RPM Q1 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, and international investment sales.

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.

Inside

03 From Our CEO

Affordability remains top of mind with the Federal Budget prioritising cost of living and the RBA continuing its focus on getting inflation back on the target range.

06 Lead Indicators

The key numbers driving the market; with Melbourne’s housing price slide beginning to slow, unemployment stabilising at near historical lows, and population growth booming.

08 Development Sites

Developers are shifting focus, with increasing appetite for greenfield sites to deliver community infrastructure to meet the needs of growing communities in growth areas following the HomeBuilder buying frenzy.

10 Greenfield Case Study

A spotlight on an expression of interest campaign to deliver two landmark private schools in Melbourne’s growth corridors.

12 Vacant Land Market

The active pool of buyers in the vacant land market has diminished, but purchasers remain focused on building large homes to support lifestyle decisions including working from home, and savvy developers are offering discounts and incentives to draw buyers into the market.

28 Regional Markets

Prices are moderating in regional areas, with sales volumes across both Ballarat and Bendigo dropping significantly.

34 Greenfield Townhomes

With increased pressure on household finances and buying power being reduced significantly with 11 cash rate rises since May 2022, the appeal of townhomes remains solid.

From Our CEO

• Buyers still cautious, growing consensus that interest rates may have hit their peak

• Affordability concerns likely to persist for some time

• Listed and private developers enticing buyers through incentives and discounts

The latest Federal Budget prioritised cost of living, given the extraordinary changes in household finances driven by the worldwide pandemic and its aftermath. While this year’s budget announcement offered little reprieve for the property sector, an ongoing focus on kerbing inflation is intended to take the pressure off for everyday Australians. The expanded eligibility criteria for the First Home Guarantee and Regional First Home Buyer Guarantee may tempt more buyers to commit, although it will be at the cost of higher loan debt for these purchasers.

With a number of major builders collapsing in the past few months, not to mention 11 interest rate rises since May 2022, it’s unsurprising that potential home buyers remain cautious.

This sentiment was reflected in the new home market in Q1 2023, with 1,879 total gross lot sales across Melbourne and Geelong growth areas; the lowest number we’ve seen since April 2019.

The Reserve Bank of Australia (RBA)’s 25 point basis rise in May took many by surprise, as commentary had broadly suggested interest rates were approaching their peak. However, many financial institutions and leading economists are still predicting rates to climax at 3.85%, with fixed rates already coming down and Commonwealth Bank of Australia even remaining wed to an anticipated rate drop in the final quarter of this year.

Affordability remains top of mind, especially as the RBA continues to focus on getting inflation back to the target range, and more interest rate rises are not yet off the cards.

The reality for many Australians hoping to buy a home is that access to finance has become much more difficult and purchasing power has been drastically reduced. Our buyer surveys are showing this has led to a difficult decision; to either wait to buy, or compromise on build type and or location.

Developers are recognising this hesitancy, and have instigated incentives and discounts to increase the appeal of existing stock. We’re also seeing more diversity in land sizes on market to cater to a more cost-conscious buyer, and the sustained popularity of townhomes as a more attainable entry point to the market, particularly for first home buyers.

While retail demand is suppressed, developers are beginning to focus on community infrastructure to satiate the needs of the incoming population. This follows the sales boom of the HomeBuilder program across the growth corridors, creating future need for childcare, schools, medical centres, convenience retail and even specialist supermarkets to support the cultural diversity in buyer type across certain areas.

Should you require further details, please visit 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

Andrew Raponi, RPM Research Manager & Michael Staedler, RPM Group Manager - Research, Data & Insights

Comprehensive Market Research and Intelligence

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 who provide real-time market intelligence, analysis and strategic advice.

The team’s knowledge and expertise is an invaluable resource for RPM’s developer clients, providing the platform for intelligent, informed, and strategic decision-making in the evaluation of residential development and investment opportunities.

Our research is comprehensive, monitoring over 500 projects across the east coast of Australia. And, our reporting can be tailored to provide you the specific intel you need to drive the success of your project.

FOR FURTHER INSIGHTS OR BESPOKE ANALYSIS CONTACT

Michael Staedler

Group Manager - Research, Data & Insights

m.staedler@rpmgrp.com.au

Andrew Raponi Research Manager

a.raponi@rpmgrp.com.au

Jonathan Mayes Research Manager

j.mayes@rpmgrp.com.au

Or sign up for each of our quarterly reports by visiting rpmgrp.com.au

Lead Indicators

Cash Rate (May-23)

3.85%

After a pause in April, the RBA rose for the 11th time in 12 months

Quarterly GDP (Dec-22)

0.50%

Growth slowed in each of the last two quarters

Quarterly Inflation (Mar-23)

1.40%

While falling, it was still 7% for the 12 months to March 2023. Extreme levels were recorded in medical and hospital, and travel and accommodation

Unemployment Rate (Mar-23)

3.50%

Stabilising at near historical low

Annual Population Change VIC (Sep-22)

128,670

After easing in growth in Q2 '22, a record gain was recorded in Q3 '22

Exchange Rate AUD/USD (Mar-23)

0.67

Relatively unchanged over the quarter

VIC Wage Growth Index (Dec-22)

0.80%

Keeping in line with the national average on both the quarter and year

Melbourne Median House Price (Mar-23)

$955.5k

Down but slowing. Down 2.5% over the quarter and 14.2% over the year. Expectation is for '23 to ease further 2-5%

VIC Average Weekly Earnings (Nov-22)

$1,793

Ranking mid field with other states

VIC State Final Demand (Dec-22)

0.21%

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

VIC Unemployment (Mar-23)

3.70%

Edged up slightly from its record low of 3.5%. Remains under 4% for the 11th straight month

VIC Employment Participation (Mar-23)

64.80%

Sitting in line with the national average

Source: ABS, RBA, REIV. All data updated as of 4/2/2023

Development Sites

Thousands of growth corridor residents are eagerly anticipating the keys to their new homes, following the frenzied residential land buying spree and subsequent construction backlog over the past few years. And as such, developers are shifting gears.

Commercial land projects are emerging as a core focus for the greenfield market, as developers seek to support burgeoning populations with vital community infrastructure.

Over the last three years, Melbourne’s growth areas have sold more than 54,000 lots. With a projected average of three people per household, those lots will support a population above 160,000 once developed.

Consequently, RPM has identified a growing appetite for commercial and mixeduse development sites in proximity to populous residential parcels, driven by these considerable numbers.

The physical community asset and lifestyle needs of a growing population unlock core opportunities for savvy developers. The recent sale of Craigieburn Central Shopping Centre for $300 million demonstrates the long-term value of community infrastructure in a residential growth corridor.

Across Melbourne’s current growth areas, particularly with the prevalence of young families (with 57% of purchasers in RPM’s buyer surveys households with children and an additional cohort of young couples planning a family), childcare is one of the first community demands that requires delivery. This is often followed by medical services, commercial and convenience, all the way up to fully immersive town centres.

Some developers are harnessing the future potential of population diversity, with specialist offerings such as Indian supermarkets being developed where a high migrant population has purchased land.

Private schools are an additional value-add opportunity for developers, with RPM recently opening expressions of interest for two school sites in rapidly growing residential areas - Beveridge and Eynesbury - as developers consider the full life cycle and infrastructure needs of Melbourne’s expanding communities.

GREENFIELD FOCUS SHIFTING

With 23,500 lots sold in the Caroline Springs and Cobblebank suburbs in the Western growth corridor in the past eight years, and so few supermarkets, it’s clear the delivery of vital community infrastructure often doesn’t keep pace with this level of growth. This is resulting in strong interest from all around the country for these types of Melbourne greenfield assets, given the opportunity for smaller-scale commercial centres which can be operational far earlier than major town centres with anchored supermarkets.

COLES

Back to School

SPOTLIGHT ON THE EYNESBURY AND BEVERIDGE SCHOOL SITE OPPORTUNITY

RPM has recently announced the launch of an Expression of Interest campaign that will deliver two new landmark private schools in Melbourne's western and northern growth corridors.

EYNESBURY SITE

Midway between Melton and Wyndham growth corridors

Forecast 10,000 residents

Arterial roads will expand student catchment to include Western growth corridor and Geelong

Future town centre offers mix of retail, commercial and entertainment

Resident profile supports non-government education opportunities

Additional land beyond township boundary offering potential for future sporting facilities

BEVERIDGE SITE

Northern growth corridor

Talisen masterplan includes 5,000 residents

The development sites are both primed to make the most of their surrounding vibrant, thriving communities. Located in emerging suburbs of Eynesbury and Beveridge, the sites offer a rare opportunity to expand a well-established education brand in two of Melbourne’s fastest-growing regions.

PSP will include a 3 hectare non-government school on the site

The developer working alongside RPM on this campaign is Resimax Group, who is delivering seven communities across the growth areas of Melbourne, including both Eynesbury and Beveridge. Their vision is to provide future schools fit for both today and tomorrow, in their pursuit to build the best possible communities.

Exceptional road connectivity

Future rail station just 2.5km from the site

Site adjoins proposed 10 hectare sports reserve

These projects will cater to a new generation of students, expand educational opportunities, and help build more thriving communities for Melburnians.

For more information about the Eynesbury and Beveridge school site opportunity, or to arrange a confidential briefing session, please contact our team.

Zaynoun Melhem

Victorian Sales

Manager

zaynoun@rpmgrp.com.au

- Transactions & Advisory

Northern growth area has demonstrated demand for private schools, with a number of successful campuses in operation

Vacant Land Market

Market headwinds have diminished the pool of active buyers in the new home market, but with 43% of purchasers in Q1 2023 making their buying decision on their first visit to an estate*, a relative level of market confidence is apparent.

New home demand in Q1 is always impacted by seasonal factors including January’s holiday period, and consequently, sales activity across Melbourne and Geelong growth areas declined another 9% in Q1 2023. Total gross lot sales were 1,879, in line with the previous cyclical low in Q2 2019.

With 11 cash rate rises over a 12-month period, leading to a total cumulative rise of 375 basis points since May 2022, alongside the recent surge in residential construction costs, buyers are facing significant barriers to enter the new home market. This has left many in the unenviable position of deciding whether to adjust their expectations to meet their lower budget limitations, or delay their purchasing decision.

RPM buyer surveys suggest that purchasers are overwhelmingly choosing the latter, with the average home sizes (excluding townhomes) expanding from 23.5 to 26 squares between Q1 2022 and Q1 2023, despite rising build costs. This preference is a nod to flexible working arrangements sustaining post pandemic, and purchasers seem willing to sacrifice land size to maximise building expenditure, with Melbourne’s median lot size shrinking 5.4% to 350 square metres in just 12 months.

Median lot prices edged lower by 0.3% in Q1 2023 to $380,900. Some downward pressure on prices has come from increased supply, with new releases increasing 7% to 1,984 lots. This has led to the highest level of stock on market across the growth areas in two years; a total of 4,400 lots.

A greater incidence of rebates and incentives in the new home market is helping to support sales volumes, and is influencing purchase locations, with sales concentrated in masterplanned communities where larger developers have a greater capacity to offer discounts. These rebates and incentives equate to around 5% of the purchase price, but are not captured in the median price calculation, which lists the headline lot price.

Median lot prices edged lower by 0.3% in Q1 to $380,900.

Downward pressure on prices has come from increased supply, with new releases increasing 7% to 1,984 lots. Contact

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

*Data captured through RPM’s buyer surveys

Source: RPM Research, Data & Insights

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 Q1 2023.

Western Corridor

The decline in active estates through 2021 and 2022 was reversed in Q1 2023, with three new estates in the Western Growth Corridor bringing total estates to 85. Notwithstanding, new supply still contracted by 10% to 746 lot releases, the highest quarterly fall across all growth areas.

Sales decreased 7% to 797 lots this quarter, but the area’s dominance among the four growth areas continues, with a 42% share of all sales. Median lot prices remained static at $385,000, while the median lot size reduced marginally to 350 square metres. While Wyndham and Melton lot sizes remain on par, pricing diverged to create a relatively wide value gap between the two suburbs.

BUYER SURVEY OVERVIEW

Couples with children were the most prominent household type in the Western Growth Corridor, representing 59% of all purchasers. Just over half of all purchasers were planning a single storey build - the highest representation among growth areas. Average home sizes were still relatively large, though, with a third planning a build above 30 squares.

The Western Growth Corridor includes growth areas of Melton, Wyndham and Bacchus Marsh.

797 Gross Lot Sales 71% Owner Occupiers

746 New Lot Releases 69% First Home Buyer

350 sqm Median Lot Size 44% of Buyers Aged 25-34

$384,950 Median Lot Price 18% Household Income $80-100k

Northern Corridor

Sales dropped 3% in the Northern Growth Corridor to 564 lots in Q1, but this was a relatively small decline across all growth areas. Consequently, the area’s proportion of total sales grew to 30%, the highest share in seven years.

Increased supply and stabilising interest rates helped curb the downward sales trend, with new releases jumping 28% to 562 lots. The relative affordability of the Northern Growth Corridor, with median prices 5% and 14% below Western and South East Corridors respectively, also supported demand in an environment where purchasers are increasingly price conscious.

BUYER SURVEY OVERVIEW

Proportionately there were more first home buyers in the Northern Growth Corridor than any other growth areas, and subsequently a higher instance of buyers aged 25 to 34. Despite the relatively younger buyer profile, couples with children still accounted for over half of all purchasers. While home build sizes varied in Q1, construction budgets were concentrated around the $300,000 to $350,000 range.

The Northern Growth Corridor includes growth areas of Hume, Whittlesea, Sunbury & Macedon, and Mitchell.

ACTIVE AND NEW ESTATES - NORTHERN CORRIDOR

NUMBER OF ESTATES

564 Gross Lot Sales 77% Owner Occupiers

562 New Lot Releases 76% First Home Buyer 350 sqm Median Lot Size 46% Of Buyers Aged 25-34

$365,000 Median Lot Price 20% Household Income $80-100k

South East Corridor

Sales in the South East Corridor hit a long-term low in Q1 2023, with a 24% quarterly fall to 345 lots, representing just 18% of total growth area sales. The catalyst for this drop was Cardinia, where both sales and releases more than halved. Conversely, new supply increased by 27% in Casey, and the fall in gross lot sales was more moderate.

Median lot pricing rebounded from the previous quarter, rising 5.4%. However, this growth was largely driven by median lot sizes increasing by 8.4%, and still saw per square metre pricing going backwards.

BUYER SURVEY OVERVIEW

The relatively expensive pricing in the South East Growth Corridor meant the lowest representation of first home buyers across all growth areas. Likewise, a higher proportion of buyers were couples without children (42%), and people aged 50 to 59 (16%).

The South East Growth Corridor includes growth areas of Casey and Cardinia.

81%

38%

36% Of Buyers Aged 25-34

$425,000 Median Lot Price 8% Household Income $60-80k

Geelong Corridor

Supply and demand recovered in Q1 2023, following last quarter’s long-term lows. New lot releases jumped by 45%, partly aided by a rise in active estates. Gross lot sales increased 7% to 173 lots, but with new supply outpacing lot absorption, average time on market has ballooned to just over three months, longer than any of Melbourne’s growth corridors.

Lot pricing in the Geelong Growth Corridor continued its upward trajectory, with the median lot value rising another 1% and median lot size remaining static at 400 square metres.

BUYER SURVEY OVERVIEW

Geelong Growth Corridor had the lowest proportion of owner occupiers across all growth corridors, highlighting solid investor appetite in the region. As a result, there was a relatively small proportion of first home buyers and the age profile was older. In turn, this drove a greater demand for larger homes, with 38% intending to build a home larger than 30 squares.

VACANT

173 Gross Lot Sales 57% Owner Occupiers 282 New Lot Releases 40% First Home Buyer 400 sqm Median Lot

24% Of Buyers Aged 25-34 $389,000 Median Lot Price 5% Household Income $160-180k

Regional Market

CONTINUED HOUSEHOLD FINANCE PRESSURES CREATING LONG-TERM DEMAND LOW

Supply has outstripped demand across most regional areas in a post-pandemic landscape. Affordability concerns, together with continued construction cost rises and hesitancy around company viability in the wake of big-name builders going under, are creating strong headwinds for potential buyers. This is likely to remain the case through the balance of 2023.

Subsequently, prices have started to moderate. In Q1 2023, median house prices increased 2.2% year-on-year, a far slower growth rate than the annual average of 10.3% per annum between March 2017 and March 2022, and fell 0.3% for the quarter to $602,000.

Ballarat Corridor

After closing out 2022 with four consecutive quarters of reduced sales activity, the new year opened with an even more depressed quarterly result of 43 sales - a new long-term low. This is a 55% quarterly reduction and a significant 87% drop year-on-year. In fact, this is the lowest quarterly outcome since March 2016.

Considering many developers have voiced concerns over delivery of stock sold through HomeBuilder, it is not surprising that new releases fell to only 62 lots – the lowest since December 2016. Even with this considerable reduction, gross sales did not absorb the level of stock on the market, exacerbated by the high level of lots returned to the market over the past three quarters, and leaving 375 lots on market.

Since the median lot price peaked in June 2022 at $315,000, little has changed. There was a marginal fall over the second half of 2022, before a slight increase in Q1 resulting in a new peak of $315,999. While this price reflects the retail pricing, incentives and rebates are back in the market, so prices are realistically down by around 5%.

Median lot sizes have remained at 448 square metres for five quarters in a row. Unsold lots were both larger and more expensive than the median of sold stock, which in itself is not unusual, given stock overhang tends to sit just above the sold lots. The fact the divergence has increased in recent months, however, is demonstrative of affordability constraints and rising interest rates.

OUTLOOK

Demand for regional property has not unexpectedly disappeared post pandemic, and in fact, we expect an elevated level of demand moving forward. To capitalise on this demand, however, regions need to offer appropriate lots for potential buyers; with careful consideration to price as a priority, and size (slightly smaller than traditional lots). Many local buyers have been priced out and have had to leave their hometown. The creation of smaller lots (and even townhomes) offers budget-conscious buyers a means of entering the market, and can help abate this trend.

The current interest rate forecast offers more certainty for buyers over the second half of 2023; with serious buyers in a strong position to negotiate with developers. Nevertheless, sales across the region will continue to be challenged by affordability concerns in the short term. With lot prices remaining elevated and continued uncertainty around building company viability and overall construction costs, buyers are likely to remain relatively absent for the balance of 2023.

43 Gross Lot Sales This is the lowest quarterly outcome since March 2016

375 Lots Available Overall stock levels remain depressed 448sqm Median Lot Size No change from the last quarter $315,999 Median Lot Price Prices are realistically down by around 5%

Bendigo Corridor

Following triple digit sales through the first half of 2022, the Bendigo region has had a sales reversal. Gross lot sales in Q1 2023 dropped 16% to just 49 sales, which was a 66% fall year-on-year, and the lowest quarterly result since September 2021.

This constrained level of activity is reinforced by the total stock on market reaching a two-and-a-half year high of 243, despite a record low of 19 lots being released this quarter. As a result, stock at the end of the month reached 194 lots; up 13% from the previous quarter and the highest level since June 2020.

Elevated pricing has persisted across the region, with another 1% increase in Q1 driving the region’s median price to a record level of $267,000 - 21% higher than the same time last year. Per square metre pricing has actually fallen, though, given median lot sizing increased to reach 512 square metres.

Although HomeBuilder drove an increase in sales volumes across all of Bendigo’s regions, the Northern region has consistently out-performed other areas, and in Q1 2023 once again took the lion’s share of activity.

OUTLOOK

We anticipate sales activity in the region to remain subdued over the next 12 months, as interest rates look set to remain elevated for at least the rest of the year.

An increased level of available stock in Bendigo’s regions outside of the north will assist in buyer activity with the diversity of stock attracting a wider range of households. For example, the west offers more value with larger lots and a lower price per square metre, whereas Bendigo’s east offers additional product variation with premium lots and higher price points, catering to second or third homebuyers.

49 Gross Lot Sales

A decrease of 16% from last quarter

194 Lots Available A increase of 13% from last quarter

512 sqm Median Lot Size

Per square metre pricing has fallen from last quarter

$267,000 Median Lot Price

An increase or 1% over the quarter

The continued appeal of townhomes

Current economic conditions are placing increasing pressure on buyers. Exceptional rental growth, higher cost of living and interest rate increases have reduced the market range many prospective buyers can participate in.

Townhomes are an avenue to ownership amid these lingering challenges. They represent an opportunity for prospective purchasers to gain access into the housing market at a more affordable price point, without sacrificing house-like amenity.

The benefits and opportunities for this product are as evident in the greenfield areas as they are in the metropolitan region. Still elevated land prices and construction costs limit some budget conscious purchasers, with townhomes emerging as a legitimate option for these buyers.

Even with considerably reduced access to finance, households within moderate income bands ($89,631 - $134,450, as defined by the Victorian Government) are able to afford townhome products.

While the potential for reduced interest rates over the coming year may offer a reprieve to some buyers, a cash rate growth reversal comes with its own challenges - inflating capital prices and impacting affordability from a price-point perspective.

There are signs the established housing market is either at or approaching its pricing floor, with potential for stability in pricing to precede another growth curve. In this context, townhomes will remain a compelling option for many buyers. In fact, provision of product diversity with varying price points, with townhomes a key factor in the mix, is critical to keeping the dream of home ownership alive for many Australians.

• Cash rate sits at 3.85% (May 2023)

• Cash rate has risen 375 basis points from historic low of 0.1% in April 2022

• Futures markets and most banks forecast rates to have peaked

• Potential for more cash rate increases if needed

SPOTLIGHT ON BUYING

A TALE OF THREE CITIES - TOWNHOMES ACROSS THE EAST COAST

RPM’s national reach is underpinned by an understanding of national housing markets. In the following article, we explore differences of private townhome building approvals and supply expressed across Victoria, New South Wales and Queensland.

The comparison includes the Capital City Regions as defined by the ABS, and the balance of the state (as a broad reflection of regional markets). Given the historic patterns of urbanisation and development, there are nuances expressed across each of the respective markets.

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

TOTAL TOWNHOME BUILDING APPROVALS

While building approvals do not fully reflect new supply, as they don’t include demolitions and not all building approvals transition to new supply (although the strong majority do), they nonetheless represent a strong proxy for historic and new short-term supply, highlighting the distribution and acceptance of product type across a market.

Through the 2000s, New South Wales recorded the highest annual townhome approvals of all eastern seaboard states. This declined materially through the mid to late 2010s with broader undersupply across the state, leading to Victoria taking the mantle for townhome supply from the late 2000s.

Of note, New South Wales recorded the highest count of townhome building approvals in 2022, surpassing Victoria for the first time in 15 years (after coming close in 2021). This is likely due to HomeBuilder support (with the $750,000 including GST ceiling in New South Wales through the first tranche), with additional demand funnelled into townhomes rather than the detached market (compared to Victoria and Queensland) due to differences in the efficient functioning, pricing and availability of supply across the greenfield market to satiate the elevated demand.

Townhome Approvals

Source: ABS, RPM Research, Data and Insight

• Victoria has supported a greater provision of townhome approvals over the long term, underpinning additional supply.

• Given the differences in population, less townhome approvals are more pronounced in New South Wales than Queensland (expounded in part by apartments flourishing across New South Wales).

• Victoria had 24.5% more approvals than New South Wales in the last 10 years, and 13% more across 20 years.

METRO TOWNHOME BUILDING APPROVALS

• Townhome building approvals have predominantly occurred within Melbourne’s metropolitan boundaries.

• The count of Melbourne’s townhome approvals have been equivalent to all townhome approvals across Sydney and Brisbane combined.

• A mix of pricing pressures and supply response has supported strong townhome approvals across Melbourne.

• Limited response to townhomes through the late 2000s and early 2010s pushed Sydney towards apartments.

• Brisbane townhome approvals moderated as pricing issues through the mid-2010s eased, with a mild uplift through the HomeBuilder-assisted 2020 and 2021 period.

• Of the three capital cities, Melbourne annual townhome approvals have been consistently robust (including metropolitan greenfield markets).

REGIONAL TOWNHOME BUILDING APPROVALS

• Townhomes in Victoria’s regional markets have yet to achieve the volume of absorption and supply of regional New South Wales and Brisbane.

• Capital city boundaries in Brisbane and Sydney don’t incorporate some relatively builtup areas (i.e. Gold Coast, a developed urban area, is located outside of the metropolitan Brisbane boundary), highlighting greater dispersion of residents in New South Wales and Queensland.

• Across regional Victoria, townhome approvals elevated to a new normal of around 1,000 per annum (for the last five years) following affordability pressures across metropolitan Melbourne.

• Expression of townhomes in regional New South Wales highlights the higher pricing pressures supporting relatively higher density in the regional markets compared with Victoria. This is further underpinned by the metropolitan Sydney market effectively bypassing medium density in favour of apartments.

• This ultimately limits townhomes as a genuine affordable alternative in Metropolitan Sydney.

IN SHORT

• There has been a clear distinction in the delivery of townhomes across each of the states.

• Townhome approvals have overwhelmingly been recorded in metropolitan Melbourne, accounting for over 90% of approvals in Victoria.

• There is more balance in New South Wales and Queensland with around 60-70% of approvals in the metro regions and 30-40% recorded in regional markets. This has created a greater diversity of housing choice in non-capital city markets compared with Victoria, however some alternatives are emerging.

• This concentration of stock, in part, reflects the concentration of residents: With around 75% of total state population and households located within Greater Melbourne, around 65% of the equivalent within Greater Sydney and 50% within Greater Brisbane.

• This highlights the increasingly concentrated and Melbourne city-centric nature of Victoria versus New South Wales and Queensland, which have a less metropolitancentric delivery of townhomes.

Source: ABS, RPM Research, Data and Insight

Outlook

Price certainty for new home purchasers is improving. Alongside construction costs stabilising, the RBA’s decision to leave the cash rate unchanged in April drove the Westpac Melbourne Institute Consumer Sentiment Index, in particular the time to buy a dwelling index, to rise, albeit from long term lows. These measurements are generally leading indicators of consumer behaviour, and any sustained rise should translate to a boost in new home demand, although we don’t anticipate any substantial sentiment lift until interest rates remain unchanged for several consecutive months. The largely unexpected rate rise in May will also undoubtedly impact sentiment, destabilising already fragile confidence in forward planning for household finances.

While the possibility for future cash rate rises persists (and in fact, one more rise is highly likely in the coming months), consensus is growing around the cash rate reaching its peak. While the RBA is maintaining its defensive stance, given inflation remains well above the target range of 2% to 3%, inflation growth is starting to recede. If this trend continues through 2023, the justification for raising the cash rate will also subside.

Tellingly, some bank and non-bank providers of residential finance have started to lower their fixed home loan rates, indicating the rising interest rate cycle is nearing an end.

Low sales activity since mid-2022 is starting to alleviate upward pressure on construction costs by reducing the demand for both building materials and labour. In response, the Melbourne CPI Index for new dwellings purchased by owner occupiers declined 0.9% in Q1 2023.

Nevertheless, both interest rates and construction costs are likely to settle at current elevated levels, preserving affordability concerns. The fallout from recent high profile collapses among residential building companies is also likely to encourage more caution among buyers. This will reinforce the importance of rebates and incentives in the short term to combat barriers to enter the market, overcome weakened sentiment and support lot sales activity.

Melbourne’s median lot price contracted by 0.3%, suggesting house & land package prices are stabilising

Unlocking Australia's Property Potential

Our Team

HELPING YOU UNLOCK YOUR PROPERTY POTENTIAL. GET IN TOUCH TODAY.

Peter Brannighan Chairman

peterb@rpmgrp.com.au

+61 418 442 661

Gary Dunne Chief Executive Officer

gary@rpmgrp.com.au

+61 410 548 025

Luke Kelly Managing Director

Project Marketing

luke@rpmgrp.com.au

+61 400 688 520

Rod Anderson

Managing Director

Communities rod@rpmgrp.com.au

+61 417 595 859

Peter Grant Managing Director Business Development peter@rpmgrp.com.au

+61 411 494 499

Michael Staedler

Group Manager

Research, Data & Insights

m.staedler@rpmgrp.com.au

+61 434 619 280

Ed Wright

National Director

Transactions & Advisory

edwright@rpmgrp.com.au

+61 416 445 078

Jane Ormerod Head of Property Management

jane@rpmgrp.com.au

+61 488 210 951

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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