Housing supply crunch propping up South Australian real estate prices

Buyers in South Australia now have less choice in the real estate market, with housing supply constraints driving rents through the roof and keeping property prices relatively stable.

Aerial photo of Adelaide city with a view to the hills
South Australian property prices have outstripped all other markets over the past year and as prices subside nationally, a supply crunch is now holding them steady in SA. (Image source: Shutterstock.com)

A lack of housing supply is propping up the South Australian property market, while record low vacancy rates continue to attract investors seeking attractive rental yields.

Regional South Australia was the only property market in Australia to record monthly positive growth in October and the highest rate of annual growth at 20.4 per cent. Adelaide’s annual growth of 16.5 per cent was around double that of second placed Brisbane, although prices are now abating slightly, down 0.3 per cent for the month.

Property experts in the city of churches argue that Adelaide will not experience a price crash, despite the mounting pressure on homeowners brought about by seven consecutive interest increases.

Real Estate Institute of South Australia (REISA) Executive Director, Cain Cooke, described the South Australian property market as resilient.

“Traditionally, South Australia does not experience the price volatility other markets in Australia have been susceptible to in the past,” Mr Cooke said.

Cain Cooke, Executive Director, REISA

Cain Cooke, Executive Director, REISA

“Despite a small cool-down episode in a scorching market, we are still seeing solid demand.

“The demand is driven by an undersupply of housing and increased interest in South Australia as a desirable place to raise a family or conduct business.

“South Australia offers comparatively affordable living with huge lifestyle benefits.”

Mr Cooke predicted the market will cool or stabilise in the coming months, following a hot market period after the COVID-19 regulations were eased, there was no bubble about to burst.

“Adelaide’s prices are still comparatively affordable compared to the eastern seaboard properties and confidence remains high in the market.

“The strong demand for residential rentals, along with a vacancy rate below 0.5 per cent, makes South Australia a great market for investors,” Mr Cooke said.

“Properties priced below $1 million across Adelaide are still attracting strong interest, keeping the market stable.”

Magain Real Estate’s Sales Manager, David Hams, said Adelaide presented a risk-averse investment opportunity for buyers.

David Hams, Sales Manager, Magain Real Estate

David Hams, Sales Manager, Magain Real Estate

“Competition coupled with serious capital growth numbers and low-interest rates led to significant price increases over the past 24 months.”

Mr Hams said that level of market growth was not sustainable in the long term and foresees the South Australian market will stabilise leading up to the festive season and the beginning of 2023.

“As other markets retain a higher risk profile, South Australia is likely to remain a popular option for interstate investments,” he said.

“The rise of interest rates and the fact that capital growth figures of approximately 20 per cent per year are not sustainable in the long term shows us the market curve is beginning to level out.

“I can already see the level of competition among buyers has decreased, which will impact property prices.

“I have confidence that prices for niche properties, including small acreage and lifestyle properties, coastal or esplanade homes, as well as properties in tightly held suburbs and locations, will remain stable rather than see a decrease, as demand for these properties is still healthy,” Mr Hams explained.

Supply crunch bites

Australia’s housing supply crunch will continue into 2023, with concerning new research revealing it will be felt both in the short term for established for-sale supply and in the short-to-medium run for new houses yet to be built.

According to PropTrack’s latest Listings Report for October, the total number of metropolitan Adelaide properties listed for sale on realestate.com.au was up 6.2 per cent for the month. Regionally listings dropped 9.4 per cent.

Despite the recent uptick, stock levels are sitting 9.6 per cent lower than this time last year.

Seaton, in Adelaide’s south, recorded the greatest year-on-year increase in listings on the property site, up 100 per cent on last October’s levels.

Para Hills was next, up 90 per cent, with Aberfoyle Park (up 64 per cent), Paradise (up 54 per cent) and Findon (up 40 per cent) all recording solid gains.

Research by buyers agency InvestorKit revealed that South Australian markets are among some of the 10 worst-affected regions of more than 300 measured nationally when it comes to a lack of housing supply.

The population of Mount Gambier has risen 5.8 per cent over the past decade, but the number of for-sale listings has seen a sharp decline. The low level of building approvals (just 1.48 per cent of all houses this year) is not enough to relieve the city’s supply crisis. The decreasing number of for-sale listings (down 31.9 per cent year-on-year) has resulted in a 36.5 per cent drop in inventory level despite a slight decline in sales volume. This has led to a 22.8 per cent annual price growth to August 2022. There has also been 16.7 per cent rental growth in a year.

The population of Prospect-Walkerville in Adelaide has increased 6.1 per cent in the nine years to 2021, while the total number of for-sale listings increased by six per cent over the same period. Low levels of supply have resulted in an impressive 44 per cent annual growth in median house price to August. In the rental market, vacancy rates have been decreasing over the past 12 months, currently sitting at a crisis level of 0.6 per cent, which led to rental prices growing 11.1 per cent in a year.

On the southern fringe of Adelaide, Onkaparinga’s population continues to grow while the number of for-sale listings have been trending down. Inventory is recovering as demand trends slow down and supply level is lifted, however it’s still at a fairly low level, which has led to a 23.7 per cent annual price growth to August this year. In the rental market, vacancy rates are at a crisis level of 0.2 per cent, which has led to a 17.3 per cent growth in rental prices within a year.

Commercial bubble risk higher

Gerry Petropoulos, Director, MOSCOM

Gerry Petropoulos, Director, MOSCOM

The bubble has yet to burst in the commercial market, however, recent market developments suggest it may happen in the short to medium term.

“The bubble has not yet popped but is about to do so,” according to Gerry Petropoulos, Director, MOSCOM.

“Our interest rates are back to where they were in 2013 and it would be unrealistic to believe prices can maintain the current upwards trajectory,” he said.

“If cost of capital increases, then prices will fall to reflect the shift; central banks will not likely come to the rescue as they did during the 2008/2009 recession due to record inflation and the sovereign debt they are currently bearing; hence, the chosen way to reduce inflation this time will likely be to pop asset bubbles.

“Every single asset class will be affected,” Mr Petropoulos said.

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