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

<html><body>
Ego and Confirmation Bias
The other day I bought a parcel of shares in an industrial stock for $1.10, the share price zoomed up to above $1.20 in double-quick time, but then the price fell back to my entry point at $1.10 and I was stopped out with short shrift. 
I know beyond the shadow of any doubt that when I was 25 I would have let the price fall well below my entry price before even thinking of selling, and then hoped for it to 'come back'. 
It's an ego thing; you never want to admit to making a poor selection.
By the time I turned 35 I'd learned that if you want to be a successful share trader you must have the discipline to cut your losses and let the winners run (rather than precisely the opposite, which is what most losing traders do).
Even the best stock pickers might select perhaps four trades which don't co-operate from every ten. That doesn't make them bad trades, as such. You simply must be disciplined, and cut the losing selections ruthlessly, and 'trade right'.
<blockquote>
Property investors will likely still be able to attain strong enough returns over the longer term, provided they know in which locations and what property types to buy.
</blockquote>
The process is as important as the outcome. Twisting on 20 and getting an ace doesn't make one smart, only lucky. 
Ridding yourself of that pesky ego is vital to ongoing success as a trader. If you let the losing trades fall and fall in the vain hope that they one day come back to save you at break-even, eventually one of them will keep falling and wipe out all of the other accumulated gains in your trading account and then some.
Human nature dictates that it's very hard to admit being wrong. This is non-sensical: we all get things wrong all the time!
The only reason I reckon myself to be a half-decent investor today is that I've made no many balls-ups in the past - pretty much every mistake you can name, in fact, I've probably made it or a variation thereof. 
Indeed, making all the mistakes in the book is sometimes the only way to learn about what works and what doesn't, and to some extent it might be described as the hallmark of an expert investor - one who has made every mistake, but has resolved to learn the inherent lessons.
Capital growth
Is there ego in a lot of our property market commentary? Gosh, yes! 
How often do people admit to being wrong? Even when they've had a complete shocker and recommended speculating in mining towns where prices have since collapsed? Occasionally? Rarely? Ever?!
As I blogged about <a href="https://petewargent.blogspot.com.au/2014/02/error" target="_blank">here</a>, unfortunately for me, I've made mistake after mistake as an investor, although luckily a long-term outlook can be forgiving of errors.
It was Oscar Wilde who said: "Experience is the name everyone gives to mistakes." It's true. Mistakes are how we learn as people, and also as investors.
Inner suburbs, or outer?
There has been a long-running debate in Australia about whether capital growth is stronger in suburbs closer to the respective city centre (aye), or in outer suburbs (nay).
Clearly, historically, there is no debate to be had.
Median house prices in Sydney's inner suburb of <a href="/news">Point Piper</a> obviously did not get to exceed $5.832 million with moderate capital growth.
And, just as obviously, median house prices of $228,000 in <a href="/news">Spencer</a>, <a href="/news">Gosford</a>, or median unit prices in <a href="/news">Vineyard</a>, Hawkesbury of $162,000 are hardly representative of rampant dwelling price appreciation.
The price growth has necessarily been in some way inversely related to relative proximity to the city with its employment, infrastructure, amenities, and so on.
It's a debate we've had over and over again in London and the UK over the years. And every time we carry out research into the issue, the results are precisely the same. 
Regional price growth in Britain remains relatively poor, outer London suburbs show moderate growth, and prime central London continues to outperform massively.
<div class="separator"><a href="https://3.bp.blogspot.com/-cw6q9EaewkE/U3SXOFTYDbI/AAAAAAAANNA/78q1_e_z1TI/s1600/AWBE.jpg"><img src="https://3.bp.blogspot.com/-cw6q9EaewkE/U3SXOFTYDbI/AAAAAAAANNA/78q1_e_z1TI/s1600/AWBE.jpg"></a></div>
<a href="https://allenwargent.com/wp-content/uploads/2013/04/AW-LONDON-BE-SP13-031.pdf" target="_blank">Source: AllenWargent Buyers Eye</a>
Australia?
While it has been common knowledge in Aussie real estate that inner suburbs have demonstrated stronger capital growth over the long term, in the past 15 years or so there has sprung up a debate as to whether regional centres and outer suburbs might now be the outperformers.
Why would that happen? People working from home? People seeking to move outwards for a cheaper lifestyle?
Unfortunately, study after study after study shows that the answer is: no. It's not happening. Indeed, if anything, we seem to have the opposite problem.
Younger generations often want to live close to the city, even if they have to pay to rent or buy an expensive apartment to do so. 
What can happen, in my experience, is that cheap suburbs can get a sugar hit as they gentrify thus experiencing a spurt of capital growth, but over the long term price growth is stronger in better located suburbs closer to the city.
See <a href="https://petewargent.blogspot.com.au/2013/09/outer-suburbs-better-or-worse" target="_blank">here</a> and <a href="https://theconversation.com/can-lower-income-buyers-build-housing-wealth-too-18418" target="_blank">here</a> for the charts from AHURI which prove it, both over the long-term and across recent years too. 
The evidence is as clear as daylight, yet some will still cling to perming carefully selected data over short term time horizons in order to defend their arguments.
This article continues on the next page. Please click below.
<hr class="system-pagebreak">
Inner suburbs are STILL seeing higher capital growth
And so to the RBA's Luci Ellis and her excellent presentation on Australian housing at a conference in Sydney last week, the full transcript of which you can read <a href="https://www.rba.gov.au/speeches/2014/sp-so-150514" target="_blank">here</a>.
Ellis started by highlighting how household debt has hit a plateau since 2005, which implies that Australian dwelling price growth in aggregate will be slower in the future, and far more closely tied to household income growth in the future than it has been in the past, when lending criteria were deregulated and a structural shift to lower inflation and lower interest rates took place.
I'd suggest, though, that property investors will likely still be able to attain strong enough returns over the longer term, provided they know in which locations and what property types to buy.
Ellis highlighted what I've discussed a thousand times, that being the geographical constraints on some of our cities such as Sydney, which is surrounded by ocean, national parks and mountains, as well as pointing out how exceptionally low the population density is in our urban locations.
We have spacious plots, large houses and relatively few people per square kilometre in urban Australia, which does little to help combat housing affordability in detached dwelling types. 
<img src="https://www.rba.gov.au/speeches/2014/images/sp-so-150514-graph3-small.gif" alt="Graph 3: Urban Population Density"> 
<div>Ellis also went on to discuss the concept of the Central Place model - which is akin to what I have previously referred to <a href="https://petewargent.blogspot.com.au/2013/11/bid-rent-curves-in-australia" target="_blank">here as the bid-rent curve</a> - it suggests that prices and rents tend to decrease as you move away from a city's central point. </div>
<img src="https://www.rba.gov.au/speeches/2014/images/sp-so-150514-figure1-small.gif" alt="Figure 1: The Central Place Model">
Although Australia's cities are not monocentric and do have smaller sub-centres, the RBA notes that when you look at the spatial pattern of employment in Australia, the single centre model "is not a bad fit".
That's correct and accords with what I have seen unfolding in Sydney. We do have employment centres such as Parramatta and Macquarie Park/North Ryde, but they remain very much secondary locations to the main event of the CBD.
We kind of already know all this.
Jobs growth, population growth and capital growth in residential property and much commercial property has been strongest near to the centre of cities in the past.
But what of the future? At present job density is much higher in the central city areas as the RBA's research shows. In fact, read this point from the RBA carefully:
"Population density is higher near the centres and declines rapidly: again, the scales on these graphs are exponential, so each darker shade is an order of magnitude higher density. 
"Some of the outermost districts still contain agricultural land and a good fraction of national parks, so it isn't surprising that population densities are low in these places. I find it interesting that even some middle-ring districts are not that much denser."
Job density: 
<img src="https://www.rba.gov.au/speeches/2014/images/sp-so-150514-graph4-small.gif" alt="Graph 4: Job Density">
And, for that matter, so is population density far more heavily concentrated on central areas:
<img src="https://www.rba.gov.au/speeches/2014/images/sp-so-150514-graph5-small.gif" alt="Graph 5: Population Density (Persons per square kilometre, 2011)">
That's all fairly inherently obvious, but what is more important is how are these trends changing over time.
"The power of the central place is even more striking if we directly contrast where the jobs are with where the employed people live...in all of these cities, the CBD is still the job magnet."
Aha! As I've been arguing forever and a day - yes, we have secondary employment centres in Sydney (and other cities), but no, they most certainly do not draw more jobs to them than the city and the respective central zones.
Firstly, job density is clearly increasing in central areas at a far greater rate than it is in outer areas:
<img src="https://www.rba.gov.au/speeches/2014/images/sp-so-150514-graph8-small.gif" alt="Graph 8: Change in Job Density">
And, secondly, which is more, the population is increasing in density in inner and middle suburbs at a much greater rate too.
RBA: "In fact, many of the inner areas have become even greater job magnets in recent years; some middle and outer areas added people, but not so many jobs, so their job-to-worker ratios actually declined."
<img src="https://www.rba.gov.au/speeches/2014/images/sp-so-150514-graph9-small.gif" alt="Graph 9: Change in Population Density">
This article continues on the next page. Please click below.
<hr class="system-pagebreak">
Impact on dwelling prices?
What people, I suppose, are often really interested in is how these demographic shifts impact dwelling prices.
The answer, concludes the RBA's research, as indeed does every other credible study undertaken on the subject for that matter, is that the ratio of inner ring to outer ring house prices is actually continuing to increase, and the ratio is notably increasing at the greatest rate in the largest cities.
Luci Ellis:
"Declining job-to-worker ratios in some of the outer areas mean that many people are likely to face longer commutes than before. 
"The trade-off between space and place is getting steeper. 
"Locating on the fringe is relatively less attractive than it used to be, and not only because the fringe is moving further out.
"You can see that trade-off in relative housing prices over time. Inner-ring properties have become more expensive relative to outer-ring properties in recent years. And the larger the city, the greater is that premium."
<div class="breakafter"> </div>
<img src="https://www.rba.gov.au/speeches/2014/images/sp-so-150514-graph11-small.gif" alt="Graph 11: House Price Gradient" width="400" height="319">
This trend has played out in all five of the major cities so the conclusion is inarguable on an aggregate basis.
The causation is simply a matter of increasing demand for living close to the city versus scarcity value.
A word of caution, though. This chart represents the ratios for detached housing only, which inherently tends to have a certain level of scarcity value, particularly in fully built out areas.
<div>If you're going to buy unit or apartment stock, look to those with an inherent scarcity value, which does not mean generic, over-priced high rise shoe-boxes which are purchased off the plan.</div>
Outer suburbs and regional centres are struggling
With a few exceptions, outer suburbs and regional centres are struggling across a range of metrics. Ellis again:
"Even social infrastructure doesn't easily follow population to the low-density fringes. Sydney's newest university, Notre Dame, could have chosen an outer-ring location where land was cheaper and it had more room to grow. 
"But instead it put one campus right next to two other universities not far from here on Broadway and another in Darlinghurst."
And on the challenges facing our regional centres:
"I also can't help noticing how difficult it seems to grow the smaller cities in this country relative to the bigger cities. With the possible exceptions of Newcastle, Geelong and maybe Bendigo and Ballarat, few centres outside the state capitals have many corporate headquarters or other job magnets. 
"These self-sustaining job magnets seem to be necessary to create the variety of job opportunities that would attract large numbers of former city dwellers. 
"Over recent years at least, these smaller centres had rates of employment growth and changes in employment-to-population ratios that were similar to or a little below those in the big cities, and a bit below those of inner-city areas. 
"At this rate, it will be hard for the smaller centres to start catching up with the bigger cities, relatively speaking. That means that if big-city housing prices should rise too high for some residents, smaller cities cannot provide alternative locations that are any more viable than they are today.
"Instead of jobs coming to people, at least some of the people have been coming to the jobs, enabled by the pattern of building. In recent years, not only is a lot of the new housing in infill developments, it is much more likely to take the form of high-rise apartments than in the past."
And so, yet another independent study concludes unequivocally that inner suburbs are more desirable, are magnets for jobs growth, have greater access to essential infrastructure and amenities, have higher population growth, are more self-sustaining and show higher residential property capital growth  - both over the long term, and over the last 8 years too.
<div>
RBA warns on regional jobs growth
As we've been highlighting for a long time, jobs growth has become very heavily focused on capital cities in Australia, which is in turn necessarily very concerning for the economic health of our regional centres.
Regional jobs growth has been lagging badly and this has an unpropitious effect on the respective localised economies.
Luci Ellis highlighted exactly this point.
It was noted that regional locations have been adding jobs at a slower pace than the capital cities, and that it is likely to become increasingly difficult for the regions to close that gap as regional centres are offering a lack of variety in job opportunities.
It's something I've witnessed first hand in Britain over the last two decades.
The <a href="https://petewargent.blogspot.com.au/2014/03/zipfs-law" target="_blank" style="line-height: 1.3em;">large cities become more self-sustaining over time</a> while so many regional centres struggle to develop their economies at anything like the same speed.
The result over time can be a mass migration to the capital cities in the absence of specific policies to reverse these trends.
Summary
The debate about whether inner or outer suburbs will thrive will drag on, of course, since that is the very nature of confirmation bias.
But the conclusions drawn by the RBA and independent research institutes are about as black and white as it is possible to find.
Ships will sail around the world, yet "the Flat Earth Society will continue to flourish"...yet those listen to what the data is clearly telling them rather than continue to rally in vain against it, will prosper.
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 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.
</div>
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pwargent-M4siyDbqQY

City centre v outer suburbs: Which will provide greater capital growth?

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OK, let's see how short I can keep this post, rather than duplicate some excellent summaries of last night's budget which have already been well covered elsewhere.
In short, what I was expecting to see was tax levies to fund some hefty infrastructure spending, and that didn't prove to be wildly wide of the mark.
The budget now forecasts the deficit to be shifted back to surplus over the coming few years ahead, ongoing steady economic growth and a moderate rise in unemployment.
One of the big reasons for the expected infrastructure spend is explained by this chart of actual versus expected mining capital expenditure from the ABS:
<div><img src="https://www.abs.gov.au/ausstats/abs@.nsf/be4aa82cd8cf7f07ca2570d60018da27/1ecf42b5ec12e8bcca2573460014f2df/Body/1.3B92!OpenElement&amp;FieldElemFormat=gif" alt="Chart: Financial year actual and expected expenditure- Mining Capital Expenditure" width="400" height="155"></div>
<div>Source: ABS</div>
Note how mining investment is expected to fall by a punchy 25% this year from around $100 billion to $75 billion, a fall of about $25 billion in just one financial year.
That's a fairly hefty hole in economic activity which needs to be plugged.
And Hockey's budget has delivered, creating an $11.6 billion infrastructure growth package  to boost total infrastructure investment by Commonwealth, state and local governments as well as the private sector, to over $125 billion by 2019-20.
This is expected to see trucks moving in a matter of months.
<a href="https://www.macrobusiness.com.au/wp-content/uploads/2014/05/M140513AA.pdf" target="_blank">Commsec</a>:
"The Infrastructure Growth Package provides an additional $11.6 billion for infrastructure. This will bring the government’s investment to $50 billion by 2019-20 which, combined with State and private sector funding, will catalyse over $125 billion of additional infrastructure investment nationwide. 
"The government has committed an additional $3.7 billion to upgrade national highways and other key roads and is delivering vital infrastructure through the Western Sydney. 
"The Badgerys Creek airport development is expected to create 35,000 jobs by 2035, increasing to 60,000 jobs over time. By 2060, the new airport has the potential to drive an increase in Australia’s economic output to almost $24 billion."
There's some big stuff in here for roads, rail and ports, so transport and construction stocks are some to look at in the month ahead (particularly for me, since I am entering the infamous Sydney Morning Herald shares race later today).
Western Sydney will be a huge beneficiary of the budget with the Connex project, a second airport and a huge expenditure on road upgrades.
As to how it will all be paid for, there are plenty of cutbacks to welfare which will be unpopular, to foreign aid which will be ignored and to medical benefits (possible a negative for some healthcare stocks, particularly PRY which benefits from government revenue streams).
Most notably tax payers who earn $180,000 will now pay an extra two cents in the dollar on their top marginal rate bringing the top rate to an eye-watering 48.5%.
I doubt this will do much to discourage top-bracket taxpayers from looking towards negatively gearing investment property as a means of reducing their tax bill, the negative gearing rules of course once again remaining utterly unmentioned in the budget.
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 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.
Photo courtesy of Flickr/<a href="https://creativecommons.org/licenses/by/2.0/" target="_blank">Creative Commons</a>.
An original version of this article stated the mining investment figures in millions instead of billions.
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Infrastructure budget delivers for Western Sydney

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Cameron Kusher of RP Data drew the ire of a few pundits recently as he highlighted a number of points as to <a href="/expert-insights/buying/slight-fall-in-number-of-negatively-geared-property-investors">why negative gearing won't be abolished</a>.
There are four main points which advocates put forward in favour of abolishing negative gearing:
<ol>
<li>
Rents wouldn't rise Nobody knows for certain whether this is actually true. But let's face it, the inevitable hand of self-interest means that if negative gearing rules were quarantined landlords would probably take the opportunity to at least try it on by jacking up their rental charges (cf. the colossal 57% increase in rents in Sydney last time the rules were tweaked, 1985-1987). Let's suppose for the sake of argument that rents stayed flat.... 
</li>
<li>
Government would save billions This was one of Kusher's main points:  "The government only owns and rents out 4.1% of the housing stock. Conversely dwelling approvals data shows that a very small proportion of new housing approvals are granted to the public sector." Common sense dictates that if the government scraps the prevailing negative gearing legislation it would have to step up its public housing expenditure. "If negative gearing was to be removed the government would likely have to play more of a role in constructing new homes and managing a portfolio of properties. On balance, they probably play see that foregoing almost $8 billion in taxation revenue is more cost effective than developing and managing a greater proportion of housing stock." <img src="https://3.bp.blogspot.com/-HfOBu6rlp88/U24XeBqSg0I/AAAAAAAANGY/mV9lzdx4Ksg/s1600/camkusher.jpg"> So much for all the billions in tax savings: the biggest furphy of the lot. Indeed, according to contemporary commentary the principal reason that negative gearing rules were reintroduced in the first place in 1987 was the spiralling waiting list for public housing, particularly in New South Wales where numbers increased alarmingly by nearly 40% to 140,000. Again, let's suppose that the government recovered in full the foregone funds from its negative gearing subsidies and a grandfathering or quarantining of the prevailing rules proved to be fiscally neutral. 
</li>
<li>
Renters would buy up the properties sold Kusher again: <img src="https://3.bp.blogspot.com/-_nBJi-3W908/U24KdlkeXuI/AAAAAAAANGI/Wmf9ohsWcg8/s1600/CKusss.jpg"> This is obviously true. If property investors sell their properties, are renters who have not been able to buy previously really going to be in a position to suddenly step in and buy them? That seems unlikely, unless renters already had pre-existing deposits and closing costs ready to roll. But again, let's suppose that investors sold their properties and renters somehow did find the deposits and the appropriate financing to buy up the surplus stock with no associated decline in lending standards (also unlikely).  This is where the housing affordability arguments become circular and contradictory... Higher home ownership rates? On the one hand, people say "we should be like Germany with its stable housing market where most people rent" and on the other they argue "renters should be able to buy into the property market". One or the other argument might make sense, but I can't see how they both can. Certain economists believe that artificially pumping up home ownership rates beyond their natural levels promotes boom/bust cycles.  Look at countries where home ownership rates are artificially high, such as Singapore, where dwelling prices are up by 60% since 2009. Hardly a model for affordable housing, and rents are preposterously high in the city too (at least, they have certainly seemed to me to be when I've visited friends in the city - I'm happy to stand corrected on this point if it's incorrect on a city-wide basis). Britain too experimented with making home ownership a part of the very fabric of society through Maggie Thatcher's selling off of council houses, pushing UK home ownership rates to exceptionally high levels of around 70% by the end of the century. This all seemed to be a tremendous success when house prices were booming in the 1980s (and again in the 1990s and first half of the 2000s) with the stakeholder economy benefiting from an unprecedented boom in credit and wildly exaggerated wealth effect. However, it's commonly acknowledged that the UK housing market has also been one of the most manic-depressive boom/bust markets in the world ever since ownership rates increased. Meanwhile, ownership rates until recently appeared to be in the process of heading all the way back down to from whence they came...until, that is, the government stepped in with its Help to Buy and Funding for Lending wheezes - the cycle repeats... 
</li>
<li>Negative gearing doesn't increase supply</li>
</ol>
This point is logical enough, since negatively geared properties are mostly comprised of existing housing stock.
<div>Let's disregard all of the above factors which are precluding the negative gearing rules from being quarantined.</div>
Suppose for a moment that:
(a) the negative gearing rules are quarantined or grandfathered out;
(b) a large number of property investors sell their properties;
(c) renters buy up the surplus stock increasing home ownership rates to 70%+;
(d) rents don't rise;
(e) a decline in lending standards doesn't lead to a mass of defaults when interest rates rise;
(f) no boom/bust market ensues; and
(g) dwelling prices fall by, say, 20% (which presumably is the main underlying point of this entire debate after all).
Ongoing supply? 
As I <a href="https://petewargent.blogspot.com.au/search?q=construction+costs" target="_blank">looked at here</a>, our major residential developers in Australia are not generating strong margins. Far from it in fact.
So if dwelling prices are to fall, who is going to build the new housing stock? 
If you think developers are going to do anything other than maximise shareholder returns, as indeed they are compelled to do, then you likely also believe in tooth fairies.
The Reserve Bank itself highlighted the reason why margins on multistorey apartment block residential developments are so slender: construction costs on infill sites are too high for it to be otherwise.
<img src="https://2.bp.blogspot.com/-g-Oo-rk32eU/UyzA8AHYD4I/AAAAAAAAL_o/UftvW2FtvtA/s1600/CC.gif">
This chart shows why a long drawn out fall in apartment prices in Sydney was never feasible since it would have quickly taken the price per dwelling below its equivalent replacement cost.
Land developer Stockland's (SGP) underlying profit in FY13 was hampered by weak housing conditions, with that financial period encompassing the period from 1 July 2012 when sentiment was  still in the process of picking up.  Stockland's (SGP) residentiual division recorded an EBIT margin of 19.9% in FY2013.
<img src="https://1.bp.blogspot.com/-HLTcTuf2p2A/Uyz4daslyXI/AAAAAAAAMAM/OZEeDiagq_k/s1600/stockland+resi.jpg"> The Mirvac Group (MGR) managed to improve group gross margins on its residential developments to just 22% from a desperately poor 18% in the prior year.
 <img src="https://4.bp.blogspot.com/-jAnKNC6uhSY/Uyz3uhTUatI/AAAAAAAAMAA/bqbqdKWpz8w/s400/Mirvac+margins.jpg">
<div>Lend Lease might yet prove to be the biggest basket case of the lot, the group reportedly struggling to turn a decent worthwhile ROI on some of its resi developments even at today's higher dwelling prices.</div>
<div> </div>
<div>Lend Lease's (LLC) entire Australian geographical segment is recording EBITDA of only $500-$600 million and NPAT of around only $400-$500 million from colossal annual revenue streams of  $7.5 billion plus.</div>
<div> </div>
<div> <img src="https://2.bp.blogspot.com/-DE-MRz3KKWI/Uyz5EFxBebI/AAAAAAAAMAo/hRJtqfrVRQs/s400/LL.jpg">
</div>
<div> </div>
<div>I'm sure that $7.734 billion top line figure is keeping a few execs living in the manner to which they have become accustomed, but those kind of net margins are hardly likely to see shareholders sending the champagne corks flying.</div>
Even back up at a PE of above 14, the share price is still at only at around half of its former glory.
<img src="https://chartbigchart.gtm.idmanagedsolutions.com/custom/etrade-australia/chart.asp?symb=LLC&amp;time=10yr&amp;freq=1dy&amp;type=1&amp;compidx=aaaa%3a0&amp;uf=0&amp;ma=2&amp;maval=25&amp;lf=268435456&amp;style=2061&amp;size=1&amp;comp=">
Lend Lease's FY14 H1 results for its Australian geographical segment have disappointed as development and construction profits have once again slipped back.
<div>
<img src="https://1.bp.blogspot.com/-TkgUgqpwV68/Uyz6QeInzXI/AAAAAAAAMA0/h1MHVaibJqE/s1600/LLAustralia.jpg"> </div>
<div> </div>
<div>Implications</div>
If you're not familiar with accounting convention, what this means simply is that if dwelling prices fall, developers ain't barely going to be making a profit even before financing charges, and it will almost immediately be a case of 'see you later new dwelling supply'.
Say, for the sake of argument dwelling prices fall by 20%.
You can be more or less certain that absent new subsidies, major developers would instantly put any new planned projects on ice until upwards price pressure returned. In case it's still not clear why, this table explains the basic maths:
<table border="1" cellspacing="0" cellpadding="0"><tbody>
<tr>
<td valign="top" width="205">
<div> </div>
</td>
<td valign="top" width="48">
<div align="center">FY13 </div>
</td>
<td valign="top" width="47">
<div align="center">FY??</div>
</td>
</tr>
<tr>
<td valign="top" width="205">
<div>Turnover</div>
</td>
<td valign="top" width="48">
<div align="center">100</div>
</td>
<td valign="top" width="47">
<div align="center">80</div>
</td>
</tr>
<tr>
<td valign="top" width="205">
<div>COS</div>
</td>
<td valign="top" width="48">
<div align="center">(80)</div>
</td>
<td valign="top" width="47">
<div align="center">(80)</div>
</td>
</tr>
<tr>
<td valign="top" width="205">
<div>EBIT margin</div>
</td>
<td valign="top" width="48">
<div align="center">20</div>
</td>
<td valign="top" width="47">
<div align="center">-</div>
</td>
</tr>
</tbody></table>
In our cities with booming population growth this would be disastrous for renters. 
<div>Even in the event of interest rates remaining at their lowest levels in a generation, developers would soon have zero incentive to build since if dwelling prices are sliding, since they'd only be breaking even before financing charges were booked. </div>
There would be no corp tax to pay since there wouldn't even be a net profit upon which to raise tax, so the government would be getting zinged on its own revenues there too...and zinged again would they be on stamp duty foregone as the supply of new dwellings evaporated.
So much for all the billions in tax savings. As for the capital gains tax take, which forms a part of the individual income tax assessment: when prices are falling...oops there goes another revenue stream
So <a href="https://www.stockland.com.au/assets/crs2013/financial-report-2013.pdf" target="_blank">when Stockland discussed in 2013</a> "the prolonged downturn in the Australian residential land market" as adversely impacting results, they aren't being facetious.
They are simply noting what is plainly the case for developers in their resi divisions - there ain't barely no money in it, which is why it has taken a significant upturn in Sydney's prices to see dwelling approvals at last begin to flow through, after a woeful lull across the past decade.
Conclusion
If dwelling prices fall over any meaningful period of time in a city such as Sydney, we would quickly see supply dry up and with a population growing at 80,000 plus per annum we'll be back into chronic undersupply territory in just a few short years.
This is why negative gearing rules probably won't be quarantined or grandfathered out.
And this also why, if affordable housing is considered to be a genuine target, the government would probably need to look at tackling supply through subsidies as I posted about <a href="/expert-insights/buying/how-to-fix-australias-affordable-housing-problem">here</a>, while at the same time easing demand through considering other property tax reform and not the NG rules.
As I've noted before though, I'm sceptical as to whether there is any real desire to make housing more affordable from those in power.
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 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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If negative gearing is quarantined cities like Sydney will be facing chronic undersupply

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An interesting release <a href="https://www.abs.gov.au/AUSSTATS/abs@.nsf/Lookup/3401.0Main+Features1Mar%202014?OpenDocument" target="_blank">from the Australian Bureau of Statistics yesterday</a> which has been reported as Australia's immigration having peaked.
Is it true?
Perhaps yes, but it's also probably best not to get suckered into confirmation bias and to put the numbers into a bit of a wider context.
Mainly as a point of interest, short term visitors to Australia dipped a little in March to 561,000 having hitting a record high at end of last year.
<div class="separator"><img src="https://2.bp.blogspot.com/-6TRKjyufCdY/U2sJFjaklyI/AAAAAAAANCM/eOqYaVdeRdc/s1600/STA.jpg"></div>
<div>All very interesting, but what we're far more interested in is long-term arrivals and net long-term migration into Australia.</div>
On a rolling 12 monthly basis, long term arrivals indeed dipped to 'only' 766,270.
<div>This remains simply miles above Australia's long term average figure. </div>
<div> </div>
<div>The "populate or perish" notion has been around since World War II but interestingly it was only in the mid 1990s that we really started to see the massive annualised increases in long-term arrivals. </div>
<div class="separator"><img src="https://4.bp.blogspot.com/-Xn8C1mE0iK8/U2sJo_UMtdI/AAAAAAAANCU/RuOPyiiF7oY/s1600/LTA1.jpg"></div>
Of course, some choose to depart these shores too, and the rolling 12 monthly long-term departures equivalent figure for March was 380,910.
Netting the two off against each other over the long-term and dropping the figures into a chart reveals the following trend:
<div class="separator"><img src="https://4.bp.blogspot.com/-fi_Do9-SAiY/U2sKoADxedI/AAAAAAAANCg/KXjUb-VePss/s1600/LTM.jpg"></div>
That is, net long term migration into Australia of 385,360 on a rolling annual basis. That's huge. 
It's true that figure is down a little on the peaks we saw in January 2013 (411,000) and September 2009 (409,000), but it's still a massive net long-term migration figure into Australia.
This is particularly so when it's considered that the immigration is focused so heavily on only four capital cities. 
Remember too that it's estimated that in Australia there is one birth every 1 minute and 42 seconds as compared to one death only every 3 minutes and 36 seconds.
For that reason when the full demographic statistics are released for 2013 next month it wouldn't be at all surprising to see that Australia's population increase across the year by 400,000+ people to a total of around 23.3 million.
As of 8 May 2014, the <a href="https://www.abs.gov.au/ausstats/abs%40.nsf/94713ad445ff1425ca25682000192af2/1647509ef7e2" target="_blank">ABS population clock</a> estimates that the Aussie population is 23,481,800.
For what it's worth, I'd be unsurprised to see the net long-term migration into Australia fall a little back towards the 300,000 level over the next couple of years. 
It's still impossible to describe that as anything other than very strong growth, though.
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 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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Has immigration into Australia peaked?

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Dwelling price-to-income ratio charts in Australia and in certain other developed countries have shown a dramatic run-up which have benefited existing owners tremendously, particularly over the past couple of decades.
<div class="separator"><a href="https://3.bp.blogspot.com/-scVICW5CkIU/U2CL5ASxdmI/AAAAAAAAM2o/HQWNaynN8jg/s1600/Dereg.jpg"><img src="https://3.bp.blogspot.com/-scVICW5CkIU/U2CL5ASxdmI/AAAAAAAAM2o/HQWNaynN8jg/s1600/Dereg.jpg" width="400" height="316"></a></div>
Most of the causes are obvious enough and have been well documented: there are now many more dual income households than there were previously, there has been and remains an ongoing colossal boom in Australia's population, there has been a structural shift to much lower inflation and interest rates, and so on.
Ultimately, though, all this new debt had to come from somewhere, so how on earth did that happen? The quick and dirty answer lies in the deregulation of the Aussie financial system which took place in the 1980s, a process often alluded to, but less often explained. A quick look at eight key points... 
Regulation
During the 1980s Australian banking went relatively quickly from being one of the most stringently controlled systems in the world to one of the least controlled, as part of a wider movement which was to some extent reflected in other countries.
Crucially, Australia had previously employed very strict controls on its bank borrowing and lending practices, with few available substitutes to the traditional banks.
Normally such sweeping  industry changes as occurred in that decade would be a pain-inducing and drawn-out exercise, but deregulation was especially swift and effective Down Under because it met with so little resistance from the banks themselves.
This was because the banks saw that although they may have previously benefited from the controls as they carved up housing market loans, they would now stand to benefit more from deregulation since it would allow them to compete more readily with the non-financial institutions.
With the rise of technology and electronic banking, the banks also knew that they had to become more flexible to compete with the non-banks.
The challenges with the pre-existing controls
One of the problems facing the banks was that with there being a ceiling imposed on interest rates they could lend at and on term deposits, in times of high inflation it was exceptionally difficult for them to tempt customers to deposit funds with them (and further, banks offered zero percent interest on current accounts, largely as part of an informal or unspoken cartel agreement between themselves).
With a below market ceiling on lending rates imposed upon the banks, there was in any case little willingness or indeed capability to offer more appealing interest rates on term deposits.
Meanwhile, non-bank financial intermediaries such as building societies began to offer more tempting and competitive deposit rates, which in turn facilitated the ability to lend more. With deregulation, there came too an increase in the velocity of the circulation of funds, which in turn led to an increased focus on the control of monetary aggregates by the central bank.
Government controls over housing finance changed
In the 1980s there was an imposed ceiling on lending rates for housing but this was changed in 1986. From April 1986, while a ceiling remained in place for pre-existing loans (the interest rate cap was set at 13.5% at that time, for the record), new loans written had no such ceiling. 
Since new loans were written at about the same level for some time thereafter, there was initially little effect, but eventually the removal of controls did have an impact.
The traditional distinction between savings banks and trading banks was removed in 1989 and prior to that, in the mid 1980s, 15 foreign banks were given licences to operate in the Australian market. The major change in market was that a number of building societies and credit unions converted to banks.
Becoming a bank allowed these institutions a much greater capacity to expand their capital base, and from the early 1990s forth, a number of factors contributed to the banking system shifting its focus from lending to business towards housing.
Summarily, a lot of bank loans to businesses became impaired during the 1990s recession, so lending for housing got the green light. With <a href="https://www.rba.gov.au/speeches/2010/sp-ag-300310" target="_blank">reduced assets ratios</a> also now required by the banks, it was time for the banks to get lending on homes...and how.
<div><img src="https://www.rba.gov.au/speeches/2010/images/sp-ag-300310-graph1-small.gif" alt="Graph 1: AFI Housing Credit"></div>
Between 1991 and 1995 the share of banks' business loans fell from 63% to 48%, but the share of loans for housing soared from 30% to 46%. Lower inflation, falling interest rates and the strong performance of housing loans saw the percentage of housing loans roar up to nearly 60% by 2010.
Why bother control housing finance at all?
Why would a government even have tried to control housing finance rates in the first place? It's a very valid question!
There is no strong economic argument in favour of such a strategy, but the basic idea I suppose to was to incentivise folk to divert more of there resources towards housing than they may otherwise have been inclined to do.
Personally, I generally prefer free markets all things being equal, but I guess at least part of the underlying notion was that if people invested more heavily in housing, them in turn the housing stock would be of better quality. 
As someone born in a city with some of the worst housing developments imaginable, I can see there is some logic buried deep in there somewhere - slums and infested housing estates can create far deeper social problems than just unsightly dwellings, but what about...
Market distortions?
However, the flaws in the logic of the borrowing rate cap were equally apparent. The government was encouraging people to allocate increasingly disproportionate amounts of their resources towards housing, pushing up prices, squeezing out lower income earners, and so on.
A far better idea, one would have thought, would have been a form of subsidies for the construction of dwellings and for those who rented them - not only a clear benefit for those able to purchase dwellings through borrowing (even cash buyers were excluded from this benefit).
A ceiling or cap on housing finance interest rates generally benefits higher salary earners with clean credit histories and the ability to save deposits, with no such benefit to lower income earners who could only afford to rent. And let's face it, if a bank is forced to lend at a capped interest rate, it's going to do so preferentially to persons with a higher salary and a bigger deposit.
Combining a ceiling on housing loans with a ceiling on deposit rates (which themselves were effectively anyway capped by the below market rates accrued from housing loans) tends to hit up lower income earners with a double whammy: paying them crappy rates of interest on their savings (on average most lower income earners hold a higher percentage of their net worth in savings) and squeezing them out of the housing market.
This leads on to a whole other debate about the most appropriate form of housing subsidies for lower income groups...but that's one for another day.
Impacts of the 1986 deregulation
So in 1986 the control over interest rates was removed for new loans, but the cap remained in place for existing loans. The impact of this was a tad confusing!
Older borrowers now benefited from lower rates since they had arranged loans before 1986, although on average the older they were the lower the outstanding mortgage balance, so perhaps you could argue the outcomes of that came out in the wash a little.
And the deregulation also distorted the market in another way, making the labour market more immobile. There was very little incentive for existing owners to move to a location which might be more convenient for employment, since they would lose their entitlement to an interest rate cap upon inception of any new housing loan.
Other encouragement for housing finance
Therefore, as banks became able to offer more competitive rates on deposits, in turn this allowed them to increase their loan books.
It was expected that there would be another change from deregulation: stability. Why? Because before deregulation, when interest rates were rising banks became less competitive on deposit rates thus throttling their lending capability, yet when rates were falling exactly the opposite was true.
But what actually happened was that this great uncertainty for banks was removed by deregulation, giving them far greater control over their level of competitiveness on deposit rates in order to attract business, and thus this made them equivalently far readier to provide housing finance. 
Indeed, you could argue that it now became a race to allocate as much of the new lending as possible to the housing markets.
Product innovation
Another enduring impact of deregulation was that new products sprang up all over the shop such as variable repayment loans or so-called "low-start" mortgages. Banks became more inclined to focus on the ability of borrowers to repay monthly payments rather than capping loans at a low multiple.
There was  product innovation aplenty in the Aussie mortgage market as lenders sought to cater for a wider range of potential borrowers and found new ways to assess their borrowing capacity - an easing in lending standards played its part of course, increasing loan risk, but the over-arching effect was that households had wider access to credit.
With no ceiling on lending rates, banks were now able to charge higher spreads and require bigger deposits on riskier loans, so in due course became more inclined to take them on.
And then of course lenders introduced what the Americans called HELOCS - home-equity loans,as well as redraw facilities and reverse mortgages, all of which allowed households to borrow against the equity they had built up in their place of residence. Lenders also introduced interest-only loans and shared-equity loans which made it easier for households, particularly first home buyers to purchase their home. When interest rates fell, the net result was a borrowing bonanza, and not only in Australia.
<div class="separator"><a href="https://1.bp.blogspot.com/-KdhavBa_ogA/U2DO6dvxmkI/AAAAAAAAM28/qgM4akIxrpw/s1600/OCR.jpg"><img src="https://1.bp.blogspot.com/-KdhavBa_ogA/U2DO6dvxmkI/AAAAAAAAM28/qgM4akIxrpw/s1600/OCR.jpg"></a></div>
Interest rates are now more important
Pundits like to argue that in theory interest rates have little impact on housing markets, but due to the deregulation of the Aussie financial system and higher household debt today, this is incorrect, as partly evidenced by the impact of rate cuts since 2010.
What is explained above should clarify why shifts in interest rates were formerly somewhat limited in their ability to impact housing markets - since both lending and deposit rates were strictly controlled - yet today the availability and expectations around the cost of capital can be a key driver of market sentiment.
Moreover, since household debt levels are so much more elevated today than they were in the 1970s, the scope for monetary policy and adjustments in interest rates to stimulate or clobber housing markets - and indeed other parts of the Aussie economy - is greater than it was before.
Conclusion
This is all worth remembering when the next round of chart packs rolls around dating back to the mid-1800s which apparently prove that dwelling price multiples will inevitably revert to a long-term median.
They prove nothing of the sort, since credit markets have evolved beyond all recognition in the last 30 years. Unless, that is, you are expecting banks willingly to slice their percentage of lending for housing in half back to less than a third their loan books.
It strikes me that if you want to see house prices back at the oft-quoted "three times incomes", you'd need some kind of trigger. One such trigger could be a severe recession with very high unemployment.
It's simply way too easy for employed, dual-income couples in the current environment to service mortgage repayments with rock bottom borrowing rates. If you really want to see a downward reversion in dwelling prices, then we need to see higher interest rates which would quickly remove the speculative heat from the market.
<div class="separator"><a href="https://1.bp.blogspot.com/-KdhavBa_ogA/U2DO6dvxmkI/AAAAAAAAM28/qgM4akIxrpw/s1600/OCR.jpg"><img src="https://1.bp.blogspot.com/-KdhavBa_ogA/U2DO6dvxmkI/AAAAAAAAM28/qgM4akIxrpw/s1600/OCR.jpg"></a></div>
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 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 are more important than they have ever been

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Month end - again
Been blinkin' busy of late, and yesterday I was appalled to discover that according to my calendar it's already the start of a new month!
That being the case, with all the usual caveats about why spending too much time looking at monthly and quarterly dwelling price data might not be a smart idea, we can run a few calculations to show what RP Data will report in a few days time as their dwelling price movements for the month, quarter and year to date.
<div>
<a href="https://1.bp.blogspot.com/-yDRXr-mmbhI/U2A20wikabI/AAAAAAAAM1U/wtIDKYYc5eM/s1600/RPDq12014.jpg"><img src="https://1.bp.blogspot.com/-yDRXr-mmbhI/U2A20wikabI/AAAAAAAAM1U/wtIDKYYc5eM/s1600/RPDq12014.jpg"></a>
</div>
So, nationally dwelling prices were recorded as being +0.3% for the month, +2.6% for the quarter and an extremely strong +3.9% for the 2014 year to date, with the national figures being skewed by exceptionally strong growth in Sydney.
The strongest gains in 2014 have been in Sydney (+5.0%) as we <a href="/expert-insights/buying/crystal-ball-gazing-property-market-predictions-for-2014">confidently predicted</a> in our 2014 forecasts, with Melbourne just a tick behind (+4.9%).
Forecasting
I also explained in the same article why I'm not a big believer in property price forecasts...particularly those which claim to forecast to one decimal place!
Anyone who tells you that they have a model to predict prices to that level of accuracy is either (a) lying or (b) delusional.
It doesn't matter what econometric model you choose to build, eventually it will blow up due to an unforeseen X factor.
All you can really do is start with borrowing rates, household debt levels, market sentiment and fundamentals, economic and employment forecasts etc. and then build a base case from there.
But think of all the unpredictable events we've seen in recent years - the US sequester and fiscal cliff, the US debt ceiling crisis, Cyprus debt crisis, changes in monetary and fiscal policy...you just can't predict and factor in all that stuff.
So you either make a forecasts with a huge range (e.g. 12% to 30% growth in 2014) or you make a weighted average forecast, accept you'll probably be wrong and risk ending up looking like a total doofus (e.g. our own <a href="/expert-insights/buying/crystal-ball-gazing-property-market-predictions-for-2014">6% to 9%</a> in 2014 for Sydney).
As to whether or not Sydney overshoots the top of our expectations? Well, we're only a third of the way through the year, and that remains to be seen.
This all rather contrary to my investment philosophy in any case, which is that property should be seen as a 20-30 year investment decision, and ideally much longer still.
If you're banking on market price movements within a few years, then you're probably in the wrong game.
Other cities
You'll note from the <a href="/expert-insights/buying/crystal-ball-gazing-property-market-predictions-for-2014">same article</a> that we were generally less optimistic than almost everyone else about property prices in 2014, since we felt that houeshold debt levels were generally too high and annualised wages growth tracking too low to facilitate anything like the levels of nationwide dwelling price growth we've seen in cycles past.
Anyways, back to RP Data's figures.
Melbourne was next up for the year to date (+4.9%), though there's been plenty of chatter around easing auction clearance rates, and RP Data recorded a small fall for the month of April itself (-0.5%).
Some signs of life in Adelaide at last too! - although year-on-year the South Australian capital has still been the worst performing major capital city by a wide margin.
Still, prices have under-performed in Adelaide for so many years that some level of catch-up at last now appears due.
Other providers 
<div>Incidentally, I don't have any allegiance to particular data providers.</div>
<div> </div>
<div>And since I have no barrow to push on that front and have even less interest in the bickering between them (just look at all of them is my reckoning, and if necessary, give any outlying results the flick) below is what Australian Property Monitors recorded for the first quarter for houses and units.</div>
 
<a href="https://1.bp.blogspot.com/-_oT6dawPwtU/U2A4GLzG3aI/AAAAAAAAM1g/gHePLGV-THQ/s1600/APM+Q1.jpg"><img src="https://1.bp.blogspot.com/-_oT6dawPwtU/U2A4GLzG3aI/AAAAAAAAM1g/gHePLGV-THQ/s1600/APM+Q1.jpg"></a>
Sydney still clearly leading the recovery, both in terms of houses and apartments. Note, however, that these figures have been impacted by revisions to the December quarter figures. Without the revisions, Melbourne would have recorded extremely strong house price growth of more than 6% in the first quarter.
SQM Forecasts
<div>Our forecast for Sydney was 6% to 9% growth in 2014, taking the broad view that price growth could eventually be derailed as the year draws to a close and yields begin to sag, just as they did in 2003.</div>
<div> </div>
<div>At this stage that looks like that forecast be a touch under-cooked since prices are growing strongly, the market is tight and as yet there is no sign of interest rate hikes on the horizon to dampen sentiment.</div>
<a href="https://www.sqmresearch.com.au/NationalOutlookReport2014MediaRelease.pdf" target="_blank" style="line-height: 1.3em;">SQM Research forecast</a> very strong growth of 15-20% in Sydney in 2014. 
Natch these forecasts will be benchmarked against a different price series from the Australian Bureau of Statistics (ABS) at the end of the year, but for a bit of light interest as much as anything else, I've been tracking their annual forecasts against RP Data's Daily Home Value Index. A bit of mental gymnastics tells me that since a third of the year has gone and Sydney's dwelling price index has been humming along at 5% YTD price growth, then prices should be tracking right at the bottom end of SQM's forecast range:
<div>
<div class="separator"><a href="https://4.bp.blogspot.com/-VCZ8faEN_uE/U2A6l_2ELbI/AAAAAAAAM14/gDX2r-x_Ym4/s1600/SQM2014SYD.jpg"><img src="https://4.bp.blogspot.com/-VCZ8faEN_uE/U2A6l_2ELbI/AAAAAAAAM14/gDX2r-x_Ym4/s1600/SQM2014SYD.jpg"></a></div>
And indeed, so they are.
</div>
<div>
And below are SQM's national forecasts benchmarked against RP Data's index for the first four months of the year.
<a href="https://2.bp.blogspot.com/-5v6TwFilem0/U2A65csTnZI/AAAAAAAAM2A/nbrhiJzcs-A/s1600/SQM2014AUS.jpg"><img src="https://2.bp.blogspot.com/-5v6TwFilem0/U2A65csTnZI/AAAAAAAAM2A/nbrhiJzcs-A/s1600/SQM2014AUS.jpg"></a>
Only a third of the year gone, but at this stage I'd take a bet that their national dwelling price forecast could prove to be bang on the money when benchmarked against the ABS series.
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 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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Dwelling prices rise further in April

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Demand
Some time ago I went for dinner for a friend's birthday at a restaurant in Surry Hills and when the conversation got on to real estate, as it does in Sydney all too often, the lass sitting next to me who had only recently moved to Sydney (living in the inner west) said: 
"You know, I can't see property prices falling around here - there's just so much demand for property and not enough of it".
I had to laugh inwardly to myself, as I wondered how someone who'd been looking for an apartment since moving to the harbour city for all of about three weeks had been able to grasp what plenty of economists - and for that matter property market commentators - never venture to get a handle on. 
That is, how tight Sydney's property market is in those popular suburbs where the supply is all but fixed. As it transpired, she was correct, with prices in the inner west rising relentlessly since that time and vacancy rates remaining wretchedly tight.
<blockquote>
In the right Sydney suburbs where supply is fixed, vacancy rates are as close to zero as we're ever likely to see.
</blockquote>
It just goes to show how a little bit of legwork can give you a genuine feel for what's happening in suburbs at a micro level, to add to what is being reported on a macro level.
Crash risks 
An oversupply of property is <a href="https://petewargent.blogspot.com.au/2014/04/crash-risks" target="_blank">one of the factors</a> which heightens the risk of a property crash, and in 2003 it appeared that Sydney might be a particularly risky proposition.
Not only had dwelling prices boomed, the rate of population growth was falling sharply (in part due to interstate migration) and vacancy rates jumped to 4.3% in the harbour city and some 5.3% in the outer ring suburbs according to the REIA.
As prices cooled, construction of dwellings dropped sharply as one would expect in a typical market cycle.
In fact, construction levels fell to such woeful levels by 2008/9 that the crash predictions being peddled at that time didn't appear to make much sense unless, of course, you believed that unemployment would increase very sharply, which in the event, it didn't - with some skill and a bit of luck.
Of course, demand for investment properties will ebb and flow with sentiment and the interest rate cycle, but ultimately in a city with a rapidly growing population if construction doesn't keep pace with requirements (which will likely happen where prices are easing) eventually this will come home to roost in the guise of a tightening market until upwards pressure on prices eventually returns.
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<img src="https://2.bp.blogspot.com/-RmQ0LdgPD0o/U05gmU7bKOI/AAAAAAAAMl8/vFSYWuDiy7I/s400/ckusherrrr.jpg"> 
</div>
Source: RP Data
Those who work in the industry tell me that large developers are still genuinely struggling to break even on large scale unit developments even at today's higher prices - and this is indeed being borne out in the relatively slender net profit margins being reported by residential developers on the securities exchange.
Based upon that information, it strikes me that short of grants, concessions or other incentives being made available to developers, a drawn out fall in prices would see dwelling approvals and subsequently construction dry up once again.
This is why it is so important to understand replacement cost when reading the property market cycle.
The Reserve Bank itself gave a pretty handy rundown <a href="https://www.rba.gov.au/speeches/2013/sp-so-230413" target="_blank">here</a>.
<div><img src="https://www.rba.gov.au/speeches/2013/images/sp-so-230413-graph8.gif" width="400" height="386"></div>
The above figures for infill sites relate to multistorey apartment blocks and give a useful indicator as to replacement cost of property in Sydney.
As a very general rule of thumb, when apartment prices fall below replacement cost...au revoir construction.
On the flip side, median house prices in Sydney long ago became decoupled from any kind of sensible price/income ratio, and as such are marching to their own drum and may be more prone to a correction.
Crisis looms? 
And so, here we are today.
The REINSW reported this afternoon that March 2014 vacancy rates in Sydney had fallen to near crisis levels falling by 0.3% to only 1.4%.
<div class="separator"><a href="https://2.bp.blogspot.com/-aXekV3_smeQ/U18L1yj0aUI/AAAAAAAAM0w/qe7FZlwm4sU/s1600/REINSW.jpg"><img src="https://2.bp.blogspot.com/-aXekV3_smeQ/U18L1yj0aUI/AAAAAAAAM0w/qe7FZlwm4sU/s1600/REINSW.jpg"></a></div>
Reported the REINSW: “Sydney is going backwards in regard to properties available for rent. Something must be done to ensure that there is a greater level of choice for those seeking to secure a rental property in Australia’s biggest city."
In Sydney's inner 10 kilometre ring, vacancy levels have fallen to desperately low levels of only 1.3%, which would come as no surprise whatsoever to anyone who ventures to actually look at what's happening in the market.
A vacancy rate of 1.3% across such a dense property market is described by the REINSW as"verging on crisis levels".
There are some question marks over whether the new stock which is sold offshore is being let or left empty, but to date, with humble apologies, I have no worthwhile data to present on that. 
That may be one to look into.
Elsewhere in the state, of course, demand is significantly lower since most of the speculation is taking place in Sydney's favourably located suburbs and vacancy rates are correspondingly considerably higher.
<div>
Construction picking up
As prices have picked up, so too is now construction in Sydney, and over the coming years vacancy rates will likely eventually rise again, but the rates of vacancy likely to be significantly higher in areas where large new developments are taking place (cf. what has reportedly played out in Melbourne in recent years).
Naturally anyone buying property in Sydney today needs to be extremely wary of buying in a suburb or sector of the market which will soon be inundated with a deluge of new apartments, and that's most particularly the case for persons buying expensive off-the-plan or high rise stock.
In the right suburbs where supply is fixed, it's pretty much as you were with vacancy rates as close to zero as we're ever likely to see.
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 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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Is the Sydney vacancy rate really verging on "crisis levels"?

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Confusao...
A lot of confusing property market commentary around at the moment...perhaps even more so than usual!
I read one article from a US pundit stating that "Australia's property prices are rising faster than ever". That makes for an interesting headline, but none of the real data shows anything remotely close to that. 
RP Data's figures instead demonstrate that, Sydney aside, Australian dwelling prices have essentially done absolutely diddly squat since their previous peak in 2010.
<div class="separator"><a href="https://3.bp.blogspot.com/-qFV8NloyU9I/U1ri3dno2RI/AAAAAAAAMww/EODYFg432kU/s1600/RPD2010.jpg"><img src="https://3.bp.blogspot.com/-qFV8NloyU9I/U1ri3dno2RI/AAAAAAAAMww/EODYFg432kU/s1600/RPD2010.jpg"></a></div>
Source: RP Data
Price changes in real terms
Of course, the above figures are in actual or nominal terms.
In real terms, when adjusted for incomes dwelling prices have gone backwards everywhere except for Sydney over the past four years or so.
Pundits often state that "asset prices can't outpace inflation", but since wages can outpace inflation, so too can dwelling prices. 
<blockquote>
Sydney has been one of the weakest performing property markets over the past decade, with house prices lagging incomes significantly since 2003.
</blockquote>
Given that incomes tend to increase over time, and given that the speed limit on asset valuations largely boil down to the availability of credit and borrowers' ability to service that credit, you might expect that over time dwelling prices could mirror household income growth, while acknowledging that interest rates and the make-up of the average households will also shift.
Sydney
It's now around a decade since Sydney's preceding property boom finished.
Here is what has happened to rents over the time since December 2003 as compared to average weekly earnings ordinary time earnings.
<div class="separator"><img src="https://3.bp.blogspot.com/-1bGJXjrEpn0/U1rkAErYQ-I/AAAAAAAAMw8/ZJTrxkoyy7Q/s1600/Rentsvhouseprices.jpg"></div>
The earnings figures I've used here are the average weekly ordinary time earnings (AWOTE) from the Reserve Bank which increased by a little over 50% over the past decade, which is, of course, well ahead of the rate of inflation, as noted in previous posts.
The recently released <a href="https://www.propertyobserver.com.au/https://www.abs.gov.au/ausstats/abs@.nsf/mf/6401.0?OpenDocument" target="_blank">inflation data from the </a><a href="https://www.propertyobserver.com.au/https://www.abs.gov.au/ausstats/abs@.nsf/mf/6401.0?OpenDocument" target="_blank">Australian Bureau of Statistic</a>s showed that Sydney rents mirrored earnings growth remarkably closely in the harbour city over the past decade, also increasing by around 54%.
As for house prices, contrary to the incendiary commentary from our well-meaning but misguided US friends, Sydney has been one of the weakest performing property markets over the past decade, with house prices lagging incomes significantly since 2003.
<div class="separator"><a href="https://4.bp.blogspot.com/-Z7SkqXRKdDY/U1rk8ixUhYI/AAAAAAAAMxQ/CnMZzX7rghE/s1600/wagesvhouseprices.jpg"><img src="https://4.bp.blogspot.com/-Z7SkqXRKdDY/U1rk8ixUhYI/AAAAAAAAMxQ/CnMZzX7rghE/s1600/wagesvhouseprices.jpg"></a></div>
The chart above explains why I've long suggested Sydney as being the best risk-adjusted bet for investors in Australia over the past five years, since I believe that over the medium term eventually prices would catch up again sending the market up to its next cyclical and irrational peak.
The chart also explains why SQM Research felt that Sydney could show 15-20% growth in 2014.
Recall also that the official cash rate in Australia in the boom years 2000 to 2003 hovered between 4.25% and 6.25%.
Today the cash rate is only 2.50% which is a nontrivial 275 basic points below where it was in December 2003, so it is not unfeasible that we even might yet see the red light overshoot the blue.
<div class="separator"><a href="https://2.bp.blogspot.com/-YWdThY4Q_sU/U1s74tMMJ3I/AAAAAAAAMxg/LnvvnbFOsIM/s1600/OCR2014.jpg"><img src="https://2.bp.blogspot.com/-YWdThY4Q_sU/U1s74tMMJ3I/AAAAAAAAMxg/LnvvnbFOsIM/s1600/OCR2014.jpg"></a></div>
Since average earnings might grow, say conservatively, by say another 2.50% or so in 2014, this would mean Sydney dwelling prices would have to record exceptionally strong growth in the ABS house price index of around 20% to again hit their previous eye-wateringly high levels.
Historically the most expensive city
Sydney has historically been Australia's most expensive city.
Louis Christopher of SQM Research said that "Sydney is like a high PE stock. It trades at high levels because people expect prices to continue performing in the future".
He's right.
Throw in record low interest rates, Sydney's massive population growth, the new impact of self-managed super funds (SMSFs) being able to invest directly in residential property and the fact that the great stock market crashes around the world have seen a global shift from equities to prime location real estate, and I'd take a bet that some time in the coming decade the red line will again have crept closer to the blue.
Global shift
We opined a long time ago that there has been a global shift towards storing wealth in real estate in prime locations, one which has been accelerated by the financial crisis, rock bottom interest rates and a trend towards capital flight from countries across eastern Europe and Asia.
Note that as foreign funds wind their way to these shores, rarely will they be invested in remote or rural areas. 
On the contrary funds will flow to the inner suburbs of Sydney and Melbourne.
It's no coincidence that I've been heavily invested in real estate in cities like Sydney and London, and nor is it any coincidence that we have offices in those two cities. 
Reports <a href="https://in.reuters.com/article/2014/04/25/us-realestate-china-internet-idINBREA3O12120140425" target="_blank">Reuters</a>:
"As property prices cool in Hong Kong and Singapore, which have long been magnets for Chinese investment, more money is flowing to real estate markets such as New York, London and Sydney. 
"Chinese have overtaken Russians for the first time as the biggest buyers of apartments in Manhattan, according to real estate brokers."
<a href="https://www.theaustralian.com.au/business/property/chinese-look-to-australia-for-their-overseas-home/story-fniz9vg9-1226893718109#mm-premium" target="_blank">Juwai also reported</a> this week that Chinese investors are unsurprisingly focusing on Sydney and are buying in suburbs such as Chatswood, Epping, Camperdown, Epping, Mosman and East Sydney.
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 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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What's going on in Sydney's property market?

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It appears that the high levels of growth experienced by Sydney last year, and into the December quarter, is slowing down, with new data showing an increasingly moderate March quarter result for this year.
In an APM report commissioned by Fairfax Media it was revealed that the only area of Sydney seeing a higher growth rate than that in the December quarter is the Lower North, now at 8% growth compared to 5.3%.
APM noted a dramatic slowdown of growth from the December quarter 2013, to the March quarter 2014 for every area in Sydney other than the lower north shore. This included a drop from 8.9% to 1.7% growth in the ‘City and East’, and from 9.2% to 4.3% in the Upper North Shore and North West.
This comes as no surprise to observer Pete Wargent, who previously tipped the lower north shore’s growth at the end of last year as the “ones to watch” in an <a href="https://allenwargent.com/wp-content/uploads/2013/12/AW-SYDNEY-BE-SU13.pdf" target="_blank">AllenWargent ‘Buyers Eye’ Sydney - Summer 2013 report</a>. In particular, he pointed to those with “key transport links to the city via Sydney ferries and the north shore train line”.
Just this morning, he took to Twitter to share his jubilation at clients purchasing in his suggested areas.
Previously, Wargent has also expressed his enjoyment, noting “The lower north shore is now absolutely flying!”
He also indicated his expectation for Milsons Point and Waverton to outperform in 2014.
“Next on our hit-list will include three suburbs in particular to the west and south-west, a little further out than the traditional capital growth hotspots, in order to catch the ripple effect of capital growth which is repeated in most property market cycles,” he said.
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jduke-EHk3XBmHkn

Sydney property price growth winding down, but lower north shore surging

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There has been a lot of lively debate about Australia's housing markets over the past decade, and I make no apologies for having situated myself towards the bullish end of the spectrum for most of that time.
I was never in agreement with the crash predictions before, during or immediately after the financial crisis, largely due to supply-related issues and falling interest rates.
Then there were claims that credit growth would not be able to see prices rebound, instead seeing prices melt away - that didn't fit with my (perhaps old school) view that property prices cycle and would be more likely to pick up again when interest rates fell.
But what about the residential construction boom? 
The pessimistic view over recent years has been that land prices would be too high and therefore could not allow a construction recovery to replace the fading mining construction.
My own view has been there certainly would be a construction recovery since low interest rates (and the associated ease of financing) and rising dwelling prices would make it so. Developers tend to need rising prices and reasonable financing costs to become incentivised to build.
As will be considered, the actual answer to the riddle, as is so often the case, appears likely to lie somewhere betwixt and between the two extremes.
Dwelling units commenced 
Recent data showed building activity which runs to December 2013 to be still relatively sedate.
However, building activity to December 2013 is retrospective data.
What we're really interested in is what is in the pipeline, which is shown by the dwelling units commenced figures.
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What the data showed is that Australia's residential construction is now firmly on track...but...it's almost exclusively being driven by a massive increase in the number of units and apartments being built.
As you can see, apartments and units now account for more than four in every 10 new dwellings being built, which represents a huge structural shift on what we have seen in decades gone by. This is particularly so, as you might expect, in cities such as Sydney, Melbourne and Darwin where desirable land made available for development has been scarce.
In seasonally adjusted terms, the number of dwelling commencements increased by 8.2% in the three months to December, with multi-unit commencements increasing by a whopping 21.3% in the quarter. 
The rolling annualised number of apartments and units commenced in the December quarter therefore hit an all-time record high, and I wouldn't mind a bet that a new record high is recorded in the March 2014 quarter too.
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Since the September 2009 quarter, the rolling number of apartments and units commenced has nearly doubled, showing a massive increase in starts of 96%.
The key takeaway is that Australia's apartment construction boom is underway.
A few observations 
Firstly, the level of dwelling construction is now clearly set to boom, following on from the building approvals data which has soared to decade highs.
This is great news for the Australian economy, and the construction is certainly needed.
When adjusted for the boom in population growth, dwelling unit commencement figures have actually been declining in relative terms over the last few decades adding to the upwards pressure on dwelling prices.
However, apartment construction in itself is unlikely to plug the hole left by the mining boom, since the construction value per dwelling is clearly lower for apartments and units than it is for detached houses. 
The Reserve Bank will certainly need other sectors of the economy such as commodity exports and retail sales to do their share of the lifting, and therefore the cash rate may not be adjusted upwards towards a normalised level for a little while yet.
Thus, while futures markets have priced out further interest rate cuts (and even Bill Evans and Westpac have given up the ghost on forecasting any more cuts), on balance market are not yet expecting to see a hike until some time in the middle of 2015.
Given that there is a lag in the effects and outcomes of monetary policy and that multi-unit dwellings can take two to three years to come online, I believe that this apartment construction boom is one which could run and run over the few years ahead.
For this reason, budding property investors need to be very savvy about what property types they buy and where.
State by state thoughts 
The final observation is that the apartment commencement data is very uneven by state.
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This little snippet of data provides one small clue as to why as an property investor, I favour Sydney over Melbourne.
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Very strong data was recorded for Queensland dwelling commencements (+15.8% quarter on quarter) and especially South Australia (+25.2% quarter on quarter) where dwelling commencements were pulled forward due to the Housing Construction Grant.
On the other hand dwelling commencements fell in Canberra/ACT (-13.3%), Tasmania (-12.6%), Western Australia (-1.3%) and Northern Territory (-26.6%).
Perhaps surprisingly, New South Wales showed a pick-up of only 2.8% in the quarter (although from a high-ish base) yet Victoria showed a monster pick-up in multi-unit commencements of 33%.
This little snippet of data provides one small clue as to why as an property investor, I favour Sydney over Melbourne.
Both cities have fantastic fundamental attributes for investors, including vast ongoing population growth and diverse employment markets.
But Sydney has one key difference, being the artificial supply constraints due to its geographical footing.
Since Greater Sydney is enclosed by the Blue Mountains, national parks and an ocean, the only realistic direction for us to build significantly more dwellings is upwards.
Unfortunately, gaining approval to build larger multi-unit dwellings in desirable locations is devilishly difficult, as objections are sure to be raised at every step in the process.
We have seen this week that Parramatta's new 90 storey Aspire tower will include 700 apartments and will be the tallest residential tower in the southern hemisphere - at a monstrous 336 metres this will even surpasss the truly awesome Q1 tower up on the Goldie - which provides another clue to how the Sydney of tomorrow will look.
That is, that there will be certain hubs and business districts with Manhattan-style tower block accommodation. The land value per dwelling in these developments is very low at just a few percent, the new apartments are very expensive, and personally I would steer well clear.
Instead, investors should look at the well-established boutique apartment blocks with materially higher land value content (50-60%+), where NIMBY-ism and planning restrictions will keep the new supply permanently restricted to an absolute minimum.
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 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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Pete Wargent

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