Tasmania has been in the doldrums for some time now, but will 2014 bring good fortune to the state?

No matter how much Tasmanians disagree with the view from the mainland, the reality is hard to ignore: the prognosis for the state is not good. Despite the affordability advantage, Tasmania remains at the bottom of investors’ list of areas to invest in.

The numbers don’t exactly elicit confidence. During the past 12 months, Hobart’s median house price fell by 6.1%. Prices have been bouncing at the bottom for some time now and experts believe they will stay there for a while longer.

“Tasmania has been struggling for some time and it will continue to struggle,” says Shane Oliver, chief economist at AMP. “Economically, it’s in a bit of a messy situation. The state is stuck in a negative rut. There is a distinct lack of jobs, which leads to limited population growth. It is hard to see the situation changing for the better for some time. The outlook for Tasmania is not that bright.

“Lack of buyer demand is exacerbated by overbuilding that has resulted in an estimated oversupply of 3,200 dwellings or around two years’ worth of underlying demand,” Oliver says.

This is clearly reflected in rental vacancy rates of 4.4% at June 2013, according to BIS Shrapnel.

The litany of woes doesn’t stop there. At the same time as the construction was increasing, a weakening state economy saw an estimated 3,000 people leaving Tasmania, virtually erasing the migration gains of 2009.

“From an economic perspective, it’s very tough,” says Angie Zigomanis, senior research analyst at BIS Shrapnel. “The agriculture sector has been affected by the high dollar. Australians are going elsewhere, so it’s not helping tourism. It also had a strong response in construction after the global financial crisis which contributed to an excess of dwellings relative to demand.”

Not even the affordability card will save Tasmania? Unlikely, according to Cameron Kusher, senior research analyst at RP Data.

“It’s quite affordable, but people are not going to Tasmania as they used to,” he says. “The unemployment rate is high, employment participation is quite low, and the economy is down so there are not a lot of drivers in that market at the moment and I don’t see anything changing in the near term.” On a slightly positive note, BIS Shrapnel points out that although the economic outlook is weak and there’s a significant oversupply, the impact of lower interest rates on affordability will prevent falls in prices, although not necessarily driving any price growth.

The economic forecaster is expecting Hobart’s median house price to rise by an average of 1% over the next three years to $360,000.

Bright spots

The state may not be showing some economic strength but Deloitte Access Economics believes it will.

“A game changer for Tasmania’s economic prospects is in the offing,” it says in a report. “The winds of change are now blowing through Australia’s economy. Tasmania may have been on the wrong side of Australia’s ‘two speed economy’ in recent years, but the $A is already off its peaks, and it has potential to fall further, while interest rates are now at historic lows.”

While Tasmania does not have any notable exposure in the resources sector – and hence had limited capacity to capitalise on the last boom – it’s exposed to sectors with better growth prospects over the next two decades, according to Deloitte Access Economics.

1. Agribusiness

Tasmania’s clean and green food products are selling for top dollar on world markets, and demand can only get bigger as these markets grow massively in size. During the next few decades, Deloitte forecasts that the majority of the demand for this food produce will come from Asia.

2. Tourism

Tasmania offers unique and high-value tourism experiences to the world’s globetrotters, which are expected to grow fast in the coming years. “Tasmania is well placed to ride the next boom on offer to Australia,” says the Deloitte report.

3. Education

More than one in 10 students in Tasmania are already from the rest of the world, and the rise of Asia’s middle class has the potential to send that figure rather higher, according to the report.

As a result, although the short-term outlook remains modest – albeit improving – Deloitte says the longer-term outlook promises new opportunities opening up. “Given all that bad news, the fact that the forward indicators of housing demand have ticked upwards (only a bit, but the first real increase seen since 2009) is actually good news. The outlook for the pace of housing construction activity in Tasmania is for a slow improvement, but for weakness to remain.”