RPM Q2 2023 Greenfield Market Report

RPM Group is Victoria’s most successful residential development sales, marketing and advisory agency. We specialise in sales within master-planned communities, medium and high-density developments, greenfield and infill development sites.

We advise our clients on all aspects of the sales process from site due diligence, acquisition, planning and risk mitigation through to product mix, pricing, launch, sales and settlement. Our research-backed strategies deliver higher revenues and sales rates, and better returns for our clients.

From our CEO

• The RBA’s decision to pause rates aligns with improved inflation number.

• Cost of living, affordability, and serviceability remain the key issues for new home buyers.

• Some developers may sit out this cycle until the broader economic factors improve, which will attract serious buyers.

Recent shifts in the property and economic landscape are beginning to craft a narrative of cautious optimism for the next six to 12 months. The quarter saw a 13% increase in sales in the Melbourne and Geelong growth areas, putting an end to the six-quarter decline. While this could signal the initial stages of new home demand recovery, much of the upswing was driven by incentives, pent-up demand and subsiding inflation.

Inflation rates, which, while remaining stubbornly high, have shown improvement from a peak of 7.8% to 6%. This offers households a degree of short-term relief. Many economists are now predicting either no further or one more rate increase before an extended period of stability. The RBA has highlighted that while the impacts of these increases are gradually taking hold, more time may be needed for their full effects to unfold. The impact of the steep rise in the cost of living, together with uncertainty and weak consumer sentiment, are fuelling a slower decision-making process for new home buyers. New home buyers have had a significant reduction in borrowing capacity over the past 18 months, and incentives alone will not bridge the gap between affordability and serviceability. A shift in the RBA’s monetary policy is also needed to improve consumer sentiment and further foster a more optimistic outlook.

Builder sentiment, in the eyes of the consumers, is also weighing heavily on the decision-making process for new buyers, given recent defaults and price escalations. While we note the cost of building materials is beginning to normalise, there remains a pronounced shortage in the labour market –particularly within the building industry – which continues to drive price pressures on new builds. This is further exacerbated by the current demand for state infrastructure resources.

Additionally, the demand for new homes remains unrelenting. Based on the current trajectory to 2027, nationwide new dwelling supply will fall short by over 100,000 to satisfy projected household formation demand; and Victoria is expected to shoulder a significant portion of this. With Australia’s borders now open and migration expected to reach record highs, the impending influx of new migrants has the potential to further exacerbate existing demand. This surge underscores the industry’s vital role in ensuring an ample supply of suitable housing options.

We cannot ignore the substantial challenges ahead, however, it is equally important to recognise that this is a time for measured optimism as the market takes its initial steps towards correction.

Should you require further details, please visit: www.rpmgrp.com.au. For a detailed market analysis or a special report, email the team at contactus@rpmgrp.com.au

Gary Dunne Chief Executive Officer gary@rpmgrp.com.au

What’s Inside

Lead Indicators

The key numbers driving the market; the cash rate pause for the second straight month indicates it has neared the peak, Victoria’s population continues its modest growth.

Development Sites

08 12 10

Despite Plan Melbourne’s ambitious target for 70% of new dwellings in infill areas and 30% in greenfield areas, the greenfield sector is proving ever popular with buyers.

Vacant Land Market

Notwithstanding market headwinds and weak purchaser confidence, Melbourne’s median lot price increased to reach a new quarterly record.

28 38

42 Regional Markets

The revival in activity is anticipated to continue at a moderate pace until the early months of 2024; projected to persist until a reduction in cash rate.

Secondary Land Market Update

A mounting supply of resale lots indicates increased household finance pressures; affecting owner occupiers unable to settle and investors navigating a more challenging lending environment.

Greenfield Townhomes

Townhomes are a pivotal element in the market; their appealing proposition will continue to rise even as interest rates soften and borrowing capacities begin to increase.

A data driven, holistic approach to property

RPM’s Research, Data & Insights division provides in-depth analysis on current local and overseas economic and property market conditions.

The team consists of economists, property experts and GIS analysts that provide real-time market intelligence and analytical and strategic advice.

Our knowledge and expertise are an invaluable resource for RPM’s developer clients, empowering them to make intelligent, informed, and strategic decisions when evaluating residential developments and investment opportunities.

Our data and analysis help clients maximise their marketing efforts and achieve sales targets on their estates. Each month we collect extensive data on approximately 350 land estates in Victoria, providing our clients a comprehensive understanding of the market dynamics. This also underpins the core strategic decision-making of our own business.

Over the 12 months to June 2023, approximately 8,085 lots were sold across Melbourne growth corridors. We profile every lot including lot size, price, orientation, sqm rate and title status, monitoring through to final sale.

This rich data helps our team and clients better understand:

Volume of lots sold or allocated by lot size, frontage, price point, developer, land estate type and location

Dollar per SQM rates

Stock release levels

Volume of cancellations on a monthly basis by estate

Distribution of new land products by estate

Performance and distribution of lots of a particular frontage and depth

Distribution of price points across a product range

Percentage of new land sold within set price ranges

Level of activity across a product type, project, market, developer and region

Stock level and fluctuations by product type, land estate, developer and market

Age of stock, how long has it been advertised, and subsequent price movements based on time on market

we always start with in-depth

At RPM,

research and data-driven insights. When we are guided by data, analysis and key findings, we maximise success.

Michael Staedler Group Manager Research, Data & Insights

Lead Indicators

Cash Rate - Aug 2023

4.10%

Pausing for the 2nd straight month. Looks to have neared the peak.

Quarterly GDP - Mar 2023

0.20%

The weakest quarterly result since the COVID-19 Delta lock-down contraction in Q3 ‘ 21.

Quarterly Inflation - Jun 23

0.80%

While falling, it was still 6% for the 12 months to Q2 ‘23. Extreme levels were recorded in rents, overseas travel and accommodation and financial services.

Unemployment Rate - Jun 2023

3.50%

Stabilising at near historical low levels.

VIC Population Change - Dec 2022

127,078

After a record gain in Q3, a more modest gain was recorded in Q4 ‘22.

Exchange Rate AUD/USD - Jun 2023

0.65

Relatively unchanged over the quarter.

0.70%

Sitting slightly below the national average on both the quarter and year results.

$1,793

Ranking mid field with other states.

$937,500

Falling but easing in its rate with a 1.1% fall over the quarter and 12.6% over the year 2-5%.

0.69%

Picked up marginally over the quarter but remains relatively anemic based on recent quarters.

3.70%

Remains unchanged over the quarter and remains below 4% for over a year.

67.60%

Increased from the previous quarter and remains inline with the annual level.

Melb. Median House Price - Jun 2023

VIC State Final Demand - Mar 2023

Employment Participation - Jun 2023

VIC Wage Growth Index - Mar 2023

VIC Avg Weekly Earnings - Nov 2022

VIC Unemployment - Jun 2023

Anticipated planning changes push up the value of greenfield land

The Victorian development industry has been rife with speculation as the State Government flags a notable shift towards infill developments.

Plan Melbourne’s ambitious target for 70% of new dwellings to be delivered in infill areas and only 30% to be delivered in greenfield areas has failed to be met in recent years, with the greenfield sector proving ever popular with new homebuyers choosing house & land products over apartments.

While other cities of similar population size have embraced higher density living, the cultural shift away from greenfield land has not fully materialised in Melbourne and certain factors have bolstered its continued preference over infill areas. This includes the fact that growth on Melbourne’s urban fringes is heavily fuelled by overseas migration – buyers who see traditional house & land products as highly aspirational.

The leading narrative in recent industry discussions regarding Plan Melbourne’s targets suggest that greenfield areas would be met with buyer reluctance due to perceived drawbacks. Limited infrastructure and an assumption that there is a lack of desirable housing options were cited as reasons why buyers would prefer infill housing options over greenfield subdivisions.

However, RPM Buyer Surveys reveal the contrary. “Our research shows that there is a robust and unyielding demand for greenfield land among prospective buyers. These survey results indicate that the allure of spacious living – particularly in larger detached houses – continues to drive interest in greenfield developments,” commented Luke Kelly, National Managing Director of Project Marketing at RPM Group, challenging the expected rise in appeal for infill areas.

Ed Wright, National Director and Head of Transactions & Advisory at RPM Group added, “With recent announcements suggesting a slowdown in the preparation of upcoming Precinct Structure Plans, developers are increasingly favouring greenfield locations with approved PSPs in place.” With such opportunities becoming increasingly rare, these sites are commanding hefty price tags, yet remain more affordable than infill land.

RPM’s recent development site sales in South Morang and Cranbourne East have been evidence of this, with developers eagerly competing to secure PSP-approved land and paying record rates in spite of a soft retail sales market, enabling them to fill their pipelines with longer-term stock.

In anticipation of an increased focus on infill development sites driven by these mooted changes, RPM’s Transactions & Advisory team is currently actively working throughout Melbourne’s established areas targeting both zoned development opportunities and potential rezones. Catering to townhouse and apartment projects, these sites are expected to be in high demand as the market picks up on the back of strong immigration figures.

In addition to this work, our team has recently listed several significant PSP-approved sites in Melbourne’s greenfield corridors which will be coming to the market soon.

Ed Wright National Director Transactions & Advisory

Vacant Land Market

This is likely to have been incentivised by enticing developer discounts and rebates offered in the new home market. Despite these discounts, the rebates are only partially offsetting the considerable barriers to entry across the new home market

Affordability remains a very real challenge - the 6% annual increase in the Consumer Price Index (CPI) to June has put a significant strain on household finances, as has the further reduction in borrowing capacity marked by an additional 25 basis point cash rate rise in May and June.

Purchaser sentiment remains relatively fragile as evident in the 53% annual decline in total gross lot sales for Q2 2023 (2,146 sales). Additionally, the prolonged average trading days for lots sold in Q2 (exceeding 100 days) and low absorption rates have delayed the release of new land supply from developers. The stock returns on the market have increased in line with the current interest rates but remain below the peak observed during the 2020 lockdowns.

Notwithstanding market headwinds and weak purchaser confidence, Melbourne’s median lot price increased by 1.3% to reach a new quarterly record of 385,000. This growth is attributed to a similar 1.4% increase in the media lot size to 355sqm, stabilising the price per square metre rate. This median lot value is also more in line of the headline figure, supported by the discounts offered during Q2 – implying the new price for purchasers could be 5% to 10% less.

Communities

Gross lot sales in the Melbourne and Geelong growth areas have risen by 13% in the last quarter, halting a trend of declining sales activity over a six quarterly period since Q4 2021.

Rod Anderson National Managing Director

Q2 2023 Vacant Land Market Snapshot

2,146 Lots Sold

The first quarterly increase in gross lot sales since September quarter 2021.

222 Active Estates

Up from 216 last quarter, with 4 new active estates in the Northern Corridor.

$385,000

Median Lot Price

+$3,000 over the quarter, + $5,000 annually.

355sqm

Median Lot Size

Remaining in the 350-360sqm range since September quarter 2022.

107 Days

The average number of tradings days of lots sold. Up from 99 the quarter prior.

Source: RPM Research, Data & Insights

Buyer Surveys

RPM surveys every buyer on our clients’ estates in the greenfield market.

The following illustrates demographic and purchase intent amongst all purchasers over Q2 2023. For a detailed analysis of any corridor, LGA, or suburb in Victoria, please contact our RPM Research & Insights team.

m.staedler@rpmgrp.com.au

Western Corridor

New Home Market Overview

Sales activity in the Western Growth Corridor is facing challenges, struggling to gain momentum, compared to the two other Melbourne growth corridors. In Q2 2023, gross sales edged higher by only 1% to 814 lots, remaining significantly lower (at 60%) compared to the same time last year. Consequently, its share of total lot sales has declined to a three-year low of 38%.

On the other hand, new supply recorded a stronger uptick, with releases increasing by 12% to 839 lots. This boost was primarily driven by significant increase in new supply in Wyndham – more than doubling from its long-term low in Q1.

Despite the overall marginal decline of 0.6% in the median lot price over Q2 to $382,500, the median lot size remained unchanged at 350sqm. Wyndham stood out with more attractive price points, as its median lot size was larger than Melton’s, despite offering more affordable median lot price. However, sales activity in Melton remained higher, which can be attributed to its larger number of active estates which is nearly 50% more than Wyndham.

814

Gross Lot Sales

A 1% gain over the quarter, but still 60% lower than the same time last year.

350sqm Median Lot Size

No change observed in the median lot sizes.

Buyer Survey Insights

Owner occupiers represented the lowest proportion of purchasers in the Western Growth Corridor, accounting for 49% of buyers. Among these, 69% were first home buyers – marking the highest concentration among all growth areas. The majority of purchasers fell within the 25-34- and 35-49-years age groups – each cohort accounting for over 40% of purchasers. This indicates that couples with children are the most prominent household structure at 55%.

Approximately two-thirds all purchasers were considering building a single storey home, which is the highest share among all growth areas. This preference led to 40% of purchasers expressing interest in homes sized between 21sqs and 25sqs.

839

New Lot Releases

Driven by a boost in new supply in Wyndham, more than 2 times its long term low in Q1.

$382,500 Median Lot Price Largely holding constant

June 2022.

Active and new estates - Western Corridor

Buyer Activity - Western Corridor

Median Lot Price and Size (sqm) - Western Corridor

Northern Corridor

New Home Market Overview

Northern Growth Corridor experienced a significant surge in sales activity in Q2 2023, with the proportion of gross lot sales escalating to 35% - marking its highest share in over a decade. We recorded a remarkable 32% increase in sales this quarter, totalling 747 lots. All four sub-growth areas contributed to this growth, experiencing double-digit quarterly increases.

Lot absorption outpaced new supply, which rose by a modest 2% to 574 lot releases, despite the addition of two new estates in both Hume and Whittlesea. As a result, the average time spent on the market of lots sold in Q2 was three months - the lowest among all growth corridors.

The Northern Growth Corridor’s relative affordability (with a median lot price of $370,000) continues to attract buyers. This price point makes it less expensive than the Western (3%) and South East (15%) Growth Corridors.

It is this affordability factor that is supporting demand – particularly in an environment where purchasers are increasingly price-conscious.

Buyer Survey Insights

Owner occupiers constituted a staggering 73% of all purchasers in the Northern Growth Corridor, with the majority of them being first home buyers. The proportion of buyers aged between 25-34 and 35 –49- years old was even – each accounting for just under 40%. Consequently, households comprising of couple with children households accounted for 47% of all purchasers.

The preference for single and double-storey homes was relatively balanced, leading to home size cohorts of 16sqs to 202sqs+, where each accounted for at least 20% of demand. This diverse preference spread out the budgeted new home construction costs; indicating flexibility among buyers in the area.

747 Gross Lot Sales

+32%

A substantial increase from 565 sales last quarter, taking the Northern Corridors share of sales to a decade high 35%.

350sqm

Median Lot Size

No change observed in median lot sizes.

574

New Lot Releases

Lot absorption outpaced new lot supply in Q2 2023.

$370,000

Median Lot Price

+2% +1%

Active and new estates - Northern Corridor

Stock added to market - Northern Corridor

Buyer Activity - Northern Corridor

Median Lot Price and Size (sqm) - Northern Corridor

South East Corridor

New Home Market Overview

The South East Growth Corridor experienced a notable improvement in sales activity during Q2 2023, with the proportion of sales rising to 21% after gross sales increased by 31% to 451 lots. Casey accounted for the majority of these sales, while Cardinia witnessed a significant surge in demand for vacant lots, contributing to the overall substantial growth.

Nevertheless, average trading days for lots sold in South East Growth Corridor remained the highest among all corridors at an estimated 139 days. This indicates that stock levels remain high, reducing the immediate need for developers to release new lots. As a result, new supply decreased by 26% to a long-term low of 293 lots.

Despite being the most expensive land market among all growth corridors, the median lot prices in the South East rose by 3.5% to $440,000, the highest quarterly rise in prices. Lot sizes also expanded, albeit at a lower growth rate of 1%, to a median size of 392sqm.

Buyer Survey Insights

Owner occupiers were highest represented in the South East Growth Corridor, with 80% of all sales. However, given the relatively higher pricing for new homes across the growth corridor, first home buyers constituted a lower proportion of buyers at 38%.

Nevertheless, purchasers were predominantly concentrated to the 25-34 year- and 35-49-year-old age cohorts, each representing one third of buyers. Interestingly, the gap between the share of couple with children and couple without children households was narrowest in the South East, accounting for 43% and 37% respectively.

451 Gross Lot Sales

Both Casey and Cardinia saw sizeable increases.

392sqm Median Lot Size

Only a marginal change observed in median lot sizes.

293 New Lot Releases

Overall stock levels remain high resulting is lower new low releases.

$440,000

Median Lot Price

The highest quarterly rise in prices across all growth corridors.

Active and new estates - South East Corridor

Stock added to market - South East Corridor

Buyer Activity - South East Corridor

Median Lot Price and Size (sqm) - South East Corridor

Geelong Corridor

New Home Market Overview

The Geelong Growth Corridor experienced a significant decline in activity during Q2 2023, following moderate growth in the previous quarter. Gross sales plummeted by 26% to 134 lots, and new supply contracted even more drastically by 48% to 147 lots. These figures represent lows in both sales and releases not seen in more than a decade. Consequently, the growth corridor accounted for just 6% of total lot sales.

Affordability remains a pressing concern, with median per square metre rates in the sub-markets of Armstrong Creek, Bellarine, and Geelong all approaching $1,100 – making them more expensive than many growth areas in Melbourne. This occurred despite the median lot size across the growth corridor decreasing by 14.3% to 355sqm. However, the median lot price only experienced a modest 2% to $386,950.

Buyer Survey Insights

Owner occupiers constituted a significant 59% share of purchasers in the Geelong Growth Corridor, with a relatively small proportion being first home buyers at 42%. Just under 50% of all purchaser households were couple with children, with 25-34-year-olds slightly more prevalent, accounting for 43% compared to those aged between 35-49-year-old, representing 38%.

Approximately 52% of purchasers desired a single-storey home, while 35% of purchasers intended their home to be between 21sqs and 25sqs.

134 Gross Lot Sales

A significant decline in activity.

355sqm Median Lot Size

Affordability remains a pressing concern, placing downward pressure on lot sizes.

147

New Lot Releases

A decade low level of new lot releases.

$386,950 Median Lot Price

A relatively moderate change given the reduction in median lot size.

Active and new estates - Geelong Corridor

Stock added to market - Geelong Corridor

Buyer

Median Lot Price and Size (sqm) - Geelong Corridor

What does a 350sqm lot cost?

Regional Markets

Despite a decline in demand levels, there has been a slight uptick throughout Q2 2023. This revival in activity is anticipated to continue at a moderate pace throughout the latter half of the year and into the early months of 2024; projected to persist until a reduction in the cash rate provides some relief to overall household finances.

The scarcity of supply in the regional established market has led to a marginal 0.6% uptick in prices during this quarter, bringing the median price to $604,000. However, we must acknowledge that this value remains 1.2% lower than the figures recorded at the same time last year.

The combination of interest rates, construction costs, and builder viability, coupled with heightened land prices, has seen supply outpace demand in the first half of 2023. Amid the ongoing economic challenges there are clear indications of resilience in the regional market.

Although the Ballarat market witnessed a challenging period throughout 2022 (with four consecutive quarters of dwindling sales activity marking a sustained low), Q2 2023 injected some vitality back into the market. We recorded a noteworthy 108 gross sales, marking a halt in the declining trend previously witnessed and suggesting a potential reversal of the market’s challenging trajectory.

While the 151% surge (65 lots) remain 51% (112 lots) lower than the corresponding quarter last year, it still marks a commendable improvement.

Beyond the sales boost, another positive sign for the region was the introduction of 120 lots into the market, the highest for a quarter since Q3 2022. This reflects developer confidence in managing and advancing previous stock sold through the HomeBuilder program without major issues.

Despite reaching a peak of $315,000 this quarter, median lot prices have demonstrated minimal fluctuations despite the decrease in activity caused by rising household costs. However, Q2 presented a significant 4.3% decrease, equivalent to $13,499, bringing the median price to $302,500 – the lowest since Q4 2021. Notably, this reduction in price is attributed to the constant lot size of 448sqm, resulting in a 4.3% decrease in the price per sqm rate.

This price reduction aligns with expectations however, particularly when considering the prevalence of incentives and rebates in the market. Furthermore, these discounts are now being prominently displayed on retail price lists – successfully boosting buyer engagement.

It is important to highlight that the remaining stock at the end of the quarter had a lot price of $310,000, which is $7,500 higher than the sold stock. Additionally, the unsold lots were larger at 476sqm compared to the 448sqm of the sold lots. This underscores the market’s price sensitivity and emphasises the delicate balance developers must maintain between pricing and lot attributes.

108 Gross Lot Sales

Up significantly from the long time low last quarter of 43 sales.

448sqm

Median Lot Size

No change observed over the quarter.

446

Lots on Market

Stock was boosted by an the introduction of 120 lots entering the market.

$302,500

Median Lot Price

Median lot price of stock on market at end of June is $310,000.

+151%

0%

+19% - 4%

Buyer activity - Ballarat

Stock overhang - Ballarat

Active estates - Ballarat

Median Lot Price and Size (sqm) - Ballarat

Ballarat Outlook

The demand for regional change continues to surpass pre-Covid levels, although its intensity relies heavily on the availability of appropriate land lots in different regions. The primary factors affecting this demand are the price and size of the lots, which are slightly smaller than traditional ones.

Local buyers, often priced out of the established property market, are compelled to relocate due to the scarcity of suitable lots. The introduction of smaller lots and townhomes offers a promising opportunity for budget-conscious buyers to enter the market.

It’s also crucial not to overlook the significance of providing lifestyle homes beyond the western growth front. The current landscape shows a notable imbalance; with a significant 82% of available stock concentrated in the western region.

The latest data suggests that while market activity is on the uptick it remains relatively restrained with the current interest rate landscape expected to persist until mid-2024. On the other hand, strong employment rates and increasing wages are empowering serious buyers with the means to provide a deposit, placing them in a favourable position to negotiate attractive deals.

Bendigo

Following a robust period of triple-digit sales during the first half of 2022, the Bendigo market has undergone a significant contraction, marked by a decline to just 29 lot sales in Q2 2023.

This decline in sales is accompanied by a notable increase in inventory accumulation, reaching 205 lots by the end of the quarter. This level has not been observed since Q1 2020, despite a modest release of only 34 lots in Q2.

Despite the subdued sales activity, there are notable signs of resilience and potential opportunities. The pricing landscape also demonstrated a 3.2% increase (+$8,500), bringing the regional price to $275,500. This signifies a notable 8.5% surge (+$21,500) from the same quarter last year. Additionally, the median lot size saw a decrease of 24sqm, with a median size of 488sqm. As a result, the median price per square metre rose by 7.9% to $534.

Historically, Bendigo’s northern region has been the primary driver of sales activity. While HomeBuilder did stimulate activity in other areas, the northern region retained the majority of sales, accounting for 89% of the Q2 total.

Interestingly, the stock overhang for the quarter exceeded the median price of sold stock, with an overhang median price of $295,000, which is $20,000 higher than the sold stock. However, the overhang stock had a substantially larger median size of 647sqm, which is 159sqm more than the lots that were sold.

29 Gross Lot Sales

A substantial decrease of 74% compared to last year.

488sqm

Median Lot Size

A decrease of 24sqm from last quarter.

34 New Lot Releases

A modest increase in new stock coming off a low base.

$275,500

Median Lot Price

Despite a fall in sales activity, prices rose by $8,500 over the quarter.

- 41% - 5% +15 +3%

Buyer activity - Bendigo

Stock overhang - Bendigo

Active estates - Bendigo

Median

Bendigo Outlook

The current landscape means sales activity in Bendigo is expected to remain restrained in the upcoming year, particularly if prices continue to remain at their heightened levels. The market has not yet experienced the same degree of direct discounts that historically drove sales, meaning there is strong potential for developer discounts and incentives to emerge in the latter part of the year. This can drive up sales activity and engage potential buyers, particularly if developers focus on stimulating sales and addressing construction backlogs.

An increase in available stock in regions outside the north is also likely to invigorate buyer activity. While historically the northern region has been the driver of sales activity, a diversification of stock is expected to attract a broader range of households. The western region offers larger lifestyle lots at a comparatively lower price per square metre rate, while the eastern region provides a diverse selection including premium lots and higher price points. These factors cater to second or third-time homebuyers seeking varied options.

Interest rates are reshaping the secondary land market

Heading into the 2023/24 financial year, the market continues to face a series of challenges brought on by surging interest rates, inflationary pressures, and elevated building costs.

The cash rate has increased by a cumulative 400 basis points since May 2022, resulting in decreased demand and fewer prospective buyers. Although the cash rate is believed to have nearly reached its peak, the Reserve Bank of Australia’s (RBA) tightening bias signals the possibility of one more rate rise in the coming months – indicating we’re nearly reached the light at the end of the tunnel.

Although the established housing market is facing limited supply, it is certainly showing positive signs with improved clearance rates – an indication that positive trends are starting to emerge.

Our June 2023 findings reveal a 71% increase in resale lots across all growth LGAs within six months, highlighting the shifting buyer landscape and the current challenges they face.

The mounting supply of resale lots is indicative of increased household finance pressures. The increased interest rates and heightened building costs have led recent buyers to re-evaluate their financial capacity to build new homes –choosing to resell. This trend affects owner occupiers unable to settle, including first homebuyers grappling with increased interest payments, and investors navigating a more challenging lending environment.

Source: RPM Research, Data & Insights

In terms of specific areas, Casey experienced the most significant increase (+15.6%) in the proportion of titled lots on the resale market, while Cardinia witnessed the largest fall (-17.8%). Across most LGAs, the average price of resale lots has declined, with notable price changes observed in Mitchell by +2.7% (+$9,391) and Surf Coast by -8.1% (-$78,256). Interestingly, the average size of resale lots in most areas has grown over the first half of 2023, resulting in an overall average lot size increase of 3.3% (+14sqm to 442sqm) for Melbourne and Geelong. As a result, the average price per square metre rate across the region has decreased by 3.5% or by $34 to $9,842.

Additionally, when comparing primary and secondary land markets, all lots within the secondary land market are, on average, 14% larger (at 442sqm compared to 388sqm), yet only 4.6% higher in price (at $416,716) than those in the primary land market. This, coupled with limited sales activity, has led developers to adopt more competitive pricing strategies to facilitate stock movement.

Looking ahead, with the cash rate expected to reach its peak by year-end and no immediate signs of reduction, the total supply of resale lots is projected to continue its upward trend for at least the remainder of the year and into the early months of the following year. Despite this, it is key to note that the market is in fact in the early stages of an upward trend as indicated by two interest rate pauses in the last two months and inflation reducing.

Count of resales lots by LGA

Source: RPM Research, Data & Insights

Proportion of title resale lots by LGA

Source: RPM Research, Data & Insights

Size of resale market compared to total land market

Source: RPM Research, Data & Insights

Greenfield Townhomes

Townhomes are paving the way to the great Australian dream

Despite the significant cash rate increases since May 2022, median house prices have managed to avoid the initially anticipated decline in price. This resilience has been supported by reduced listings, resulting in the persistence if relative demand pressures, and limiting opportunities for prospective buyers at an individual dwelling level. This has been further exacerbated by the hefty increase in mortgage rates; significantly reducing borrowing capacity, and in turn, purchasing power.

Across the nation, households (especially first homeowner households) are navigating higher cost of living, grappling with reduced savings, and facing challenges accumulating a deposit – all factors reinforcing the need for more affordable housing solutions.

Backdropped by the current economic climate and housing challenges, townhomes continue to stand tall as the nontraditional housing option that balances buyer preferences and affordability concerns.

Townhomes not only cater to the deepening affordability constraints but also offer lifestyle features comparative to traditional detached houses with modern – and often more sustainable – amenities. These house-like dwellings, generally with a separate title and individual secure parking, come at a compelling price point that resonates with price-sensitive buyers. In fact, over the last few years, townhomes have cemented themselves as a pathway into homeownership in the face of rising challenges.

Households on a moderate income between $80,000 to $120,000 (for a couple without dependants) can still get a foothold into the property ladder despite the challenges of the larger economic landscape.

As the market dynamics continue to evolve, townhomes remain strong as the bridge between housing choice and buyer desires. Their steadily increasing popularity demonstrates that townhomes are a pivotal element in the market – offering the great Australian dream on an affordable budget.

• Cash rate sits at 4.1% (August 2023)

• Cash rate has risen 400 basis points from historic low of 0.1% in April 2022, and 225 basis points from August 2022

• Major banks have forecasted that rates have likely peaked

• Inflation appears to have peaked but remains elevated

Spotlight on buying power and affordable option

$80,000 household income Couples without dependants

Borrowing

$120,000 household income Couples without dependants

Reduction: $132,900

** This considers a household with average expenditures as defined by the Household Expenditure Survey (HEM).

The data is a sample of sold and on-market townhomes recorded through Q2 2023. The Couple without Dependants household income band of $80,000-$120,000 has been selected based on RPM’s knowledge of townhome purchasers active within the market

Over the last few years, townhomes have cemented themselves as a pathway into homeownership in the face of rising challenges.

Continued Greenfield Townhomes

Building

and Median House and Unit Price Spread

Townhomes are a pivotal element in the market

While the macroeconomic landscape may have initially solidified the position of townhomes as a compelling option for homeownership for those navigating affordability constraints, they are certainly not projected to be a short-lived trend. In fact, townhomes will unlock the opportunity for homeownership for many generations.

The appealing proposition offered by townhomes will continue to rise even as interest rates soften and borrowing capacities begin to increase. Well-functioning markets must offer a variety of housing options that bridge the gap between traditional detached houses and high-density units. This caters to all income levels and best aligns housing amenity with purchasing capacity, limiting unnecessary trade-offs due to a lack of availability of better suited housing options.

As traditional detached house prices rise, it is well anticipated that the more affordable option will further solidify its place as the ideal bridge to the gap.

In markets where this has not been the case – for instance, Sydney – higher density housing has emerged as the primary alternative to detached houses. Conversely – for instance, in Melbourne – where we note the presence of more medium density products, buyers are offered a more viable compromise that meets their lifestyle needs while easing their affordability concerns.

As townhomes gain more momentum in the market, spurred by shifting buyer needs, they will continue to play a critical role in supporting housing needs without unnecessarily sacrificing lifestyle preferences. This extends from metropolitan to greenfield areas; each requiring varied and balanced housing product mix for their respective communities.

Luke Kelly National Managing Director Project Marketing

Outlook

Although the cash rate remained unchanged in July and August, the RBA is maintaining a tightening bias that allows for the possibility of one more rate rise. Despite projections for at least one cash rate rise by the end of the year, we must note this is being carefully monitored and approached with caution. The annual CPI growth of 6% this quarter (although lower than expected) remains significantly higher than the target range of 2%-3%. This is leading many to ask whether the market indeed needs further rate rises or if we will see inflation come down without interference.

The tight labour market with unemployment rates below 4% is exerting upward pressure on wages, including the residential construction industry. This, coupled with elevated construction costs, will likely keep home building a new home an expensive undertaking for many Australians. While overall construction costs remain elevated, building material costs are stabilising.

Amidst this scenario, the new home market faces competition from the established home market, where price corrections offer affordable and comparable housing choices without heightened construction costs. Additionally, an increase in vacant lots on the resale market has intensified competition, with resale lots generally offering lower price per square metre rates than those within estates.

As we look ahead to the second half of 2023, developer incentives and rebates will remain an influential factor in driving lot sales; enabling some buyers to overcome affordability challenges and barriers to entry in the new home market.

Michael Staedler Group Manager Research, Data & Insights

While the recent increase in gross lot sales is a positive sign, it is important to recognise that the market headwinds remain and may result in fluctuated momentum during the second half of the year.

Our Team

Get in touch with our team

Gary Dunne Chief Executive Officer gary@rpmgrp.com.au

Luke Kelly

National Managing Director Project Marketing luke@rpmgrp.com.au

Rod Anderson National Managing Director Communities rod@rpmgrp.com.au

Ed Wright

National Director Transactions & Advisory edwright@rpmgrp.com.au

Imogene Schaefer

General Manager Marketing imogene@rpmgrp.com.au

Peter Grant

National Managing Director Business Development peter@rpmgrp.com.au

Michael Staedler

Group Manager

Research, Data & Insights m.staedler@rpmgrp.com.au

Jane Ormerod

Head of Property Management jane@rpmgrp.com.au

Unlocking Australia's Property Landscape

Disclaimer

Although all reasonable care has been taken in the preparation of this document, RPM Group takes no responsibility for the accuracy of the information contained herein. It is recommended that all the information be verified if it is to be used for commercial purposes.