• House price growth to outstrip units in most major cities
  • Investor demand expected to weaken
  • Overall affordability to improve
  • First time buyer demand expected to rise

House prices are expected to surge in our major cities over the next three years, but a glut of apartments is likely to see unit prices fall, contributing to an overall improvement in home affordability, according to a new report released today.

QBE’s Housing Outlook 2017-2020 reveals the majority of Australia’s cities will experience house price growth with Canberra house prices to rise 16%, Hobart to 11%, Melbourne to 10%, Brisbane to 7%, Adelaide to 7% and Perth to 3% over the next three years. For most cities, the report cites increased demand and limited supply as the main drivers. Sydney experienced 12% growth in house prices in the 2016-17 financial year, and is expected to flatten to -0.2% by 2020.

The picture is less rosy for apartment owners, with unit prices set to fall for Brisbane 7%, Melbourne 5%, and Sydney 4%. Demand for units is expected to weaken largely due to tighter investor lending standards impacting investors.

QBE Lenders’ Mortgage Insurance CEO Phil White said that while unit prices will soften, the sector will play a growing influence on the nation’s property market over the coming decades.

“With so many Australians priced out of the housing market, the Australian Dream of owning property is increasingly turning to high and medium density apartments,” he said.

“Units contribute to a greater share of the market as changing lifestyles and affordability dictate property choices.

“Encouragingly, that dream should become a reality for more Australians, with improving affordability overall.”

Units now account for 46 per cent of all residential construction across the country.

The report forecasts Sydney, Melbourne, Adelaide, Perth and Darwin to become more affordable in the next three years. Hobart and Canberra are expected to become less affordable to June 2020.

“Recent low affordability in Sydney and Melbourne should stop purchasers from taking larger mortgages and bidding up prices even more,” he said.

“With more lending restrictions impacting investors, it could be good news for owner occupiers as they should find less competition from investors.”

According to the report, first home buyer loans declined by less than 1% in 2016/17. However, overall signs of strengthening demand for first home buyers are emerging with 13% more loans approved to first home buyers to the three months to July 2017 compared to the prior year.

Looking further ahead, Mr White said around 6.5 million people will need to be housed over the next 15 years.

“The forecast population growth raises questions about whether our property market will have us on track to meet short, medium and long-term population challenges,” Mr White added.

“Careful planning for housing stock and infrastructure is imperative,” he concluded.

State-by-state highlights of the QBE Housing Outlook 2017-2020

Sydney

  • House prices to flatten to 2020 to $1,150,000.
  • Units expected to decline 4% to reach $760,000 at June 2020.
  • Forecast higher interest rates and lower loan-to-value ratios for investor lending expected to limit ability for investors to enter the market.
  • This is expected to put downward pressure on unit prices as investors retreat from the market.
  • Conversely, first home buyers could put price pressure on units as they continue to take advantage of the recently introduced exemptions on stamp duty across the state.

Melbourne

  • Housing market to outperform unit market, with house prices expected to rise by 10% to $940,000.
  • However, unit prices expected to decline 5% to $535,000.
  • Rise in unit completions in the past five years has been greater than house completions.

Brisbane

  • House price growth will remain moderate at 7% to $590,000.
  • Oversupply of units will continue to put downward pressure on rents and prices of units to decline by 7% to $385,000.
  • Greater competition for tenants of inner city apartments is forecast to cause investors to lower rents to try to draw tenants from more affordable city fringe locations.
  • Those looking to sell units are expected to also find it more difficult.

Perth

  • Overall, market expected to remain weak with houses to experience minimal growth and units to fall in price to June 2020.
  • Market is expected to be close to the bottom.
  • The forecast median house price of $535,000 at June 2020 will represent cumulative growth of 3% over the next three years.
  • However, greater downside in unit market expected with unit price forecast to decline less than 1% to $400,000.

Adelaide

  • Modest growth in house prices forecast with median house price to increase 7% to reach $510,000.
  • Housing affordability remains manageable, which should keep demand from falling steeply as the state economy weakens and population growth slows.

Hobart

  • House price growth stronger than anticipated and expected to grow.
  • Hobart’s median house price forecast to rise to $470,000, reflecting growth of 11%.
  • Overall, recovery in the local economy and interstate migration is expected to keep price growth strong.
  • Investors are not as large a part of the unit market as in other states so there is less impact from investment lending restrictions.
  • Median unit price in Hobart forecast to reach $360,000 at June 2020; a cumulative rise of 9%.

Darwin

  • Outlook subdued with decline in resource investment yet to fully bottom out.
  • Few economic drivers will support population growth and demand will remain weak.
  • House prices expected to fall slightly to $540,000.
  • Unit prices forecast to decline by a cumulative 3% to $450,000.

Canberra

  • Conditions in the house market expected to remain largely positive, driven by population growth, an undersupply of houses and strong employment prospects.
  • House prices in Canberra forecast to increase 16% to $750,000.
  • Canberra is forecast to have the strongest growing market of all the cities.
  • Unit price is forecast to reach $435,000, a cumulative rise of 2% to 2020.

About the QBE Australian Housing Outlook Report 2017-2020

In its 16th year, the QBE-commissioned BIS Oxford report, is an annual overview of the Australian housing market focussing on supply, demand and price forecasts for the next three years to 2020.

The “unit” market refers to all forms of multi-unit dwellings including townhouses, villa units, semi-detached dwellings, terraces, flats and apartments.

The “house” market refers to detached or separate dwellings that do not share a wall with adjoining dwellings.

House and unit price forecasts in this document are median prices, ie mid-point, considered a better indicative measure of prices than average, which can bet more influenced by extreme results.

Affordability forecasts are based upon mortgage repayment on 75% of median house price as a proportion of average household disposable income.

A complete version of the report is available to download here www.qbe.com.au/outlook.

For further information:

QBE Corporate Communications
Kate Sinclair
External Communications Manager
+61 435 688 785
Email: kate.sinclair@qbe.com

Apollo Communications
Georgina Hall
+61 420 571 720
Email: ghall@apollo.sydney