Capital city home values have increased at an average annual rate of just 1.9% over the past five years, which is significantly lower than over the previous two five year periods and reflective of changing consumer attitudes towards debt post GFC.
Capital city home value growth has been much lower over the most recent five years than it was throughout the preceding period.
Over the five years to December 2012, capital city home values have increased at an average annual rate of just 1.9%.
Across the individual capital cities, Darwin has had the strongest growth in home values over the past five years while Hobart, Brisbane and Perth have each recorded value falls on an annual average basis.
Darwin values increased at an average annual rate of 4.1% over the period while values fell at an average annual rate of -1.9%, -0.8% and -0.4% in Hobart, Brisbane and Perth respectively.
If you look further back, specifically over the period between December 2002 and December 2007, the performance of the housing market was comparatively much stronger across the nation.
Between December 2002 and December 2007, capital city home values increased at an average annual rate of 8.4%, almost 4.5 times greater than growth throughout the most recent five years.
Between 2002 and 2007, each capital city housing market except for Sydney, recorded superior levels of average annual value growth than they have over the most recent five years.
In fact, every city other than Sydney recorded average annual value growth which was more than 2.5 times greater than the most recent five year period. Sydney’s housing market performance has actually been stronger over the most recent five years than it was between 2002 and 2007.
The standout housing markets between 2002 and 2007 were Perth (19.4%pa) and Hobart (17.2%pa). Both of these cities have recorded value falls on an average annual basis over the past five years.
Moving further back, growth in capital city home values over the five year period from 1997 to 2002 was greater than the two following five year periods. However, this was largely the result of higher levels of value growth over this time in the nation’s two largest markets, Sydney and the Melbourne property market.
Over this five year period, capital city home values increased at an average annual rate of 12.0%.
Each capital city recorded average annual capital growth in excess of 8% per annum over the period, highlighting the comparatively stronger market conditions at that time.
How houses performed.
Looking more specifically at the average annual growth in values of detached houses as opposed to units, you can see that houses have historically experienced stronger value growth than unit. Over the 15 years to December 2012, capital city house values have increased at an average annual rate of 7.6% compared to 6.0% for units.
What about apartments?
Although the unit market has underperformed the detached house market over the longer term, unit values have appreciated at a faster pace over the most recent five years. The reasons for the recent superior performance are likely due to a range of factors but most notably:
- The relative affordability of units compared to detached houses;
- Changing lifestyle preferences, with owner occupiers more accepting of units, particularly in inner city areas;
- The fact that units are typically located closer to the city centre and within suburbs that owner occupiers aspire to own houses but can’t realistically afford to do so; and
- The fact that units are typically more attractive to investors than detached houses because they enjoy higher rental yields.
This data highlights that the rate of capital growth in the Australian housing market has been slowing over time.
Of course the global financial crisis, and the subsequent changes in consumer attitudes that it has led to, has largely impacted the results of the most recent five years. However, it remains difficult to argue that value growth would have been as strong over the past five years as the previous five years even without the financial crisis.
As the cost of buying and selling continues to increase, albeit at a much slower pace, it seems unlikely that capital gains in the housing market will return to those levels enjoyed between 1997 and 2002 and will be more reflective of conditions over the most recent five years.