A review of the major drivers and factors influencing the Australian residential property market.

1. Australian Residential Property Market
Key Drivers and Trends
September 2010

2. Demand and supply-side drivers
Australia’s population growth is placing upward pressure on
house and land prices.
There is a scarcity of urban land suitably located to
employment, transport and essential services.
The willingness and capacity of people to borrow funds has
increased, resulting in unprecedented levels of housing debt.
The rising cost of home ownership will continue to place further
upward pressure on rents.

3. Diagnostic Framework

4. Market Trend #1 Annual Population Growth
1990-2009
500K
+2.1M +3.0M
400K
300K
200K
100K
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
Natural Increase Net Migration
Source: Australian Bureau of Statistics, Cat. No. 3010.0, June 2010

5. Market Trend #2 Annual Housing Construction
Dwelling Completions, 1990-2009
250K
+1.4M +1.6M
200K
150K
100K
50K
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
New Housing Stock Demolition and Replacements
Source: Australian Bureau of Statistics, Cat. No. 8752.0, July 2010

6. Market Trend #3 Housing Supply Shortage
Current Estimates
Greenfield developments are constrained by scarcity of land
suitable for subdivision within close proximity to employment
and transport.
Infill developments are constrained by the time and cost of
assembling suitable sites including demolition costs and
managing community opposition.
With demand growth tracking at above 200,000 dwelling
formations per annum, the current housing supply shortage will
continue to widen by at least 50,000 dwellings per annum.

7. Market Trend #4 Median House Prices
by Major City, 2002-09
$700K
Strong growth in established house prices since 2008
coincides with strong population growth and a lower cost of borrowing
$600K
$500K
$400K
$300K
$200K
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Sydney Melbourne Brisbane Adelaide Perth
Source: Australian Bureau of Statistics, Cat. No. 6416.0, August 2010

8. Market Trend #5 Median Land Allotment Prices
By Major City, 2001-2008
$400K
$350K
Perth values driven by
the mining boom
$300K
$250K
$200K
$150K
Melbourne has the most
affordable land of all mainland capital cities
$100K
$50K
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Sydney Melbourne Brisbane Adelaide Perth
Source: Urban Development Institute of Australia, The 2009 UDIA State of the Land, Canberra 2010

9. Market Trend #6 Average Land Allotment Sizes
By Major City, 2001-2008
Square metres
750
Housing allotments have gotten progressively smaller
700
650
600
550
500
450
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Sydney Melbourne Brisbane Adelaide Perth
Source: Urban Development Institute of Australia, The 2009 UDIA State of the Land, Canberra 2010

10. Market Trend #7 Total Bank Lending
1990-2010
$1,000B
Lending for housing has tripled since 2000.
Housing now accounts for 55% of all lending
$750B
$500B
$250B
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
Housing Commercial Personal Government
Source: Reserve Bank of Australia, July 2010

11. Market Trend #8 Reserve Bank Official Cash Rate
1990-2010
Percent
20.0
In 2009, interest rates fell to emergency lows
in response to the Global Financial Crisis
15.0
10.0
5.0
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
Source: Reserve Bank of Australia, July 2010

12. Market Trend #9 Average Annual Earnings
1994-2010
$60,000
Since May 2000, average earnings have increased 58%
but Australians are having to work longer and harder for it
$50,000
$40,000
$30,000
$20,000
$10,000
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
Source: Australian Bureau of Statistics, Cat. No. 6302.0, August 2010

13. Market Trend #10 Housing Debt per Capita
1990-2010
$50,000
Housing debt per capita has more than tripled since 2000
$40,000
$30,000
3.3x
$20,000
$10,000
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
Source: Reserve Bank of Australia, July 2010

14. Market Trend #11 Annual Rental Increases
by Major City, 2001-10
15.0%
Perth values driven by
the mining boom
12.0%
9.0%
6.0%
3.0%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Sydney Melbourne Brisbane Adelaide Perth

15. Conclusion No price relief anytime soon
Fundamental to providing sufficient levels of affordable
housing is the provision of land suitable for urban
development.
The costs and risks of converting land for residential use in
response to rising demand pressures pose major challenges
for urban planners and developers alike.
The economic cost of under-investment in public infrastructure
and associated services will be felt by private individuals in the
form of higher house prices, greater housing debt and higher
levels annual rent inflation.

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