Melbourne’s extremely tight vacancy rate of 1.5%, according to August 2016 figures, is being driven by a number of factors, including the state’s improving economy. Indeed, the capital’s unemployment rate slipped to just 5.5% in the third quarter of 2016, representing the lowest rate since November 2012.
“A strengthening Melbourne spring housing market will translate into rising prices, although the growth rates are unlikely to match last year’s record levels,” says Andrew Wilson, chief economist at Domain Group.
“Very strong migration into Victoria, combined with lower first home buyer numbers, placed significant demand on rental properties. There was no easing for Melbourne tenants in terms of choice for houses and rent relief.”
Under such conditions, tenants will be finding it difficult to maintain their foothold in the property market. Rental rates increased by nearly 3% in the city, according to CoreLogic. Melbourne, along with Hobart and Canberra, was one of the few cities in which rental growth in 2016 was greater than in 2015.
“The low level of new stock becoming available for sale appears to have been a key driver of the ongoing strength in the Sydney and Melbourne housing markets over recent months,” says Cameron Kusher, head of research at CoreLogic.
The number of new listings in Melbourne fell by 6.2% in the past 12 months, and the number of total listings dropped by 1.9% in the same period. As a whole, property values increased by 1.3% in early September and discount rates dropped.
Houses outperform units
While rental yields are low for houses, the housing market seems to be a better option in terms of growth potential.
“Melbourne, Brisbane, Adelaide and Canberra unit values are increasing at an annual rate that is less than half that of the rate of growth for houses,” Kusher explains.
“With a record pipeline of units under construction we would expect that growth in unit values will continue to underperform that of houses for the foreseeable future.”
Rental returns for houses in Victoria are also ahead of those for units, although the latter are catching up.
Joe Hurley, planning researcher at RMIT, has been pushing for the propagation of infill projects in Melbourne. He believes this will help meet the needs of buyers who want to purchase houses that are closer to the CBD at lower prices, by making good use of vacant or underused urban land. It’s a tangible measure that could assist in addressing affordability issues in a city where the median property price is fast catching up with Sydney’s.
Outside the capital, Mildura in Northwest Victoria reports good demand from retirees and young couples for townhouse developments in the Mildura Golf Course estate and at the Mildura Marina, according to the Herron Todd White Month in Review report for September 2016.
Development drives apartment supply
Melbourne approved a number of high-rise construction plans worth over $4bn in 2015, and developers have been staking claim to suitably zoned land since then in inner-city suburbs like Collingwood, Richmond and Abbotsford.
“According to local agents in Melbourne’s inner eastern suburbs, 15% to 20% of the region has been rebuilt over the past 10 years, with that figure expected to rise over the coming decade,” says Herron Todd White.
“While a recent crackdown by banks on foreign investment has seen a dip in property prices for the region over the past six months, the heavy influence of Asian buyers in the area is expected to remain.”
SUBURB TO WATCH
Williamstown: History hotbed blazes a trail
Among the suburbs west of Melbourne, Williamstown stands out for its diverse range of properties. This historically significant former maritime hub is located on the bay, with period Victorian homes dotting the area near the mouth of the Yarra River while modern and mid-century apartments make up the inner part of the suburb. In fact, Williamstown was once a candidate for the capital of Victoria.
House prices are charging forward in the local property market, growing 11.2% in the past 12 months. The demand for and growth in unit values is also increasing fast: growth of 6.6% in unit prices was recorded in the same period.
Williamstown is less than 30 minutes from Melbourne, which can be reached by bus or train. Within the suburb, families have their pick of schools. As a tourism centre, Williamstown has much to offer residents, including specialty shops, restaurants and cafes. The local community is also a strong supporter of the arts scene.