Housing shortages have kept capital growth in Hobart steady, despite a decline in sales activity.
Hobart’s property market never really hits the headlines in the same way that its mainland counterparts do, but its been holding its own over the past year or so says Australian Property Monitors (APM) economist, Dr Andrew Wilson.
“Over the last 12 months, Hobart’s median house price has grown by about 5%. That is the second highest growth rate for a capital city in Australia, behind Melbourne,” says Wilson.
“It was a little flat in the last quarter, not really showing any growth at all, but declining median house price growth is common to most of the capital cities in Australia,” he adds.
Hobart’s units have grown modestly in recent months, with Residex recording a growth rate of 2.42% in the three months to 30 November 2010.
However, Rock Property managing director Kent Medwin points out that, unlike the mainland capitals, Hobart’s property market is predominantly house based.
“We don’t have a huge number of units. They are on the increase in Tasmania, but still a relatively small percentage of our stock is high density. That is changing, but Hobart’s not a place that changes quickly,” he says.
Buyer activity stalls
In line with most of the country, buyer activity both in Hobart and Tasmania as a whole has dropped significantly over the past year or so. The Real Estate Institute of Tasmania’s (REIT) September Report, for example, highlights a 31.6% drop in the number of houses that were sold in Hobart during the quarter, compared to the same period in the previous year. Other dwellings similarly recorded a 31.3% drop in sales activity.
Interestingly, this significant drop in sales activity hasn’t resulted in a corresponding house price crash, and Medwin believes the resilience of median property prices in the face of reduced sales is all down to a chronic housing shortage.
“It’s quite phenomenal to consider that sales volumes are down on this time last year. In any other market you’d expect to see a softening in prices in that condition, but in that same period we’ve seen a 4% increase in median price for properties in Hobart,” he says.
“We believe that’s underpinned by the housing shortage.”
Rental demand grows
The housing shortage in Hobart is also underpinning a rise in rental costs, with Wilson noting that Hobart’s normally stable rental market seeing a big rise in weekly rents.
“Definitely, there’s been an increase in demand for rental properties in Hobart, and that’s been reflected in increased rents for units and houses in what is normally a stable market,” he says.
The REIT’s September Report shows a $38 rise in the average weekly rent for two-bedroom units and a $43 rise in the average weekly rent for three-bedroom houses.
Meanwhile, the vacancy rate in Hobart is 0.4% down on the previous month hitting 2.1%, according to the REIT. Its CEO, Martin Harris, says it’s due to the lack of supply.
“There are properties available but they’re in short supply where people want them, which is in the $150-to-$250-a-week range. And most people want that to be close to the city centre, and transport and resources. So there’s a need out there, but there’s a shortage of supply,” he says.
“There’s a captive market there for people that want to rent properties. As long as you pick the right area, you’ll get a good return in terms of rental, as well as a good capital gain return in a few years’ time,” Harris adds.
Mirroring his sentiments, Wilson points out that with increased weekly rents come increased yields, and Hobart is doing well compared to most state capitals on that front.
“With the movement in rents, that means yields have increased for both houses and units. Hobart enjoys a good yield compared to the national figure. Yields are over 5% for both houses and units, so there tends to be good value for investors compared to the rest of the country,” he says.
While the market may be slow overall, Medwin believes that it’s these kinds of yields that are tempting investors back into the fold, with the prospect of neutral or positive cash flow properties proving too hard to resist.
“We’ve been pleasantly surprised over the last three months by the interest in long-term investment property acquisition.
“There’s still a huge appetite for residential property investing on a medium-to-long-term basis, particularly where the rental yields allow it to be close to cash flow neutral, if not positive,” says Medwin. “Tasmania, and particularly in Hobart as a capital city, is unique in being able to offer that.”
Issues of affordability
While prices aren’t skyrocketing in Hobart or Tasmania as a whole, Harris believes that the general undersupply of stock is fuelling an overall affordability problem in the state. REIT figures put the average proportion of income required to meet home loan repayments in Tasmania at 30%, and Harris doesn’t see this situation changing anytime soon.
“The affordability situation hasn’t changed because the market is rising at a greater rate than wages. So it continues to make it difficult for those at the lower end of the market to enter it. That’s the biggest issue and it has been for some years now,” he says.
Echoing cries from professionals across Australia, both Harris and Medwin believe the intertwined supply and affordability issues Tasmania faces won’t budge unless local government makes life easier for developers.
“Housing supply is really linked to housing affordability, because housing’s got to be funded by someone, whether it be mum and dad investors, or developers,” says Medwin.
“We’ve got 500,000 people and 23 local governments, so that’s over-governed by anyone’s standards. That means developing in Tassie isn’t straightforward.”
Harris adds, “the government’s got strategies it’s implementing, but it’s accused of not doing it fast enough.
“The industry has seen this coming for some years now because the government, some years ago, sold off some of its housing stock that was high maintenance and in the wrong areas. But they didn’t use enough of that money to then invest back into where they did want housing.”