Profits and peril as regional markets power along

Regional properties around Australia continue to outperform the city markets, with price gains delivering profits to investors but exacerbating a rental and first-home buyer crisis in many country markets.

While growth had slowed from its April 2021 quarterly peak of 6.6 per cent, the regions still clocked up an impressive 4.7 per cent growth for the three months to April 2022.

CoreLogic’s quarterly Regional Market Update, released Tuesday (17 May), measured growth across Australia’s 25 largest non-capital city regions, which jumped 23.9 per cent in the year to April 2022.

This comfortably outpaced the combined capital city dwelling growth rate of 14.6 per cent for the same period. 

While steadily rising prices have attracted and rewarded investors in recent years, many locals have found themselves priced out of their hometowns and in many cases their homes.

Regional rents have blown out by more than 20 per cent in the past year in some areas at the same time vacancy rates have dropped to all-time lows.

In Batemans Bay, the rental vacancy rate, which is calculated by the amount of rental properties that remain untenanted for 21 days, dropped to 0 per cent in March, according to a report by review platform Rent Rabbit.

CoreLogic’s Pain and Gain report stated that while tree change and sea change markets have seen relatively high rates of capital growth since the onset of the pandemic, the rate of growth in popular regional markets has started to ease in recent months.

The report found 94 per cent of sales in regional Australia turned a profit in the December 2021 quarter.

“This is likely off the back of affordability constraints being reached across the regions, where typical dwelling values are now at, or close to, $1 million across the Southern Highlands and Shoalhaven (with a median of $1,017,815), the Sunshine Coast ($992,908) and Illawarra ($974,762),” the report stated.

A report in the local newspaper, the Milton Ulladulla Times from the South Coast region of New South Wales, reported a local real estate agent as saying, “The rents have just gone up so much, we have a huge homeless population living down at the airport in tents.”

The situation is no better in Queensland, with vacancy rates at record lows.

New work paradigm

CoreLogic Research Director Tim Lawless said there are many reasons why the rapid rate of growth for regional areas has continued as conditions in capital city markets, particularly Sydney and Melbourne, have softened in recent months.

“Although demographic data is significantly lagged, anecdotally we are still seeing strong demand for regional housing supported by high internal migration rates,” Mr Lawless said.

“The high level of demand is supported by estimates of home sales, which were tracking 20.1 per cent above the previous five-year average over the three months ending April 2022.

“It seems many employers across the relevant industries have implemented permanent hybrid working arrangements for staff which is likely to be supporting the stronger demand trend across regional Australia.”

“Generally regional housing prices remain more affordable than their capital city counterparts and while the comparison doesn’t always hold true for the most popular regional locations,” he said.

Mr Lawless highlighted examples such as the Newcastle and Lake Macquarie region, where median dwelling values remain $250,000 lower relative to Greater Sydney.

Similarly, the Illawarra region’s median dwelling value is $143,000 lower relative to Sydney’s, Geelong dwelling values are $5,350 cheaper relative to Melbourne, and Ballarat housing values are $203,000 lower relative to Melbourne’s median.

A green energy commitment will ensure a move away from the regional boom-and-bust economies we have seen in the past.

- Vanessa Rader, Head of Research, Ray White Corporate Commercial

Hunter Valley, excluding Newcastle, was the best performing non-capital house market, with an annual growth rate of 34.3 per cent, leapfrogging Southern Highlands and Shoalhaven (33.3 per cent).

Mr Lawless said the figure was more about a slowing rate of growth in the Southern Highlands and Shoalhaven region rather than an acceleration in the growth rate across the Hunter Valley. 

“Across the Hunter Valley region the median value of a house is still well below $1 million, implying less dampening pressures from worsening affordability.” 

The largest change in sales volumes was recorded in Central Queensland (Qld) and New England and North West (NSW), which both recorded a 42.9 per cent increase in house sales over the year to February 2022, followed by Queensland’s Townsville (41.2 per cent), Mackay - Isaac – Whitsunday (40.8 per cent), Wide Bay (36.1 per cent) and Cairns (35.6 per cent) regions.

At the other end of the scale, Victoria’s Latrobe – Gippsland region recorded the lowest change in house sales over the year to February 2022 (2.4 per cent).

Green explosion

Regional Australia has benefited from strong gains in employment, population growth, and in turn residential rents and prices have seen upward momentum.

Vanessa Rader, Head of Research at Ray White Corporate Commercial, said an increased workforce has also increased demand for commercial premises.

“An increased workforce grows vibrancy in communities around retail and community assets, growing businesses have taken up much commercial and industrial space as allied services also emerge, while the expansion of existing businesses continues,” she said.

“This increased demand has been instrumental in pressuring rents and values more recently and, as a result, the attractiveness of these locations has grown as investors look to secure quality long term tenanted assets.”

Ms Rader said the push towards green energy and net zero emissions by 2050 has advanced many renewable energy projects across the country, which is driving commercial and residential property markets.

She said Queensland in particular was set to become a powerhouse for renewable energy sources, with towns such as Gladstone having already benefited from the uptick in renewable energy projects.

“Gladstone is now rapidly moving towards long term sustainable, renewable resources to be the largest hydrogen producer in Australia, supported by the Federal Government’s National Hydrogen Strategy.

“Growing Gladstone into a hydrogen hub will further attract supporting businesses and manufacturing, enhancing demand for both industrial and commercial property.

The volatility of mining and other regional centres could be allayed by investment in green energy projects, she said.

“This investment into regional Australia will have long-term benefits for the community, creating a long-term sustainable job market while being world-leading in the quest for zero emissions over the next 30 years. 

“This sort of commitment will ensure a move away from the boom-and-bust economies we have seen in the past and create more stability for both the residential and commercial property markets.”