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Housing investment’s impact on Australian property markets – Leigh Warner

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Ipswich Investor, Property Management, Real Estate Ipswich, Mortgage Broker Ipswich, Ipswich property market, ipswich property prices, Investment housing, investment property

Australia is in the early stages of a strong upswing in housing construction activity.

Ipswich Investor, Property Management, Real Estate Ipswich, Mortgage Broker Ipswich, Ipswich property market, ipswich property prices, Investment housing, investment property

Deloitte Access Economics forecasts dwelling investment to grow nationally by a robust 6.5% per annum over the next five years. New South Wales construction is already growing strongly and is forecast to grow 7.5% p.a. after 9.0% growth in 2012/13, while Queensland (11.1% p.a.) and Western Australia (10.1% p.a.) are forecast to bounce back strongly over the next five years after recent subdued construction. The major exception is Victoria, which is forecast to see only 1.4% p.a. growth over the next five years after much stronger growth than other states over the past five years.

With housing pivotal to Australia’s expected domestic economic recovery in coming years, it seems an appropriate time to think about what impact this will have on commercial property markets.

Firstly, it is important to delineate the direct and indirect economic impacts of housing activity. The direct impact on GDP growth that comes from housing construction boosting investment is potentially the smaller of the two – housing investment historically is typically around 5.6% of total GDP, so the strong growth forecast over the next five years will add around 0.3 percentage points to GDP growth per annum.

This is likely to be overshadowed by the harder to estimate indirect impact on private consumption (which is typically 53% of GDP). This consumption impact comes via households furnishing new housing, plus a ‘wealth effect’ that exists when households feel more confident to consume as asset values rise. This wealth effect of housing is particularly strong in Australia because most financial assets investments Australians make are in superannuation accounts not accessible until retirement and because housing investment has been historically popular due to tax incentives.

For retail and industrial property markets, the benefits of strong housing activity appear fairly clear. The lift in consumption expected will generally boost demand in both sectors, while the industrial sector will also benefit slightly from increased demand for building material manufacturing and distribution. Retailing and warehousing demand for household goods in particular are likely to generate much stronger levels of demand, following an extended period when this more discretionary retail category has been weak and volatile.

For the office market, the benefits are less obvious. However, the table below shows that employment in most industries, particularly white-collar industries, is highly correlated with housing investment. While this correlation does not imply causation, it does lend support to the strength of the indirect impacts of housing activity and suggests that strong housing markets go hand-in-hand with strong employment growth. The slightly lower correlation of finance and insurance employment reflects the global exposure of this sector, but a domestic housing recovery is certainly likely to boost credit growth and employment in this significant driver of office market demand.

A housing-led recovery is one that will eventually ‘lift all boats’ and benefit property demand in all sectors. For office market demand this is likely to mean a very broad and ‘bottom-up’ recovery in leasing demand that may be hard to notice initially due to its organic nature, but we can have faith that will happen.

Leigh Warner is a Director of Research for Jones Lang LaSalle, Based in Brisbane, Australia.

 

Original article published at www.urbandeveloper.com  5/12/2013

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Opinion

How good an investment is south-east Queensland

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How good an investment is south-east Queensland

Why do we believe we’ll see increasing investor interest in this market? Strong population growth, a diversified and growing economy, and substantial investment in infrastructure should combine to boost demand.

We expect that these factors will swell the number of white-collar jobs – increasing demand for office space, which in turn will push down vacancy rates and raise rental incomes. This should be good news for office property investors – especially those like Centuria Metropolitan REIT (CMA) that are already well-positioned in the market.

A significant and growing population

South East Queensland (SEQ) stretches from the Gold Coast up to the Sunshine Coast and across to Toowoomba in the west. As Australia’s third-largest population zone, the region has been growing significantly, particularly Brisbane and the Gold Coast. Interstate migration figures show a pattern of steady net migration, with Queensland the only Australian state with consistent net inflows of people from other states. In the five years prior to the 2016 Census, over 220,000 people moved to the Sunshine State – mainly to SEQ where nearly 90% of population growth occurred. This is important for property investors because of its implications for demand, but the trend is interconnected with other favourable factors.

A diversified economy poised for growth

Queensland’s economy is diversified across a range of industries including agriculture, resources, construction, tourism, manufacturing, and services. Over the past two decades, its economic growth has consistently exceeded the national average – and in our view this is likely to continue.

The resources sector is gaining momentum, and a significant pipeline of major infrastructure and development projects is helping propel economic and jobs growth, in turn increasing interstate migration and driving demand for both residential and commercial property.

Investment in infrastructure

A strong infrastructure program delivers more than business and consumer amenity – it generates jobs, drives investment, and facilitates population growth. The pipeline of infrastructure and development projects announced in the past few years is likely to have a material impact on the region – substantially improving its accessibility and amenity – most notably, Brisbane’s Queen’s Wharf precinct and the Cross River Rail.

Queen’s Wharf, touted as a “world-class entertainment precinct”, is an integrated resort development costing $3.6 billion and covering over 26 hectares with retail, dining, hotel and entertainment spaces. As Queensland’s biggest ever tourism project it will be a game-changer for Brisbane, attracting overseas as well as local visitors.  Estimated to contribute $1.69 billion annually to the economy, it will employ more than 2,000 people during construction and an estimated 10,000 once operational.

The Queensland Government’s number one infrastructure project, the $5.4 billion Cross River Rail, comprises a new 10.2km rail line between Dutton Park and Bowen Hills, which includes a 5.9km tunnel under the Brisbane River and CBD. It’s the first major rail infrastructure investment in the inner city since 1986 and is set to generate urban renewal, economic development and the revitalisation of inner-city precincts.

Outlook for commercial office property investment

These factors indicate a region poised for growth – and for growing commercial property demand. CMA’s portfolio has a significant exposure to the area in general (six SEQ assets with a combined book value of over $480 million), with many of the individual assets located in those parts of Brisbane set to benefit most from these developments.

Our view is that Brisbane office markets, where five of CMA’s assets sit, are continuing to improve, with vacancies hitting a five-year low – indicating increasing tenant demand – and continued yield compression, demonstrating strong investment demand. Office sales hit the highest level in a decade during 2018 (at $2.35 billion), increasing 60% from 2017.

With the strong outlook for SEQ, we expect the region will continue to attract tenants and investors alike.

Source: brisbaneinvestor.com.au

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Queensland’s 100,000-property public housing shortfall revealed

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Queensland's 100,000-property public housing shortfall revealed

Queensland has a severe shortage of social and affordable housing, an issue that is projected to get worse by 2036 according to new research.

More than 102,000 additional social houses are currently needed across the state, and 54,700 affordable houses are also needed with nearly 13 per cent of Queenslanders spending more than 30 per cent of their income on rent.

By 2036, Queensland is projected to need 254,300 more social and affordable houses – the second-highest unmet need behind NSW, the report found.

The new figures come from a UNSW City Futures Research Centre report on social housing shortfall across Australia.

Regional social housing shortfalls are higher than in Brisbane, the data shows, but Brisbane residents are slightly more likely to be spending more of their income on rent.

Housing Minister Mick de Brenni said housing affordability was a “big issue” for Queensland.

“Through the Palaszczuk government’s $1.8 billion Queensland Housing Strategy, Labor is driving key reforms and targeted investment across the housing continuum,” he said.

“The Strategy commits us to build more than 1000 affordable homes for Queenslanders, as well as a further 4522 new social homes to help ensure everyone has a safe, secure and stable place to live.”

Lead researcher Laurence Troy said 22.5 per cent of Australia’s entire housing growth must go to social housing to meet demand into the future.

“Our analysis shows that the sheer number of households in rental stress across the country means that if we’re going to meet the need, at least 12 per cent of all our housing by 2036 will need to be social and affordable housing – which is a very reasonable ambition in global terms,” Mr Troy said.

“To cover the backlog of unmet need and future need in Australia two in 10 new homes will need to be for social housing over the next 20 years, and a further one in ten for below-market affordable rental housing.”

Mr Troy said the research’s financial modelling found the “best and cheapest way” for governments to meet the need for social housing was to fund it through upfront grants and low-interest government financing.

“Delivering below market rental housing through the not-for-profit sector, as opposed to the private equity model, will save $3 billion a year by removing developer mark-ups and shareholder returns,” he said.

The financial modelling was commissioned by the NSW community housing sector.

Mr de Brenni said the state government was “listening” through its recent public consultation on rental reform and was committed to investing in affordable housing in partnership with community housing, to provide more subsidied homes for low income earners.

“We heard Queenslanders are struggling to afford rental properties in the suburbs close to where they work,” he said.

“Through our Build-to-Rent pilot project, we are seeking to work with the private sector to increase the number of long-term, affordable rental properties for low to moderate income earners, including key workers in health, early childhood and hospitality.

“Internationally, the Build-to-Rent model is delivering fantastic outcomes and facilities for tenants and we’re looking to see what the market is open to delivering here.

“The pilot, if it proceeds, will see $70 million invested towards delivery of hundreds of affordable rental properties for key workers in inner-city areas where affordability has been identified.”

Mr de Brenni said the registrations of interest for that pilot had seen strong market interest, and the department was considering the responses before calling for expressions of interest.

Source: brisbaneinvestor.com.au

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Opinion

Treasury: Negative Gearing Reforms Will Have ‘Little to No Effect’ on House Prices

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Treasury Negative Gearing Reforms Will Have ‘Little to No Effect’ House Prices

Federal Treasury has delivered a serious rebuke to the Coalition for exaggerating the impact of Labor’s negative gearing and capital gains changes.

In emails released under freedom of information, acting treasurer Kelly O’Dwyer requested the department fact check the Coalition’s claims that Labor’s policies would cause house prices to fall.

In response, Treasury issued a correction: “The [s]tatement is not consistent with our advice.”

“We did not say that the proposed policies ‘will’ reduce house prices,” the email reads.

“We said that they ‘could’ put downward pressure on house prices in the short-term depending on what else was going on in the market at the time.

“But in the long-term they were unlikely to have much impact.”

Labor has jumped on the release, with shadow treasurer Chris Bowen saying that the government had been “caught red-handed” misrepresenting Treasury’s advice.

For his part, treasurer Josh Frydenberg denied that the government was misrepresenting Treasury, pointing to the Financial Review’s take on the release that changes “could” put downward pressure on house prices in the short term.

Frydenberg quoted building industry group the Masters Builders Association figures.

“If Labor’s policy is in place you’ll see 32,000 fewer jobs and 42,000 fewer homes being built.”

Treasury Negative Gearing Reforms Will Have ‘Little to No Effect’ on House Prices

House prices hit spending

It has been a difficult week in economic policy, with GDP figures released on Wednesday revealing that the economy has slowed significantly, entering a “per capita recession” for the first time in 13 years.

Retail trade figures for the March quarter were also sluggish, with falling house prices impacting wealth and spending.

RBA governor Philip Lowe highlighted the link between the two at the AFR annual business summit on Wednesday.

“The evidence is that a tightening in credit supply has contributed to the slowdown in credit growth,” Lowe said.

“The main story, though, is one of reduced demand for credit, rather than reduced supply.

“When housing prices are falling, investors are less likely to enter the market and to borrow. So too are owner-occupiers for a while.”

Source: brisbaneinvestor.com.au

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