Canberra set to boom in the gloom
Which city is about to boom? The answer could be Canberra, where massive employment protection and business recovery programs will be administered as the government works to rebuild our economy.
Canberra’s housing demand is rising, with the latest Australian Bureau of Statistics data showing that it was the only state or territory which experienced an increase in housing finance during the month of May. Canberra is also enjoying the second highest population growth rate of all our capital cities at 2.2 per cent per annum.
While Canberra has the third highest median house price in Australia, prices are likely to grow more over the next few years, even as other housing markets stagnate or go further into decline.
The reason why Canberra’s housing market thrives when others barely survive is because many of the city’s 30,000 businesses benefit directly from federal government procurement decisions and programs, which often increase during economic downturns.
Government administration produces nearly one third of the Australian Capital Territory’s economic output and indirectly accounts for over forty per cent of its workforce, so whenever the number of public servants in Canberra increases, housing demand grows there as well.
Canberra’s housing demand is set to rise dramatically.
The strong correlation between public service numbers and house prices in Canberra is dependent on three criteria:
- The length of time that a government has been in power
- The need for economy boosting programs
- Whether these programs are administered from Canberra or via the States
For example, Canberra’s public service numbers rose dramatically during the last years of the Howard Coalition government with the introduction of WorkChoices. The Coalition government also entered into and then increased our military and peace keeping commitments in the Middle East, Pacific and East Timor. All of this called for a record number of public servants to be located in Canberra.
In 2007 the incoming Rudd Labor government dismantled WorkChoices, reduced our overseas engagements and embarked on a $42 billion 'Nation Building' plan including the NBN rollout, new school halls, home insulation and transport infrastructure, which were administered by the state governments. State based public servant numbers rose, while the numbers in Canberra actually fell slightly.
Towards the end of the Rudd/Gillard government, public service numbers in Canberra started to rise again and more recently, after some initial cutbacks under the current Coalition government, the numbers of Canberra based public servants has steadily climbed once again. Why does this sequence of cuts and increases occur?
The reason is that each new government initially reduces public service numbers as they wind back or terminate programs developed by the previous government. However, the longer governments are in power, the more programs, schemes and initiatives they roll out, causing an increase in the numbers of public servants needed to administer them.
This occurs no matter which party holds government. What is important is the length of time a government has been in power and whether they administer any new programs centrally in Canberra or through the States.
The total number of Canberra based public servants is now at a record high, but it is highly likely to grow even more. There will be a massive rise in the number of public servants needed to administer the government’s economy building programs which will be launched later this year to get the economy moving again.
Demand for unit rentals will rise
Because most of the new public servants will be on short term contracts, they may only initially intend to reside in the national capital for a few years.
This means that they will prefer to rent well located, well-appointed low maintenance dwellings rather than buy a property, and they will also prefer to live in units because of Canberra’s bracing climate.
Canberra’s most popular suburbs for unit renters are located in the entertainment precincts of Civic, Braddon and NewActon, offering a funky mix of shopping, cafes, fine dining and exciting nightlife experiences.
Rental demand is also concentrated along the recently completed Canberra Metro light rail route, from Gungahlin to the city centre.
Positive cash flow will lead to price growth
These suburbs already offer positive cash flow investment opportunities from day one, with the highest genuine rental yields available in any of our capital city unit markets. Such high yields will attract investors and as they compete to buy properties unit prices are likely to rise as well.
Some of the new residents may decide to stay and make Canberra their permanent home, so they will eventually move out of rental accommodation to become first home owners. This means that the demand for housing in Canberra continuously shifts from rentals to home buyers, so if the number of renters keeps rising as forecast, then home buyer demand will rise as well.