Reserve Bank’s take on current housing market

Reserve Bank’s take on current housing market
Reserve Bank’s take on current housing market

Growing demand for housing close to inner city areas was the topic of a recent speech by The Reserve Bank’s (RBA) head of financial stability, Luci Ellis.

Entitled ‘Space and Stability: Some Reflections on the Housing-Finance System’, Ellis made some valid points relevant to the housing market in her speech.

Ellis’ speech goes some way to explaining why detached housing closer to the centre of a city is much more expensive than for those suburbs located further away. Put simply, Ellis noted in her speech that housing in these areas is in short supply and with high demand due to its convenience to major working nodes. 

Several key points made on housing within the speech were:

  • Housing prices in the inner-ring are becoming more expensive than those in outer areas of our capital cities;
  • The availability of jobs is becoming even more centralised, particularly within already established working nodes;
  • There are minimal jobs outside of city areas; it is becoming increasingly difficult to grow smaller cities and few centres outside of the capital cities have job magnets. Given this, when residents are priced out of capital cities and more affordable regional housing options are not a viable alternative.

A rise in the popularity of inner-city unit living is driven by a desire to live closer to the city centre at a lower cost than detached housing. Australia has comparatively low density cities with significant price premiums in the most convenient areas of the city.

Ellis’ speech noted that if housing costs rise beyond people's comfort levels, it is not always feasible or attractive for households to respond by moving to cheaper areas, especially if the more affordable options are further away from their place of employment.

The RBA is hopeful that over time the structure of our cities is such that home owners will have more options as to where they can live, rather than having to live in expensive housing closer to working nodes such as current policies often necessitate.

With plenty of commentary around on some of the best performing areas around the country, it’s important to note that this analysis is typically undertaken over a relatively short-time frame of around 10 years, and where it is often reported that new greenfield areas and regional housing markets are better for capital growth than inner city areas.

The nature of new greenfield developments, both within a capital city and in regional areas, can lift prices in these areas from a very low starting point to a much higher new base as the area sees an influx of new modern housing. While over a shorter time frame this may result in heightened levels of median price increases, this is typically a relatively short-term phenomenon.

It also compares to the shift from a much lower quality initial housing product to a far superior newer housing supply.

Below is a list of suburbs that have recorded the largest rise in median selling prices over a 10 year and a 20 year timeframe. Interestingly, Miles and Chinchilla in regional Queensland are the only regional suburbs listed. Elsewhere, the list is dominated by a collection of the most desirable inner city suburbs in Sydney, Melbourne and Brisbane - all with high median prices, and all relatively close to major working nodes .

Reserve Bank’s take on current housing market

With the population continuing to grow and housing supply insufficient we would expect that inner-city houses will continue to be the best performed over the long-term with significant demand and a short supply available.

Note: Median prices are not the most appropriate measure of a market change because these don’t continually measure the change across the same collection of properties. Median prices look at those properties that transaction over specific periods (which may be dramatically different each year).

The table above shows a strong bias towards regional areas of the country over a shorter time frame, particularly those linked to the resource sector. The rate of compound growth over the 10 years is much higher than those in the second table which looks at the 20 year period and reflects the boom in the mining sector over recent years.

The table below supports comments from the RBA with the list dominated by inner city suburbs.

Reserve Bank’s take on current housing market

Cameron Kusher

Cameron Kusher

Cameron Kusher is senior research analyst at CoreLogic RP Data.

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Rba Rate Decision Cameron Kusher

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