Author: Mark Courtney It has been around 15 years since Brisbane enjoyed its last big wave of residential price increases. Periods of rising accelerated growth in median residential prices in Brisbane and more broadly - South East Queensland (SEQ), have tended to be associated with a set of key factors. What is happening in SEQ right now appears to be early signs of these factors reuniting in a way that resembles what happens when a jigsaw puzzle comes together. Individually, the puzzle pieces come in a large variety of shapes, and each of those shapes is able to interlock with some finite number of other pieces to form a potentially meaningful pattern when joined in the right ways.
Last time the market enjoyed the benefits of rising median prices, the key “puzzle pieces” included; strong population growth fuelled by elevated levels of net interstate migration; strengthening jobs growth - generally with a strong proportion of full time employment; the construction phase of many large-scale infrastructure projects; and an elevated level of affordability relative to Sydney and Melbourne. These factors acting in concert with the regions overall, added with sustained high liveability, created the last period of rapid price increases during 2001-03. With this in mind, it is looking increasingly likely that these factors are about to deliver the next SEQ residential price wave.
While the first five years represents a period of price stability, Sydney and Melbourne have experienced a significant ascent in prices. Many analysts and market commentators have expected this pattern to ease over the past 3 years or so, however prices have continued to rise. Over the year to June 2017, Sydney prices rose 16.7% while Melbourne increased 13.4%. These rates are notably higher than the 6.1% growth recorded in Brisbane house prices. The chart also shows how flat prices in Brisbane have remained relative to the Southern state capitals.
One of the key factors on the demand side of the house price equation for Sydney and Melbourne is the difference in employment profiles. As the corporate centres of Australia, Sydney and Melbourne have enjoyed strengthening employment particularly in financial services over the past eight years (post GFC). Both cities have excelled at attracting international and domestic talent to bolster their offering of business services. Notably, many roles in these professional services are very well remunerated, paying above the national average weekly earnings. This means higher residential price points are more affordable for well paid executives.
On top of the strengthening labour market conditions, notably with respect to the rise in professional services employment, both Melbourne (1st place) and Sydney (11th place) as global cities also score favourable in surveys of liveability. The Economist Intelligence Unit’s Global Liveability Report 2017, which ranks cities across a range of measures such as stability, healthcare, culture environment, education and infrastructure ranked Brisbane 16th out of 140 cities.
In contrast, Brisbane’s employment profile in recent years has not been as impressive. The short-lived Newman Queensland State government terminated thousands of public servant jobs, many of which were located in Brisbane’s CBD. This occurred around the same time as large volumes of job shedding began as a result of the end of the mining and resources construction boom. These factors severely reduced SEQ’s full time employment generating capacity.
However, in recent months full-time job creation in Queensland has improved. Figure 2 shows full time employment annual growth over the past ten years. For June quarter 2017 an annual rate of 1.1% was recorded and although not reaching the levels of 2007 and 2008 it is certainly a good rebound from the result recorded one year previous.
Job creation is important as it is a significant factor contributing to migration. Brisbane city and its inner suburbs are expected to accommodate a high representation of job positions in the near future. In the Australian Government’s 2016 Regional Employment Projections, employment in Greater Brisbane is predicted to increase in 15 of the 19 ANZSIC industries over the years to November 2020.
The Health Care and Social Assistance industry is predicted to make the largest contribution to employment growth (contributing an increase of 22,800 jobs), followed by Professional, Scientific and Technical Services (17,200 new jobs) and Education and Training (15,000). Together, these three industries are projected to provide over 50 per cent of total employment growth to November 2020.
For many people form Sydney and Melbourne the attraction of moving north will be enhanced by the opportunity to gain employment which is why full-time employment generation is a key factor in the residential price movement equation.
Macquarie Bank has predicted that around 130,000 Australians will migrate to Brisbane and South-East Queensland over the next three years. In a recent Macquarie Research note, the bank identifies the regions relative affordability compared to the southern states as a key driver.
The note suggests that the significant increases in Sydney and Melbourne’s median prices provides an opportunity for a considerable transfer of wealth from residents of the Southern State capitals. As noted earlier, this is not a new phenomenon. Previous waves of net interstate migration bolstering Brisbane’s median house prices also occurred in 2001-2003.
Macquarie’s research also maintains that the shift north represents an $8.1bn transfer of wealth. A good deal of the is wealth is due to the rise in housing assets held by Sydney and Melbourne home owners generated by the extended period of increasing prices.
Affordability is naturally a key driver of interstate migration. In addition to the owner’s perspective, from a tenant’s perspective it is notable that the median weekly rent: household income ratio is 0.227 in Brisbane. This is lower than the ratio established in Sydney of 0.251 which suggests a superior level of affordability for tenants in the Brisbane market.
This is important because a growing percentage of Australians are choosing to rent over home ownership. For this reason, it should be considered that a broad cross section of the Australian demographic profile including owners, renters, workers and empty nesters are likely to consider the Brisbane housing equation as the right opportunity at the right time.
Intense periods of job creation, brought on by massive infrastructure projects with associated development opportunities and economic flow on benefits, are likely to support the next surge in SEQ’s residential median price increase.
Some of the more significant infrastructure and major projects underway include:
The Cross River Rail
The Cross River Rail (CRR) project aims to provide an additional rail crossing across the Brisbane River. Overseen by the Cross River Rail Delivery Authority (CRRDA), CRR involves the delivery of a 10.2 kilometre north-south rail link from Dutton Park to Bowen Hills through the Exhibition showgrounds, including 5.9 kilometres of rail tunnel under the Brisbane River and CBD, as well as four new underground stations at Boggo Road, Woolloongabba, Albert Street and Roma Street.
The New Parallel Runway
The New Parallel Runway (NPR) at Brisbane Airport will increase the capacity of the airport to a level similar to Hong Kong and Singapore airports. The NPR will be 3.3 kilometres long, 60 metres wide and will have in excess of 12 kilometres of taxiways.
The Brisbane Metro
This will see the adoption of a high frequency rapid transit transport system along 21 kilometres of existing busway from the Royal Brisbane and Women’s Hospital (RBWH) to Eight Mile Plains. It includes 18 stations, including 11 interchange stations, two of which will link to the State Government's planned Cross River Rail.
The updated Metro plan details the use of 60 trackless rubber-tyred metro vehicles, each with a capacity of 150 passengers, along two routes:
- Metro 1: RBWH busway station to UQ Lakes busway station; and
- Metro 2: Eight Mile Plains busway station to Roma Street busway sta
Pending funding and approvals, the Council expects construction to commence in 2019 with the project completed in 2022.
Queens Wharf priority development area (PDA) located at a strategic riverside location of considerable scale represents a significant and unique redevelopment opportunitytotransform Brisbaneandrevitalisethesouth- western edge of the Central Business District (CBD). The redevelopment of this important part of the city will provide opportunities for a new mixed-use integrated resort development which has the potential to support a range of facilities such as new accommodation including six star hotels, retail, restaurant and entertainment zones, tourism facilities and new open spaces.
So… is it the right opportunity at the right time?
It is considered that the residential investment fundamentals are in the process of aligning to generate another surge of net interstate migration into the South- East Queensland region. The key risk to this outlook and something which is unique to this cycle is the elevated supply of new apartments in the inner ring of Brisbane. And while a good measure of demand will be needed to absorb the approximate 10,000-15,000 new apartments which have recently been constructed and are projected to come on stream over the course of this year and the next, the combined strength of the drivers outlined above should ultimately and easily outweigh such risk.
Nonetheless, history shows what the combination of; population growth with strong net interstate migration accompanied by an improved jobs market, housing affordability, a raft of infrastructure projects, all combined with an enviable SEQ lifestyle can deliver. For the next residential property wave, look to South East Queensland.
To understand more about the SEQ market or to investigate specific opportunities, contact MacroPlan today at email@example.com or phone 07 3221 8166.