Melbourne And Sydney Lead The Price Surge

JACOB SAULWICK
April 19, 2010

AUSTRALIA’S housing market might be booming, but the shape of that boom varies by town and state.

For the past year, the sharpest growth in prices has been in Sydney and Melbourne.

Research by property monitoring companies and official figures suggest the price rises appear to be the result of exuberant demand amid a trickle of new housing supply.

A report released today by CommSec’s chief economist, Craig James, highlights the dynamic at work. It places NSW at the bottom of the states in economic performance, in part because so few new homes are being built. “NSW is anchored firmly at the bottom of the table and there is a fair gap to bridge,” he said.

“The stronger pace of population growth may serve to provide fresh momentum for the economy, but the risk is that workers will be drawn away to the resources states.”

The number of new houses and apartments begun – ”dwelling starts” – is almost 25 per cent lower than it has been for the past decade.

By comparison, both the value and number of new home loans were, for much of last year, running at the fastest pace on record. Both have tailed off in recent months as interest rates have risen and government support for the market diminished.

The situation in Victoria is in some respects even more dramatic. The home building market is performing better than in NSW, and dwelling starts are about 20 per cent higher than they were the year before. But the rise in house prices has been sharper and more sustained, fuelled by an aggressive auction market.

According to RP Data and Rismark, house and apartment prices in Melbourne rose 19.3 per cent in the year to the end of February, and 5.4 per cent in its last three months alone. The jump took the median price to $480,000.

Sydney’s gains have been less pronounced, but are still outstripping every capital city except Melbourne. The median dwelling price has hit $519,000 after a 4.3 per cent jump for the quarter and a yearly rise of 12.3 per cent.

The result has been an uneven spread of property price increases across the country. A “rest-of-state” index developed by RP Data and Rismark shows the gap widening between home prices in capital cities and those elsewhere.

Between 2005 and 2008, as interest rate rises cooled the market, there was little difference in the pace of growth of housing values between capital cities and elsewhere.

But the surge in prices that started in late 2008 was concentrated in the capital cities. Prices there rose 12.7 per cent in the year to the end of February, but rose only 7 per cent in outer areas.

The past year has also seen the strong growth in mining-boom states of Queensland and Western Australia slow. Median prices rose 6.5 per cent in Brisbane and 7.5 per cent in Perth in the past 12 months: strong, but not as fast as the largest cities.