Q3 23 ECONOMIC AND RESIDENTIAL PROPERTY MARKET REPORT
VICTORIA
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.
Executive Summary Welcome to our Q3 2023 Economic and Residential Property Market Report. This report dives into Australia’s economy and property sector performance within the context of Victoria’s land and housing market. The national economy has continued to expand through the year; however quarterly GDP growth has slowed. GDP per capita is declining as economic growth has not kept pace with this year’s surge in population. Household consumption remained flat this quarter as the combination of rapidly rising interest rates and the escalating cost of living pressures continued to take its toll on consumer sentiment. As evidenced by the savings rate dropping to just 1.1%, households are increasingly relying on the savings accumulated during the pandemic to afford essential goods and services. This challenging affordability and diminishing savings are reducing purchaser activity across the property market; as seen by lower turnover activity in the established market and lower lot sales in the new home market. Reduced borrowing power and high mortgage repayments are also pushing more would-be purchasers into the rental market, which is already strained by record population growth. As a result, we’re seeing historically low vacancy rates and escalating rental rates.
This supply-demand imbalance is unlikely to alleviate in the short term, given falling building approvals and existing investor stock constituting a relatively higher incidence of onmarket dwellings. Although the cash rate appears to have peaked, the RBA is maintaining a tightening bias as necessary in response to sticky inflation. The need for further cash rate rises in the new year will largely depend on inflation – which has slowed. Longer-term property market fundamentals remain sound, however certainty around borrowing capacity will be key to turning around purchaser sentiment. We welcome any questions about specific market segments or topics covered in this report. Please reach out to our highly respected Research, Data & Insights Division for more information. Enjoy the read.
Michael Staedler General Manager Research, Data & Insights m.steadler@rpmgrp.com.au
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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 September 2023, approximately 7,518 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
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RPM Q3 2023 Residential Market and Economic Review
At RPM, we always start with in-depth research and data-driven insights. When we are guided by data, analysis and key findings, we maximise success. Michael Staedler General Manager Research, Data & Insights
5
Economic Overview The elevated cash rate is having their intended impact on Australia’s economy with growth slowing, albeit remaining positive. The impacts of increased interest rates are increasingly flowing through to consumer behavior and softening GDP growth.
6
RPM Q3 2023 Residential Market and Economic Review
Gross Domestic Product GDP - Quarter on Quarter Change
Sep-00 Mar-01 Sep-01 Mar-02 Sep-02 Mar-03 Sep-03 Mar-04 Sep-04 Mar-05 Sep-05 Mar-06 Sep-06 Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 Sep-13 Mar-14 Sep-14 Mar-15 Sep-15 Mar-16 Sep-16 Mar-17 Sep-17 Mar-18 Sep-18 Mar-19 Sep-19 Mar-20 Sep-20 Mar-21 Sep-21 Mar-22 Sep-22 Mar-23 Sep-23
6.00% 5.00% 4.00% 3.00% 2.00% 1.00% 0.00% -1.00% -2.00% -3.00% -4.00% -5.00% -6.00% -7.00%
● GDP Quarter on Quarter Change
Source: Australian Bureau of Statistics
● MAT GDP - Annual Change
GDP recorded 2.20% annual growth in the year to September 2023, down from 3.09% in the year to June 2023. This signals a broader slowdown since the onset of cash rate increases in May 2022. Expectations point to continued subdued growth as the elevated cash rate works through the economy; reaching a low in December 2023 before marginally improving as the cash rate aligns with the RBA’s target band.
0.21% GDP Growth Q3 2023
2.20% GDP Growth Last 12 months
7
Household Savings & Consumption Household Savings Ratio 30.0% 24.0%
25.0%
19.2%
20.0% 15.0%
Average Savings Ratio = 6.4% 2014-2019
10.0% 5.0%
1.1% Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19 Sep-19 Dec-19 Mar-20 Jun-20 Sep-20 Dec-20 Mar-21 Jun-21 Sep-21 Dec-21 Mar-22 Jun-22 Sep-22 Dec-22 Mar-23 Jun-23 Sep-23
0.0%
6.4%
Long Term Savings Rate
24.0%
Peak Savings Rate During Covid
1.1%
Current Savings Rate
The average savings ratio was 6.4% between 2014-2019
Historically low interest rates combined with work from home mandates allowed households to build solid savings buffer through the pandemic
The lowest level observed in the last 15 years with households feeling the pinch of inflation and drastically higher loan repayments
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RPM Q3 2023 Residential Market and Economic Review
Household Consumption 20.0% 15.0% 10.0% 5.0% 0.0% -5.0% -10.0% -15.0% -20.0%
● Essential Spending
Sep-23
Jun-23
Mar-23
Dec-22
Sep-22
Jun-22
Mar-22
Dec-21
Sep-21
Jun-21
Mar-21
Dec-20
Sep-20
Jun-20
Mar-20
-25.0%
● Discretionary Spending
-0.5% Essential
+0.7% Discretionary
Category Consumption Increases
Quarterly Consumption Falls
Spending
Spending
Purchase of Vehicles
+13.0%
Electricity, Gas & Other Fuel
-16.9%
Transport Services
+3.89%
Cigarettes & Tobacco
-3.89%
Furnishing & Household Equipment
+1.61%
Other Goods & Services
-2.83%
Clothing & Footwear
+1.04%
Recreation & Culture
-1.10%
Household consumption hit its lowest level since Q1 2021. This slowdown in spending is a result of higher mortgage rates and persistent cost of living pressures.
9
Interest Rates While the RBA maintained the cash rate at 4.1% in Q3, it issued a 25 basis point increase in November to 4.35%. The rate was held steady in December.
RBA Cash Rate target
4.35% 3.10% December 2023
Futures markets suggest the cash rate has peaked with declines expected from H2 2024. The RBA remains open to further rate increases if needed.
December 2022
Variable Rates
7.31%
5.72%
November 2023
November 2022
3 Year Fixed Rate
6.80% 6.30% November 2023
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RPM Q3 2023 Residential Market and Economic Review
November 2022
Inflation While inflation appears to have peaked, it remains above the RBA’s 2%-3% target. In the year to September, inflation stood at 5.4%; this is up 1.2% in Q3 but down from its recent 7.8% peak in the year to December 2022. The housing component remains significant, driven by heightened construction costs and rental pressures which are supporting sustained inflation.
CPI
5.4%
1.20%
Annual Change
Quarterly Change
Dwelling Index
0.39% 1.26% Melbourne
National
Rental Index
1.92% 2.16% Melbourne
National
11
Labour Markets The hourly rate of pay index rose 1.5% in Q3, marking a 3.69% annual increase. Like last quarter, Q3 saw wages continue to increase at a higher rate than inflation but despite this robust growth, was outpaced by CPI growth - resulting in a decline in real wages.
Victorian Employment and Unemployment Employment rebounded in October with 34,325 workers added, following a slight decline in September (-1,410 workers). Despite this increase, the unemployment rate rose to 3.8%; up from 3.5% in both September 2023 and the same time last year.
+162,133
3.8%
Total Employed Persons 12 months Oct-2023
Unemployment Rate 12 months to Oct-2023
+4.6%
+0.3%
Full time vs. Part time Employment Victoria Monthly change in employment
Unemployment rate
175,000 150,000 125,000 100,000 75,000 50,000 25,000 0 -25,000 -50,000 -75,000 -100,000 -125,000
8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0%
● Full time
12
● Part time
● Unemployment rate
RPM Q3 2023 Residential Market and Economic Review
Oct-23
Aug-23
Jun-23
Apr-23
Feb-23
Dec-22
Oct-22
Aug-22
Jun-22
Apr-22
Feb-22
Dec-21
Oct-21
Aug-21
Jun-21
Apr-21
Feb-21
Dec-20
Oct-20
Aug-20
Jun-20
Apr-20
0.0%
Source: Australian Bureau of Statistics
No. of employed persons added in October 2023
+26,566
+7,758
Full Time Employed Quarterly Change
Part Time Employed Quarterly Change
Wage Growth vs. Inflation Percentage Change 6.00% 4.88%
5.00% 3.69%
4.00% 3.00% 2.00%
1.50%
1.35%
1.00% 0.00%
Quarterly Growth
● Wage price index
Annual Growth
● Consumer price index
13
Market Sentiment Consumer Sentiment Consumer sentiment (consistently recorded in the 80s since the latter half of 2022) has stabilised but remains pessimistic. Although the current reading of 82 shows improvement from Q2 and is above the GFC lows, the persistent sub-100 levels since March 2022 demonstrates an extended period of subdued sentiment. This prolonged soft phase is influenced by the potential for another cash rate rise.
Consumer Sentiment Index Oct-23
82.0
Consumers are grappling with dual challenges of high cost of living and the RBA’s tightening monetary policy, resulting in a sustained decline in real household disposable income. Despite these pressures, there is some positive news in the labour market, with unemployment expected to hold steady despite many economists’ predictions.
Oct-22
83.7
Consumer Sentiment Index (Index-100) 120.0 115.0 110.0 105.0 100.0 95.0 90.0 85.0
82.0
80.0 75.0
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RPM Q3 2023 Residential Market and Economic Review
Jul-23
Oct-23
Apr-23
Jan-23
Oct-22
Jul-22
Jan-22
Apr-22
Jul-21
Oct-21
Jan-21
Apr-21
Oct-20
Jul-20
Apr-20
Jan-20
Jul-19
Oct-19
Jan-19
Source: Westpac-Melbourne Institute Consumer Sentiment Index
Apr-19
Jul-18
Oct-18
Apr-18
Jan-18
Oct-17
Jul-17
Jan-17
Apr-17
Jul-16
Oct-16
Jan-16
Apr-16
Oct-15
Jul-15
Apr-15
Jan-15
70.0
Business Sentiment Business sentiment remains resilient, but the outlook is slightly weaker. While business conditions have seen a slight improvement and remain robust, there is a notable softening in confidence – though it does remain above average.
Business Sentiment Index
Capacity utilisation remains strong, and although price pressures are still high, there is minor easing in labour and purchasing price growth. Persistent inflationary pressures, fuelled by robust capacity utilisation and challenges in both input and output costs, are anticipated to keep inflation firm.
July-23
9.7
Notably, mining, construction, and transport and utilities sectors have seen improved business conditions, whereas the manufacturing and wholesale sectors have eased.
July-22
105.2
NAB Business Conditions Index 40.0 30.0 20.0
+9.7
10.0 0.0 -10.0 -20.0 -30.0 -40.0
Jul-23
Oct-23
Jan-23
Apr-23
Oct-22
Jul-22
Jan-22
Apr-22
Jul-21
Oct-21
Jan-21
Apr-21
Oct-20
Jul-20
Apr-20
Jan-20
Jul-19
Oct-19
Jan-19
Apr-19
Jul-18
Oct-18
Apr-18
Jan-18
Oct-17
Jul-17
Jan-17
Apr-17
Jul-16
Oct-16
Apr-16
Jan-16
Oct-15
Jul-15
Jan-15
Apr-15
-50.0
Source: National Australia Bank Business Survey
15
Victorian Population Although Victoria’s population eased as expected through Q2, it is the highest Q2 result in recent history.
+6,498
Natural Increase
+33,401
Net Overseas Migration
-151
Net Interstate Migration
Natural increase has been in decline from Q4 2022 (10,139 persons) but remain above the Q3 2022 low (5,220 persons). Natural population growth recorded 29,453 persons on an annual basis – this is below the figure recorded through the year to Q1.
Net overseas migration remains the key driver of population growth following the reopening of international borders. Q2 saw the addition of 33,401 new arrivals – although this is the lowest quarterly count in the last year, it is above pre-Covid quarterly levels.
Net Interstate migration’s negative trend has improved slightly following the impacts of Covid. A net decline of –151 persons was recorded through the quarter and –1,863 persons for the year.
+40,198
16
Overall Change The overall population grew 40,198 persons through Q2 2023. Although this was the lowest quarterly increase over the last 12 months, it also marks the highest Q2 increase in recent years. The total population increased by 181,846 persons annually; signifying a recent peak in population growth.
RPM Q3 2023 Residential Market and Economic Review
Population Components 60,000 50,000 40,000 30,000 20,000 10,000 0 -10,000 -20,000
● Natural Increase
● Net Overseas Migration
● Net Interstate Migration
Jun-23
Dec-22
Jun-22
Dec-21
Jun-21
Dec-20
Jun-20
Dec-19
Jun-19
Dec-18
Jun-18
Dec-17
Jun-17
Dec-16
Jun-16
Dec-15
Jun-15
Dec-14
Jun-14
Dec-13
Jun-13
-30,000
Source: Australian Bureau of Statistics
Population Projections 200,000 180,000 160,000 140,000 120,000 100,000 80,000 60,000 40,000 20,000 0 -20,000
2022-23
● Natural Increase
2023-24
● Net Overseas Migration
2024-25 ● Net Interstate Migration
2025-26
2026-27
Source: Australian Bureau of Statistics
17
Melbourne Residential Property Market Q3’s interest rate stability (following 12 cash rate increases in the 13 months to June 2023) led to some initial signs of recovery in residential property demand. This was supported by record population growth augmenting the moderate local demand. In response, vendors were more willing to place their property onto the market; helped by the generally higher-selling spring season. As a result, Q3’s auctions were 24% higher than the same time last year. Nevertheless, this is only partially offsetting the reduced activity from an increasing number of prospective buyers who are being forced to reevaluate their purchasing decisions (as higher interest rates and subsequent diminished borrowing capacity widens the gap between what they desire in a home to the type of dwelling they can afford). Consequently, many are choosing to delay their purchase in favour of saving a larger deposit or until market conditions become more favourable, rather than adjusting their home preferences. As a result, prices are still struggling for momentum, although the annual rate of decline is slowing, and the more affordable unit market has recorded a small uptick on recent prices.
Subsequently, there has been an increase in rebates and discounts offering 5% to 10% off the headline lot price, with the aim of driving sales activity and absorbing titled and near tiled lots that have sat on the market for an extended period. So, while the headline median lot price in Q3 2023 is at a record level of $389,000 and has escalated by 0.8% from the previous quarter and 3.4% annually, the median lot value is likely to have shown a correction after taking into consideration current buyer incentives.
Median House Price
Median Unit Price
$933,500
$633,500
September 2023
September 2023
-5.7% Annually
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New home demand is weakening after record sales during the 18 months from the start of the HomeBuilder Grant (June 2020). Rising cost of living pressures, higher construction costs, and the potential for more interest rate rises during the first half of 2024 are contributing to cautionary buyer behaviour. Additionally, new supply is being restrained to be commensurate with lower lot absorption to avoid the emergence of a large excess in stock and downward pressure on lot prices.
RPM Q3 2023 Residential Market and Economic Review
-1.7% Annually
Median Property Prices $1,200,000
$450,000
$1,100,000
$400,000
$1,000,000 $350,000
$900,000 $800,000
$300,000
$700,000
$250,000
$600,000 $200,000
$500,000 $400,000
Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19 Sep-19 Dec-19 Mar-20 Jun-20 Sep-20 Dec-20 Mar-21 Jun-21 Sep-21 Dec-21 Mar-22 Jun-22 Sep-22 Dec-22 Mar-23 Jun-23 Sep-23
$150,000
● Median House Price
● Median Unit Price
● Median Lot Price
Median Property Price Change 120% 96%
100% 80% 63% 60% 40%
33% 19%
20% 3%
21% 13%
6%
0% -20%
-6%
-2% 1 Year
● Median House Price
-14%
● Median Unit Price
-6% 2 Years
● Median Lot Price
5 Years
10 Years
Source: REIV & RPM Research, Data & Insights
19
Growth Area Affordability Historically a ratio of 30% is considered the ceiling of mortgage stress.
Mortgage to Household Income Ratio - Melbourne Growth Areas $0
$100,000
0%
10%
$200,000
$300,000
$400,000
$500,000
$600,000
$700,000
$800,000
Burnside Eynesbury Aintree Deanside Berwick Bonnie Brook Thornhill Park Craigieburn Officer South Greenvale Mernda Truganina Kalkallo Brookfield Beaconsfield Mickleham Fraser Rise Wollert Cranbourne Strathtulloh Cranbourne South Weir Views Point Lonsdale Doreen Melton South Botanic Ridge Donnybrook Junction Village Waurn Ponds Officer Fyansford Rockbank Point Cook Cranbourne West Cranbourne East Clyde North Truganina Werribee Tarneit Ocean Grove Clyde Mambourin Manor Lakes Nar Nar Goon Wallan Sunbury Diggers Rest Bacchus Marsh Mount Duneed Beveridge Wyndham Vale St Leonards Charlemont Pakenham Nar Nar Goon North Armstrong Creek Lara 20%
30%
40%
● Principal Amount (80% Loan) ● Amount Taken up by Loan Repayment (% of income) - Historical 30% income used to finance a mortgage
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RPM Q3 2023 Residential Market and Economic Review
50%
60%
70%
Source: RPM Research, Data & Insights
Income ratios in all growth area suburbs have increased, ranging from 38% in Lara and Armstrong Creek to 61% in Burnside.
21
Victorian Finance Activity Loans by Owner Occupier Type
Average Loan Size by Buyer Type
Owner occupier loans declined this quarter (24,547) following Q2’s rebound (25,285) from Q1 (21,099). This is a 13% decline over a 12-month period.
The average first home buyer loan saw a -0.6% decline in Q3, settling at $496,417, while the average upgrader loans saw a +0.9% increase, reaching an average loan size of $588,583.
First home buyers and upgrader loans fell -0.4% and -4.2% respectively; aligning with a larger annual decline of –2.2% and –18.6%. Despite this, first home buyer loans have been relatively stable, increasing from 31% to 35%
Since the RBA began raising the cash rate in May 2022, the average upgrader loan size has softened while first home buyer loans have remained relatively stable. This reduction in loan size has been influenced by diminishing
over a 12-month period. On the other hand, upgrader loans may have softened due to higher interest rates and limited availability of stock in the secondary market.
borrowing capacity and a softening of prices in the established housing market. This situation is likely to persist as the cash rate stabilises, with the expectation of upward pressure when the RBA starts reducing the interest rate from late 2024 to early 2025.
Number of Loans by Owner Occupier Type
● First Home Buyer
22
● Non First Home Buyer
● FHB Share of Owner Occupiers
RPM Q3 2023 Residential Market and Economic Review
Sep-23
Mar-23
0%
Sep-22
5%
0
Mar-22
5,000
Sep-21
10%
Mar-21
10,000
Sep-20
15%
Mar-20
15,000
Sep-19
20%
Mar-19
20,000
Sep-18
25%
Mar-18
30%
25,000
Sep-17
30,000
Mar-17
35%
Sep-16
35,000
Mar-16
40%
Sep-15
40,000
Mar-15
45%
Sep-14
45,000
Mar-14
FHB Share of Loans
Sep-13
Count
Source: Australian Bureau of Statistics
Victorian Finance Activity Highlights New Loan Applications 40,000 35,000
-2.4%
5,000
Sep-23
Mar-23
Sep-22
Sep-21
Mar-22
Mar-21
Sep-20
Sep-19
Mar-20
Mar-19
Sep-18
Mar-18
Sep-17
Mar-17
Sep-16
Mar-16
0
Sep-15
New Erected Dwellings Growth:
10,000
Mar-15
-6.3%
15,000
Sep-14
Established Loan Growth:
20,000
Mar-14
Total new loan applications
25,000
Sep-13
23,182
30,000
● Construction of a Dwelling ● Newly Erected Dwelling ● Established Dwelling ● Residential Land
Construction of New Dwelling: -38%
$496,417
$588,583
$92,166
Average FHB Loan Size
Average Non-FHB
A 19% difference between
Loan Value
buyer type
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Victorian Building Activity Approvals & Commencements 13,671 dwellings were approved in Q3, marking an 18% increase from Q2 (11,588 dwellings), yet a –10% decline from the same time last year (15,190 dwellings). Of these, 60% (8,278) were for detached houses, while townhomes (2,677) and apartments (2,716) constituted around 20% of approvals. This quarterly increase remains below the Covid highs (and pre-covid levels), with dwelling approvals and future supply likely to remain a key issue into the medium term. Total commencements are expected at 52,390 dwellings in FY24; a -3.2% decline from last year. FY23 saw a significant -19.5% drop (54,100 dwellings) from FY22 (67,230 dwellings).
Anticipated stabilisation in FY25 (52,800 dwellings) marks a 0.8% increase, followed by a larger 5.3% rise in FY26. Detached housing commencements are projected to decrease -13.6% in FY24 (following FY23’s -14.4% decline) as the market reacts to the HomeBuilder’s pull forward in demand, construction cost escalations, and resourcing limitations. It will continue to soften through FY25 (-7.7%) before increasing in FY26 (+7.2%). Multi-unit commencements are set to increase in FY24 (+16.6%), maintaining strong, albeit easing, growth in FY25 (+12.7%) and FY26 (+3.2%). The market is challenged by reduced borrowing capacity and cost of living pressures which impact demand, while construction and funding costs are applying pressure to the supply side.
Approvals by Dwelling Type 14,000 12,000 10,000 8,000 6,000 4,000 2,000
Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19 Sep-19 Dec-19 Mar-20 Jun-20 Sep-20 Dec-20 Mar-21 Jun-21 Sep-21 Dec-21 Mar-22 Jun-22 Sep-22 Dec-22 Mar-23 Jun-23 Sep-23
0
● Detached Houses
24
● Townhomes
● Apartments
RPM Q3 2023 Residential Market and Economic Review
Source: Australian Bureau of Statistics
Victorian Building Activity Highlights Over Q3 2023
8,278
2,677
2,716
Detached Home Approvals
Semi-Detached, Terrace & Townhome Approvals
Apartment Approvals
+9.1% over the quarter -16.3% over the year
+15.4% for the quarter +1.9% over the year
+61.5% over the quarter +1.5% over the year
Commencements by Property Type 80,000
Forecast
70,000
13,674
60,000 50,000 40,000 30,000
Total Completions
20,000 10,000
2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24 2024/25 2025/26
0
● Houses
-4.7% over the quarter -13.3% over the year
● Multi-units
25
Economic Outlook An uncertain year lies ahead for the economy and property market with a host of headwinds and tailwinds fighting it out.
Consumer Confidence
Re-opening of borders
Remains fragile due to elevated mortgage rates and high cost of living pressures.
Strong overseas migration is increasing pressure on the occupier market and underpinning rent inflation.
Inflationary Pressures
Labour Market
Peaking at the end of December, inflation remains high; impacting the standard of living. Although expected to ease, it will likely remain elevated over the next 12 months.
Unemployment is easing with capacity utilisation supporting wage growth. However, it remains below inflation and is underpinning real wage declines.
Cash Rate
Melbourne’s Reputation
Appears to have peaked with the potential for
Economist Intelligence Unit (EIU) ranks Melbourne
an increase if necessary. High rates have placed
the 3rd most liveable city in the world, and the
pressure on household consumption and reduced
most liveable in Australia.
borrowing capacity.
26
RPM Q3 2023 Residential Market and Economic Review
Compounding Demand Strong population growth and millennial household formation are increasing demand. High construction and funding costs are underpinning a significant supply gap.
Australian Dream The great Australian dream of homeownership remains. This is achievable through the supply of a diverse dwelling options.
27
Apartments & Townhomes Meeting Plan Melbourne’s 70% target for future dwelling supply from infill areas hinges on increased construction of townhomes and apartments. However, the viability of higher-density housing faces several challenges, including investor participation, undersupply, and elevated costs.
Elevated (albeit stabilising) construction and funding costs are exacerbating the current situation.
As previously mentioned, investor activity is vital to boosting supply in the tight rental market, especially in the build-to-sell sector. Yet, since the mid- to late-2010s investors have faced cumulative tax increases and additional costs which have reduced their participation; which, in turn, is contributing to the undersupply of rental products.
Ongoing affordability constraints are supporting the expression of demand and sale with more affordable (higher density) products.
This undersupply has intensified since the reopening of international borders. The population surge, driven by an influx of international students and pandemic-induced changes in household formation, has resulted in historically low vacancy rates and increased rents1.
Despite these challenges, the build-to-rent sector presents a glimmer of hope by providing much-needed support for new dwelling supply. However, it should be noted that initially, this supply will play a complementary role rather than serving as a standalone solution to the market’s undersupply issues. 1
Metropolitan Melbourne recorded a 2.5% vacancy rate as at October 2023 – REIV. Apartment rents recorded 16% growth through the 12 months to October 2023 - REIV.
Townhome Approvals, Commencements & Completions 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000
Dec-20 Mar-21
● Approvals
28
Jun-21
● Commencements
Sep-21
Dec-21 Mar-22 Jun-22 Sep-22 Dec-22 Mar-23 Jun-23 Sep-23
● Completions
RPM Q3 2023 Residential Market and Economic Review
Source: RPM Research, Data & Insights
Approvals
Total Townhomes
Total Apartments
Total
Q3 2023
2,677
2,716
5,393
Change from previous quarter
15.4%
61.5%
34.8%
Change from previous year
1.9%
1.5%
1.7%
12 months to Q3 2023
10,072
10,243
20,315
% change 12 months earlier
-18.3%
-17.9%
-18.1%
Commencements
Other Dwellings
Completions
Other Dwellings
Q2 2023
3,299
Q2 2023
4,145
Change from previous quarter
-50.0%
Change from previous quarter
-20.7%
Change from previous year
-35.5%
Change from previous year
-17.2%
12 months to Q2 2023
18,590
12 months to Q2 2023
21,367
% change 12 months earlier
-28.0%
% change 12 months earlier
6.2%
Total Apartment & unit Prices
Median price
Change to Q2-2023
Change from Q3-2022
Q3 2023
$633,500
+1.0%
-1.7%
Q2 2023
$627,500
Q2 2022
$644,500
Note: Approvals are to Q3 2023, while commencements and completions are delayed by a quarter (Q2 2023).
29
Apartments and Townhome Outlook Occupancy Demand
Rental Growth
Population growth has been spurred by the reopening of international borders and increasing
Increased 16% for apartments and 10% for detached houses in the year to October 2023.
rental demand. Net overseas migration increased by 137,645 persons in the year to March 2023.
Vacancy
Affordable Alternatives
Tightening due to population growth and occupancy demand. Vacancy rates declined from 3.00% in October 2022 to 2.5% (REIV) in October 2023.
The house to unit price gap was $300,000 in September 2023, marking apartments and townhomes an affordable alternative to detached houses.
Limited Supply
Pricing Pressures
High construction and funding costs are hindering
Ongoing affordability challenges in the
capacity to deliver new supply; creating a
detached housing market and diminishing
demand and supply imbalance. Other dwelling
purchasing power will drive demand for
completions (4,145 dwellings) represent an
compact and affordable alternatives.
ongoing quarterly decline through H1 2023.
30
RPM Q3 2023 Residential Market and Economic Review
31
Rental Markets The rental market remains tight in the face of strong international migration and pandemic-induced shifts in household structures. Additionally, reduced borrowing capacity and affordability constraints are pushing more would-be purchasers into the rental market, contributing to the historically low vacancies and rising rental rates. House Weekly Rents
Inner
Middle
Outer
Geelong
Change from Q2-2023
Change from Q3-2022
2 year avg annual gain
Beds
Q3-2022
Q2-2023
Q3-2023
2
$580
$600
$620
$20
3.3%
$40
6.9%
3.2%
3
$700
$750
$750
$0
0.0%
$50
7.1%
4.6%
4
$900
$950
$988
$38
4.0%
$88
9.8%
7.8%
2
$400
$430
$440
$10
2.3%
$40
10.0%
4.9%
3
$460
$490
$500
$10
2.0%
$40
8.7%
4.3%
4
$615
$650
$670
$20
3.1%
$55
8.9%
5.7%
2
$380
$400
$420
$20
5.0%
$40
10.5%
5.1%
3
$420
$450
$460
$10
2.2%
$40
9.5%
4.7%
4
$470
$500
$520
$20
4.0%
$50
10.6%
6.3%
2
$330
$350
$355
$5
1.4%
$25
7.6%
8.8%
3
$400
$420
$420
$0
0.0%
$20
5.0%
5.1%
4
$470
$500
$500
$0
0.0%
$30
6.4%
4.8%
Source: Real Estate Institute of Victoria
Units and Apartments Weekly Rents
Inner
Middle
Outer
Geelong
Change from Q2-2023
Change from Q3-2022
2 year avg annual gain
Beds
Q3-2022
Q2-2023
Q-2023
1
$350
$400
$420
$20
5.0%
$70
20.0%
12.8%
2
$460
$525
$550
$25
4.8%
$90
19.6%
10.6%
3
$670
$700
$750
$50
7.1%
$80
11.9%
7.0%
1
$330
$350
$360
$10
2.9%
$30
9.1%
7.8%
2
$400
$440
$450
$10
2.3%
$50
12.5%
6.1%
3
$530
$550
$580
$30
5.5%
$50
9.4%
4.6%
1
$300
$320
$320
$0
0.0%
$20
6.7%
6.9%
2
$380
$400
$420
$20
5.0%
$40
10.5%
5.1%
3
$445
$470
$480
$10
2.1%
$35
7.9%
3.3%
1
$250
$270
$280
$10
3.7%
$30
12.0%
5.8%
2
$330
$350
$350
$0
0.0%
$20
6.1%
4.6%
3
$410
$430
$440
$10
2.3%
$30
7.3%
7.6%
Source: Real Estate Institute of Victoria
32
RPM Q3 2023 Residential Market and Economic Review
Vacancy Rates (%) 9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0
● Inner Total ● Middle (10-20km) Outer Total Melbourne Total Melbourne Three Year Average
Geelong
Yields - Houses
Sep-23
Jun-23
Mar-23
Dec-22
Sep-22
Jun-22
Mar-22
Dec-21
Sep-21
Jun-21
Mar-21
Dec-20
Sep-20
0.0
Source: Real Estate Institute of Victoria
Yields - Units
Houses
Q3-2022
Q2-2023
Q3-2023
Houses
Q3-2022
Q2-2023
Q3-2023
Inner
2.06%
2.19%
2.17%
Inner
3.57%
4.21%
4.30%
Middle
2.26%
2.33%
2.41%
Middle
3.09%
3.34%
3.45%
Outer
2.80%
3.17%
3.19%
Outer
3.43%
3.69%
3.80%
Metro
2.60%
2.86%
2.95%
Metro
3.39%
3.81%
3.94%
Regional
3.58%
3.78%
3.87%
Regional
4.25%
4.49%
4.49%
Source: Real Estate Institute of Victoria
Source: Real Estate Institute of Victoria
33
Outlook Melbourne’s property market faced challenges in Q3 2023 although potential relief is expected from 2024 to early 2025. While some factors stabilised this quarter, ongoing challenges (including the future cash rate and inflation) persist. The market continues to adjust to recent cash rate movements which will take time before positive momentum is fully restored. Market sentiment improved following the stable cash rate in Q3, driven by expectations of reaching the cash rate peak and broader policy stability. However, inflationary pressures led to an additional rate rise in November – this is attributed to local factors rather than global supply chain issues. While the RBA acknowledges the potential for future rate increases if needed, the broader futures market suggests the cash rate has peaked – pointing to the potential for reduction through H2 2024. Delivering new supply remains challenging, with elevated (albeit easing) construction costs and high funding costs limiting the feasibility of new projects. Although easing, the anticipated strong population growth will continue to place pressure on the rental market; maintaining low vacancy rates and firm weekly rents until significant new supply is introduced.
34
RPM Q3 2023 Residential Market and Economic Review
35
Our Team Executive and Business Development Gary Dunne
Peter Grant
Chief Executive Officer gary@rpmgrp.com.au
National Managing Director Business Development peter@rpmgrp.com.au
Communities, Project Marketing, and Transactions & Advisory Luke Kelly
Rod Anderson
National Managing Director Project Marketing luke@rpmgrp.com.au
National Managing Director Communities rod@rpmgrp.com.au
Imogene Schaefer
Ed Wright
General Manager Marketing imogene@rpmgrp.com.au
National Director Transactions & Advisory edwright@rpmgrp.com.au
Research, Data & Insights Michael Staedler
Andrew Raponi
General Manager Research, Data & Insights m.staedler@rpmgrp.com.au
Research Manager Research, Data & Insights a.raponi@rpmgrp.com.au
Jonathan Mayes Research Manager Research, Data & Insights jonathan@rpmgrp.com.au
36
RPM Q3 2023 Residential Market and Economic Review
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.
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