Supply shortages in Hobart as values soar

Hobart property market continues to keep pace with both Melbourne and Sydney and has seen another strong start to the year.

There appears to be nothing that can slow things down in Tasmania at the moment and according to the latest data from CoreLogic, median dwelling values in Hobart rose 0.9% in January, taking the return over the last twelve months to 5.0%.

As we would expect the Hobart market is sitting at its peak and in the last five years alone values have increased by 44.9%.

In January, it was house values that increased most, finishing the month 0.9% higher versus a 0.8% increase in unit values. However, over the past three months, unit prices have surged higher gaining 5.4% compared to a more modest 2.9% rise in houses. We are also still seeing a tight vacancy rate of 0.6% according to SQM research.

Lack of supply

REIT President Mandy Welling believes rising prices continue to be driven by lack of supply and doesn’t see this situation changing any time soon.

“There’s absolutely no doubt that higher prices are being driven by a shortage of stock and a serious shortage of land,” said Ms. Welling.

“We’ve been seeing a fall in the number of sales of units and stock other than houses and that’s purely because there are fewer of them available.”

“There have also been fewer sales of homes above $1 million and again, this is simply because there are so few properties for sale in that price range.”

The continued rally for housing in Tasmania might be nothing new, but it appears we aren’t going to be getting any more stock any time soon to ease the supply issues we are seeing across the state.

“Even if there was a quick solution for the supply issues, it’s still not something that is going to be solved in the next six months. So if I looked at history, I would think we would continue to experience the same sort of market place that we’ve experienced over the last 18 months, which is a continued shortage of stock and increasing prices.”

With property prices moving so quickly, yields have started to compress and Ms. Welling believes this has slowed investor interest to some degree.

“A lot of investors look not just at capital gains potential, but also the rate of return. So we’ve seen some investors start to retract from the Tasmanian market because that rate of return is shrinking. Values are increasing but rents aren’t increasing in line with values.”

Inner-suburb exodus

Managing Director of Devine Property, Mark Devine believes the inner suburbs of Hobart have seen strong growth, and that’s now forcing people to look to the outer suburbs.

“The increase in house process has been very strong in the inner suburbs of Hobart, and the rise in house prices has also led to an increase in rentals, with some inner-city areas experiencing rises in excess of 30% over the last 2 years,” said Mr. Devine.

“For many people, the difficulty in finding suitable housing has led to an exodus to the outer fringes, such as Brighton, Sorell, and the Huon area.”

“It is patently obvious that there is no overarching plan to accommodate the increasing demand, and people are making a decision based on their ability to manage the market demand. As such we are witnessing an unprecedented demand for housing in areas that traditionally have not been regarded as attractive propositions, and which in the past have been the subject of some social criticism.”

Mr. Devine believes that as people move away from the more expensive inner-city locations, these middle and outer suburbs will be looking at a period of ‘rebirth’ and continued gentrification.

“These (outer-suburb) areas, once the heartland for the employees of industry and of post-war migration, have been quietly gentrifying, and the increasing interest is now leading to a rebirth of these suburbs.”

Mr. Devine also feels that while there will be movement away from the more expensive areas, both local and State Governments need to do more to keep up with infrastructure requirements.

“If the market is to continue along its glide path, then more and more people will be looking for housing in these “middle ring” suburbs and that trend will require the provision of appropriate infrastructure to ensure these suburbs do not become the wastelands of tomorrow.”

Rental market driving prices

Director of PRDnationwide Hobart, Tony College, feels that Hobart property has the potential to have a very strong year ahead.

“Hobart is again poised to continue to be one of the nation’s front runners for residential real estate growth and demand. 2020 has kicked off to a solid start with strong demand across all areas of the local market,“ said Mr. Collidge.

“Jobs growth, a resilient tourism market, and the return of interstate and international students for tertiary studies has seen vacancy rates for rental accommodation remain low, whilst low interest rates have enabled first home buyers to take advantage of the current positive economic climate."

Mr. Collidge thinks that given the incredibly tight rental market across the city, there will be continued upward pressure on prices, with much of that coming from locals.

“What has been interesting is a surge in local buyer participation in our market. Yields continue to remain strong with rental returns being pushed higher by demand and limited supply. Any easing in the market has been absorbed by an easing in the number of mainland investors  entering our market  - down from 26% to 15.5%.”

“Hobart has the smallest rental market (25% of all dwellings) of any capital city in proportion to the number of properties it has. It is its size and inability to cater for significant instant growth that has seen rents rise significantly to record levels over the past 3 years," he said.

“There is still a significant lack of supply and I envisage that the market will continue to grow for some time to come. Rapidly growing prices and lack of choice are the big drawbacks to entering into this market. Given that, prices and rents will continue to move upward for a considerable time into the future. The issue of resolving our shortage of supply cannot be resolved expediently or pragmatically.”