodigious returns since December 2008 of 55%, or a compounding annual return of 7.5%.
Melbourne aside, returns elsewhere have been relatively muted over the past six years.
On the plus side for home owners there is scant evidence to be found here of the widely predicted sharp property correction.
<img src="https://2.bp.blogspot.com/-npAKOqC5FlU/VKlwjzsvELI/AAAAAAAASSE/M_ylAwZpDFc/s1600/rp1.jpg">
Best prospective performers
With massive population growth continuing to swell Greater Sydney combined with presently the strongest economy in the nation, the harbour city is expected to continue forging ahead to record the strongest capital gains in 2015.
Just as we have seen in London over the long-term, the sheer weight of increasing demand for a genuinely scarce supply of land in Sydney appears likely to continue delivering the most consistent compounding returns.
Those who prefer to invest counter-cyclically face a more demanding decision.
The southern state capitals of Adelaide and Hobart have been hampered by grievously weakened economies and an utter dearth of employment growth, while Adelaide faces the additional hurdle of the shuttering of its automobile manufacturing industry which will contribute to concerningly elevated levels of unemployment in the outer.
Canberra and Darwin must adjust to the twin spectres of a labour market rationalisation and a resources construction pullback respectively.
Melbourne's housing market has been on an outstanding run in recent years but is now confronted by a number of challenges related to both the local economy and to overbuilding in some areas that has resulted in a glut of stock on the market.
The best risk-adjusted bet for counter-cyclical investors is on balance likely to be Brisbane.
The Queensland capital has been struck by a number of setbacks to housing market confidence over recent years, but housing finance data for both owner-occupiers and investors suggests that the market has decisively turned a corner and the strongest three year returns are thus projected for Brisbane.
However, there is certain to be an oversupply of new units in a number of suburbs and skilful asset selection will to a great extent determine results.
You can visit <a href="https://allenwargent.com/" target="_blank" rel="nofollow">AllenWargent</a> property buyers (London, Sydney) or Pete's <a href="https://petewargent.blogspot.com/" target="_blank" rel="nofollow">blog</a>.
His latest book is '<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>' .
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How assets performed in 2014 and what to expect this year

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The Reserve Bank has stated on more than one occasion that mortgage repayments are on average some 15% ahead of schedule, the equivalent of some two years worth of monthly payments. If this is true then despite endless talk of stretched household budgets, then we should actually see mortgage arrears declining to levels not seen in years.
The latest Fitch Ratings Dinkum Index, which records 30 and 90 day mortgage arrears, showed that arrears have declined to seven year lows (30 day) and fiveyear lows (90 day) respectively.
From <a href="https://www.bankingday.com/nl06_news_selected.php?act=2&amp;nav=13&amp;selkey=17947" target="_blank">Banking Day</a>:
"The strong housing market is suppressing home loan arrears. 
"Fitch Ratings, in its latest Dinkum Index analysing the September 2014 quarter, put loans 30 days or more past due at their lowest level since late 2007. 
"Fitch said delinquencies dropped by 14 basis point to 1.08%.
"Serious arrears also benefited, with loans 90 days or more in arrears sitting at 0.47%, the lowest level since December 2009.
"Arrears are expected to remain largely stable in fourth quarter 2014, Fitch said, due to low, stable interest rates, a strong housing market and lending, and relatively low (albeit rising) levels of unemployment."
Great to hear. While other developed countries have seen serious 90+ day arrears on up to 10 to 15 or more in every 200 mortgages in the period following the financial crisis, the equivalent figure for Australia is incredibly now below 1, which is wonderful news. The reasons are clear enough, being a combination of very low interest rates and the unique structuring of so many loans in Australia which <a href="https://petewargent.blogspot.co.uk/2014/04/stress" target="_blank">maintain repayments at the same level</a> when interest rates fall, thus allowing borrowers to build up sizeable repayment buffers when variable mortgage rates have been declining over a period of years.
This mirrors what has been <a href="https://petewargent.blogspot.co.uk/2014/11/genworth-q3" target="_blank">reported by Genworth (ASX: GMA) in Q3</a>, that delinquency rates have been cascading lower by book year since FY2008.
<img src="https://4.bp.blogspot.com/-iMv-Wc5yns0/VGaYJx9iI_I/AAAAAAAAROg/lbdTaLoqO7w/s640/GMA1.jpg">
That's great to see, with foreclosures in Australia now considered to be "<a href="https://petewargent.blogspot.co.uk/2014/04/stress" target="_blank">vanishingly rare</a>".
Arrears to Rise from Exceptionally Low Levels? 
One would think almost certainly, yes. There is realistically only one direction in which mortgage arrears can head over the medium term from such a pleasingly low base. Relatively low interest rates are more or less a 'shoo-in' for most of the remainder of this decade, but the other major factor which can cause mortgage arrears - unemployment - is rising in eminence across many regions of Australia.
<img src="https://1.bp.blogspot.com/-rebYUuOgS_E/VI3XQNQk8UI/AAAAAAAAR5g/9PSOV1YkK7Q/s1600/b2.jpg">
Where are the Risk Areas?
We will take an updated look at the latest unemployment rates by region data on Thursday of this week, but here are a few of the regions where unemployment rates have increased concerningly.
<img src="https://2.bp.blogspot.com/-E86GaqEpdTw/VI2Xh26I1-I/AAAAAAAAR4w/WXLYkm7KToU/s1600/LOGAN.jpg">
<a href="https://petewargent.blogspot.co.uk/2014/11/abc-cuts-10-percent-of-staff-and-sa" target="_blank">Recent reports have also highlighted</a> the elevated risk of credit default in a number of Queensland regions as the unemployment rate rises.
We'd add to this list of potential risk areas parts of South Australia where a weak labour market and consumer confidence have contributed to 5 year declines in median house prices in a number of outer suburbs such as Davoren Park, Elizabeth North,  Elizabeth East, Craigmore, and so on.
Fair Warning - Industry Closure Risk
Some on the chat forums have chosen to highlight that withdrawal of Holden may only directly result in a relatively small number of jobs and they have therefore dismissed the risk as insignificant.
That's one way to look at it, but a market is made up by the full range of views, and in this case we'll take the sell side of the equation.
As pointed out here previously, when one considers the total number of jobs which are likely to be lost from the shuttering of the car manufacture industry over the next few years - including from suppliers and support industries - in concert with flow-through impacts of rescinded business investment, consumer spending and so on - the potential impact on economic output of some $29 billion and up to 200,000 jobs nationwide could be <a href="https://www.propertyobserver.com.au/https://www.abc.net.au/news/2014-04-14/study-warns-carmakers-exit-could-see-200000-jobs-lost/5389682" target="_blank">prodigious</a>.
It's easy to dismiss the closure of the Holden plant as overblown, and to state that those who do lose their jobs can be redeployed.
Indeed so, but whether or not they can be redeployed within South Australia is another matter entirely.
If the forecast 24,000 jobs are lost in the state, note that the economy has taken fully seven years to add 24,000 jobs, and has added a net total of zero over the last four.
<img src="https://2.bp.blogspot.com/-qF47FgelF4g/VI3jrxoShBI/AAAAAAAAR5w/ceSC1asejvE/s1600/SOuth%2BAustralia.jpg">
A similar point stands for Geelong (and I own property in Geelong, so this is not merely the viewpoint of vested interest).
Article continues on the next page. Please click below.
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Positive Investment Decisions
Buying a home to live in is one thing, of course, but the primary advantage that a property investor has is that they are not compelled to buy property anywhere or at any time, so the shuttering of an entire industry should act as an automatic red flag.
"It might not be that bad" is not a compelling case for an investment decision.
Anyway, that's our view - that you should look for thriving economies, not those about to be sideswiped by a king-hit - so fair warning.
We'll provide an updated report on trends in elevated unemployment rates by region on Thursday of this week, so stay tuned for that.
In the meantime if there is one phrase to look out for which should always make property investors wince it is that "prices can't fall further in this region", which is another alarm bell which has so often foreshadowed financial loss.
MYEFO Impacts - The "Shock Absorber"
In the forthcoming MYEFO Treasurer Hockey will announce that the budget will be used as a "shock absorber" to shield the downside to the Australian economy from its declining terms of trade, driven by falls in key commodity prices, in particular that of iron ore.
<img src="https://3.bp.blogspot.com/-cXcsJ4JwoNs/VI3Ln628PBI/AAAAAAAAR5M/VdpOpY9Q8U8/s1600/IO%2Bprice.jpg">
What will this "shock absorber" mean? We will have to wait for the details, but one might expect to hear announcements concerning the following:
<ul>
<li>heavy government expenditure of infrastructure projects; and </li>
<li>thousands of jobs to be cut from the merger of closure of scores of government agencies, particularly in Canberra.</li>
</ul>
Potentially thousands of job cuts does not bode at all well for Canberra or the ACT housing markets in 2015, with rents already declining and now dwelling prices looking set to follow suit. Pass.
"Busting Labour Market Myths" 
Our chart packs have consistently revealed a worrying trend in Australia in recent years, that with the honourable exception of Queensland, <a href="https://petewargent.blogspot.co.uk/2014/10/city-versus-country-widening-jobs-gulf" target="_blank">regional Australia is not creating jobs</a> in aggregate and unemployment is therefore rising worryingly in many regional centres and net population growth must in turn slow.
One of Australia's leading economic journalists Peter Martin takes aim at another of the great labour market myths in his piece 'Busting Labour Market Myths' in <a href="https://www.theage.com.au/federal-politics/political-opinion/busting-labour-market-myths-why-your-job-is-far-more-secure-than-you-think-20141213-125ggs" target="_blank">The Age</a>: "Of course we'll tell our children that they'll be doing more telework – working from home, cafes, etc. 
"Everyone knows that's true. The last government said it enough while spruiking the NBN. 
"It isn't true - at least not so far.
"Only 5% of us describe home as our main place of work, and nearly all of them are self-employed. 
 "Only around 1.5% of workers for employers describe home as their main place of work, and if anything the proportion has slipped in the past decade.
 "All up, the labour market is changing (fewer of us are employed in manufacturing for instance) but it isn't changing in many of the ways that we think.".
Quite so.
Working from Home has Declined
The short report which Peter Martin is referencing here is the enlightening <a href="https://onlinelibrary.wiley.com/enhanced/doi/10.1111/1467-8462.12085/" target="_blank">Two Decades of Change</a> document, which is well worth a read.
The report reveals some interesting trends, highlighting for example how the southern states have fallen way behind in terms of their economies and labour market growth, with employment growth in Tasmania and now South Australia in particular having tanked and unemployment now rising, trends which have been highlighted here previously.
<img src="https://1.bp.blogspot.com/-hbgxMa94YRQ/VI2aCWTYmkI/AAAAAAAAR48/X1J9YlRNRzw/s1600/sa.jpg">
The Working from Home 'Phenomenon'? On the working from home phenomenon, the Two Decades of Change report is quite conclusive:
"Yet another often-heard claim is that, facilitated by changes and advances in information and communication technology, work is increasingly being undertaken away from conventional workplaces, and more specifically in the homes of workers. 
"However, the available survey evidence provides little support for such a claim. Analysis of data from the HILDA Survey by Wooden and Fok (<a href="https://onlinelibrary.wiley.com/enhanced/doi/10.1111/1467-8462.12085/#aere12085-bib-0022" title="Link to bibliographic citation">2013</a>), for example, shows:
"While taking work home is relatively common (with almost 23% of Australian workers reporting doing at least some paid work at home each week), for relatively few workers (just 5%) could home be described as their main location of work.
"The majority of this small group of home workers is self-employed—only a little over 1% of employees spend the majority of their work hours at home.
"If anything, the incidence of working at home fell over the course of the last decade.
"Such conclusions are broadly consistent with survey data periodically collected by the ABS as part of its Locations of Work Survey (ABS Cat. no. 6275.0). 
"Notably, the incidence of employed persons who report that their home is their main place of employment fell slightly between 2000 and 2008 (from 7.1% to 6.4%)."
This is indeed commensurate with what was concluded by the ABS Locations of Work survey as reported here previously.
In fact, the principal reason given by survey respondents for working from home was that they had become "snowed under" and fallen way behind on their workloads in the their main workplace.
All available <a href="https://petewargent.blogspot.co.uk/2014/07/x" target="_blank">studies</a> and <a href="https://petewargent.blogspot.co.uk/2014/05/rba-on-housing" target="_blank">reports</a> have shown that, quite apart from undertaking a sea-change and heading en masse for the regions, Australia's capital cities are in fact becoming increasingly centrally focused in terms of population growth, dwelling price growth, economic growth and employment growth.
You can visit <a href="https://allenwargent.com/" target="_blank" rel="nofollow">AllenWargent</a> property buyers (London, Sydney) or Pete's <a href="https://petewargent.blogspot.com/" target="_blank" rel="nofollow">blog</a>.
His latest book is '<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>' .
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