2015 in Review and the Outlook for the Year Ahead : Residex

In my last Market Update for the year I look at 2015 in review and share the outlook for the year ahead.

Table 1 shows the capital growth, rent and sales summary for November 2015.

Table 1: November 2015 Summary


Source: Residex

The ABC recently reported that the Australian housing market had ‘peaked in winter’.

While Sydney – the market leader – is coming into a downswing, it is not useful to aggregate the market this way.investment property choose choice decision suburb area house property home buy sell market

Historically, the different dwelling markets around the country have not been synchronised. In fact, assuming the economy was performing steadily, the Melbourne and Brisbane markets would be yet to experience peak capital growth before slowing in late 2016.

However, economic uncertainly and lending restrictions may prematurely curb growth in these markets.


Growth in Melbourne house market is 12.87% in the year to November, which is up from 11.03% in the year to October.

There is a large growth disparity between Melbourne houses and units.

Melbourne units performed steadily with annualised capital growth of 6.13%, however values dropped in the month of November (-0.37%).

With a difference of 6.74 percentage points between annualised growth in houses and units, Melbourne’s house and unit markets show the largest growth disparity Residex has on record.

This is presumably due to large levels of stock in the unit market relative to demand. Graph 1 presents the growth trend.

Graph 1: Melbourne and Regional Victoria – Capital Growth Trends


Source: Residex

Annual sales figures for Melbourne indicates that houses are the more desired dwelling purchase.

Melbourne houses saw the largest volume of sales in the year to November, with 52,530 sales.

Sydney Sydney firework boom celebration australia

Annual growth in Sydney houses was again significant – with values jumping an enormous 20.53%.

However, growth in the November quarter was just 2.93% – the lowest result since July 2014 – and while these figures are still very strong, they indicate a clear slowing in this market. Sydney units have also slowed dramatically, with growth for the month of November at just 0.55%.

Despite the slowing of growth in Sydney, 2016 is unlikely to see a market crash due to strong population migration in New South Wales and Sydney feeding dwelling demand. Even a market correction of 10% would still leave Sydney home owners well off after the latest housing boom.

Interestingly, the regional markets of Lake Macquarie, Newcastle and Wollongong have seen enormous capital growth, which is most likely a result of spill over as individuals and businesses seek cheaper rent outside the Sydney Metropolitan.


Dwelling markets across Western Australia continue to struggle.

Perth houses fell in value by 2.83% for the year and rents fell a significant 5.43%.

Many unit markets across the country have seen a fall in value in November, as can be seen in Table 1.

Dwelling markets usually reflect broader trends in the economy.

Brisbanebrisbane australia boats

Brisbane was expected to be a strong performer in 2015. While the market remained in positive growth, it was very slow and subdued for the Brisbane Metropolitan as a whole. Select markets such as those in close proximity to the CBD and in the south-east performed more strongly.

Continued commodity declines have presented enormous challenges for the mining sector and state government revenues. It is for this reason that care should be taken when considering the economic output of the Adani Mine project and Liquefied Natural Gas (LNG) projects in Queensland.

In particular, it should not be assumed that these projects will see long term high capital growth in nearby dwelling markets.

This is an important takeaway from recent commodity price crashes.

Indian company Adani is set to go ahead with a coal mine and connecting rail line in Central Queensland’s Galilee Basin.

The Queensland Land Court ruled Adani should receive mining leases, however the court agreed that the benefits of the $16 billion project are overstated.

Adani claimed the project would create 10,000 jobs annually from 2024. This has since been revised down to 1,464 full time equivalent jobs. Furthermore, the $22 billion in mining royalties anticipated from the coal mine was based on inflated estimates of the commodity, meaning this figure will be lower.

Challenges also exist for prospects around LNG projects in Queensland, Western Australia and the Northern Territory.

By the time these projects go into operation, the LNG market is forecast to be in a supply glut of approximately 20-30 million tonnes through to 2018, according to Bernstein Research. Oversupply in LNG is partially due to the increase in participating suppliers but also slowed economic growth, especially from China.

However, the LNG projects across Australia largely have supply contracts already secured with set prices.

Economic Outlook

The Mid-Year Economic and Fiscal Outlook was delivered by Scott Morrison.

The government has increased the budget deficit to $37.4 billion over 2015-16, which is greater than the May budget outlook by $2.3 billion.

Despite the budget deficit, Australia still maintains a sustainable level of debt to GDP.

So long as debt is at a sustainable level, it is not thought to have a large effect on economic growth relative to other factors such as investment in education.

Employment in Australia seems to be moving in a positive direction, which has surprised many (including me).

Capital investment and commodities have not performed well this year, leading to a huge reduction in revenue for businesses and government alike, and thousands of people losing work.

However, employment and participation in job searching has improved over 2015, which can be seen in Graph 2.

Graph 2: Unemployment and Participation

Source: ABS Catalogue Number 5609.0 – Housing Finance, Australia, Nov 2015

The dark blue line indicates where trends in employment began to move favourably.

In a recent interview with the Australian Financial Review (AFR), Governor Glenn Stevens suggested this may be because the sectors behind employment growth may not require large amounts of capital investment, such as services, tourism and hospitality.

Uber is one such example of an emerging service where little large scale capital investment is needed, especially from drivers. Uber reportedly employs 15,000 people in Australia.

As a result, Stevens has revised down expected jobless figures and the need to further reduce the cash rate.

However, I would argue that the nature of employment is not enough to provide a wealth effect that would fuel demand strong enough for housing.

Wage growth remained at 2.3% in the September quarter and it is likely that a significant portion of new found employment would be part time work.

As documented thoroughly this year, unaffordability persists across the country in both ownership and rent of dwellings.

Unaffordability, combined with higher interest rates and low wage growth means that we probably can’t expect the exceptional growth seen this year in any of the major capital city markets in 2016.

Australia’s economy still faces many challenges before returning to strong GDP growth, and many dwelling markets across the country are also likely to see slowed or negative growth in 2016. However, property is a long term game and we have very diverse markets and opportunities throughout the country.

I will aim to highlight more of these unique opportunities in 2016. Unit then, I wish everyone happy holidays and a happy new year.

Want more of this type of information?

Eliza Owen


Eliza Owen is the Market Analyst for www.Onthehouse.com.au

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