RPM SEQ Market Update June 2023

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NEALE MANAGING DIRECTOR - QLD

Clinton has worked in the residential property industry for over 15 years, managing all aspects of marketing residential communities from project conception through to completion. He specialises in project marketing and the seamless delivery of master-planned residential communities across Queensland.

Clinton can offer excellent strategic advice and consultation across a range of residential communities from boutique inner-city addresses to waterfront developments and master-planned communities throughout Queensland.

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E: clinton@rpmgrp.com.au

Over the last 15 years, Peter has worked with some of the largest property developers and agencies in Australia, including Stockland Property Group, Lendlease, Savills, Deicorp, and Fridcorp. His extensive experience and knowledge of the dynamic Queensland and NSW property market ensures Peter has an exceptional understanding of the market’s needs and a site’s potential.

Peter offers specialist advice across residential communities, mixed-use developments and medium density throughout Queensland and New South Wales.

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SEQ Overview and Outlook

The South East Queensland property market has continued to navigate its way through challenging headwinds throughout the beginning of 2023. Various factors, including frequent interest rate rises, the high cost of living, and rising construction costs, have contributed to a significant decline in consumer confidence, dipping to one of the lowest levels observed in the past decade.

Despite these challenges, the property market has displayed remarkable resilience due to underlying demand (from locals, interstate, and now overseas) and limited availability of existing and new housing stock. As a result, properties in Greater Brisbane continue to sell at a faster pace compared to previous years, and the capital recorded a 1.4% increase in dwelling values in May.

The ongoing rental crisis, which has garnered significant government and media attention not only in Queensland, but also across the nation, is expected to persist and more than likely worsen over the short and medium term. In short, the supply of rental properties continues to decline with considerable projects being either postponed or abandoned by developers due to financial concerns with construction. This will result in a further deterioration of suitable rental stock. This is all coinciding with current and future record migration that requires immediate accommodation.

Housing supply continues to present a significant challenge. Despite construction activity reaching near-record levels in the state, there has been a decline in dwelling approvals for the year. New house starts have also decreased compared to last year. This diminishing forward pipeline of approved and commencing dwellings, coupled with an anticipated increase in demand, is expected to exert further upward pressure on property prices and affordability issues.

The overall demand is projected to align closely with the yet-to-be-realised underlying confidence in the region. Following a pause in the cash rate in April, national consumer confidence levels briefly rose. However, this uptick in confidence was short-lived as the subsequent rate increase in May caused confidence to decline once again to near two-year lows.

Consumer confidence is likely to be further impacted following the RBA's announcement in June to increase the cash rate to 4.1%. Many are predicting we are near (if not at already at) the end of the rate hiking cycle, and previous months have shown that rate pauses provide some stability and optimism to restore confidence.

While it may take until the end of 2024 to reach the target rate for inflation, with the CPI indicator stubbornly remaining at 6.8% in April, consumer confidence is expected to rebound sooner as the market begins to see a glimmer of hope at the end of the rate rise tunnel. This resurgence in confidence should lead to higher sales volumes and exert upward pressure on property prices earlier than anticipated, particularly in SEQ, where demand is expected to outpace supply for a considerable period.

Clinton Trezise Managing Director - QLD clinton@rpmgrp.com.au

Peter Neale Managing Director - QLD petern@rpmgrp.com.au

CONTACT OUR QUEENSLAND EXPERTS

National Lead Indicators

Dwelling

Queensland Lead Indicators

The highest of all states in the 12 months to September 2022.

$745k

Down 2% for the quarter; 5.5% decrease for the year to March 2023.

New house approvals

-15.4%

In the 12 months to April 2023.

New house starts

-28%

Total rental stock is continuing to decline across the state.

Slightly above the national rate of 3.5%.

Year-on-year for the December quarter.

Source: RBA, ABS, Westpac Banking Corporation, Pricefinder and REIQ

Interest Rates and Consumer Confidence

The June RBA (Reserve Bank of Australia) decision to increase interest rates to 4.1% is likely to hinder consumer confidence as seen in previous months. The silver lining however is that even a steadying of interest rates has caused some confidence to return as seen in January and April.

The RBA has maintained a defensive stance, considering that inflation remains well above the target range of 2% and 3% at 7%. However, there are indications that inflation growth is beginning to recede based on the newly formed ABS monthly consumer price index data sample survey. If this trend continues throughout 2023 (which is expected), it will diminish the justification for raising the cash rate, providing much-needed relief for many households.

Moving forward, the trajectory of interest rates will continue to play a crucial role in shaping consumer confidence and household finances. Monetary policy decisions, inflation expectations, and overall economic conditions will influence the future direction of interest rates. Creating an environment of stability and managing rate adjustments with careful consideration for their impact on consumer sentiment will be vital to fostering a more resilient and confident consumer base.

With this in mind, banks are already suggesting rate reductions in early 2024 with the CBA suggesting two rate cuts in Q4 2023, followed by an additional two in the first half of 2024.

Finance

In the 12 months to April, new housing loans in Queensland fell 19%. Owner occupiers and investor loans were down -20% and -18% respectively. Obviously the rate rises have had an impact on new loan volumes for both buyer types, however this also likely a product of the low volumes of stock listed across the market.

TOTAL HOUSING LOANS OWNER OCCUPIERS VS INVESTORS

Source: ABS Lending Indicators QLD 2023

Population Growth

In line with trends highlighted in our previous report, Queensland has once again experienced the highest population growth among all states during the 12-month period leading to September 2022. The influx of 114,446 new residents can be largely attributed to strong interstate migration from New South Wales and Victoria. The initial migration shift was sparked by restrictive lockdowns and lifestyle changes.

Furthermore, the recent government announcement to increase overseas migration to 400,000 people in 2022-23 and 315,000 people in 2023-24 is expected to contribute approximately 93,000 new residents for Queensland. While these newcomers will help alleviate labour shortages in key industries, including construction, it will also continue to add pressure to an already undersupplied housing market.

Addressing the housing market’s supply-demand imbalance will be crucial to ensure affordability and accessibility for both existing and new residents.

POPULATION GROWTH BY STATE

NSW Vic. Qld SA WA Tas. NT ACT

Natural increase Net interstate migration Net overseas migration

House Prices

SEQ property prices have demonstrated relative resilience in the face of rising interest rates, largely due to the lack of available housing stock which has acted as a cushion against downward price pressures. In April, Brisbane’s total listings experienced a significant 33% decline compared to historical levels, with the largest decrease in listings lasting 180 days or more. This decline reflects the strong underlying demand for properties in Brisbane, with homes selling at a faster pace than in previous years.

In Q1 2023, house prices across Greater Brisbane experienced a 2% decrease, bringing the median price to $745,000. This represents a 5.5% decline compared to the same period last year. It is worth noting that his decrease in prices is relatively modest considering that most borrowing capacities have been reduced by an estimated 31% since the first rate increase in May 2022. Despite the challenging economic conditions, the limited supply of housing stock in SEQ has helped to mitigate larger price declines.

Source: Pricefinder Settled Sales Greater Brisbane 2023

Source: SQM Research

Affordability

The series of interest rate rises has significantly impacted the borrowing capacity of homebuyers, posing challenges to affordability in the housing market. The sharp rise in the cash rate, accompanied by subsequent increases in home lending rates, has had and will continue to have a material impact on buyers’ borrowing capacity and their ability to purchase properties.

$120,000

HOUSEHOLD INCOME: PURCHASER CAPACITY

The chart to the left illustrates the change in purchasing power for a buyer with an annual income of $120,000, which represents the current average household income.

The data reveals a substantial reduction in purchasing capacity throughout 2022 and into 2023. As of May 2023, a household with a $120,000 income can afford a property with a maximum price of $620,444, which reflects a 31% or $278,176 decrease in purchasing capacity compared to pre-rate rise levels.

Consequently, buyers at or below this income level will face difficult choices. They may need to settle for smaller homes, move to a more affordable area, or continue renting.

We explore each of these scenarios further within this report.

Source: RBA, CBA Loan Calculator. Includes 10% deposit.

WHAT DOES THE REDUCED BUDGET MEAN FOR PURCHASING OPTIONS ACROSS SOUTH EAST QUEENSLAND?

SEQ’s affordable housing options have become increasingly constrained, as demonstrated by the fact that only 27% of houses sold below $620,000. In particular, Brisbane’s inner ring, which spans from 0-10km from the CBD, presents an even more limited supply of affordable housing options. Merely 3% of transactions in this area correspond to prices below the $620,000 mark, underscoring the scarcity of affordable housing within close proximity to the city.

As a result, the average buyer in SEQ must weigh the options between purchasing a detached house located more than 20km from the CBD or considering ‘non-traditional’ options such as purchasing a townhouse or an apartment closer to the city.

This shift in buyer options highlights the need for a comprehensive approach to address housing affordability challenges. It calls for efforts to increase the supply of affordable housing within desirable locations, as well as the development of well-planned, high-quality medium density housing options that offer heightened proximity to urban centres.

HOUSES SOLD UP TO $620,000 AND DISTANCE TO BRISBANE CBD

UNITS SOLD UP TO $620,000 AND DISTANCE TO BRISBANE CBD

Source: Pricefinder Settled House & Unit Sales March Qtr 2023 South East Queensland. Linear distance from Brisbane CBD.

Source: Pricefinder Settled House & Unit Sales March Qtr 2023 South East Queensland. Linear distance from Brisbane CBD.

HOUSE AND LAND

SEQ has witnessed a notable increase in average build prices; having grown 15% over the past 12 months. Additionally, land prices have also surged, with a 14% increase observed in the same period. These upward trends in construction and land costs have resulted in a significant portion of house and land packages exceeding the $620,000 price point.

For buyers seeking house and land packages within the $620,000 range, the most favourable options are generally found in Brisbane’s West and South regions.

HOUSE AND LAND PRICING BY LGA (ANNUAL CHANGE)

Source: Pricefinder Settled Land Sales March Qtr 2022 & 2022, ABS Home Approval Values FY22 and FY23 (to Feb)

ECONOMIC REVIEW

THE NEED FOR SMALL LOT PRODUCT IN QUEENSLAND

As land prices continue to grow across SEQ, smaller lot housing will become increasingly important for delivering affordable homes in the region. The Queensland market can look down south to Melbourne to garner some intel on how a wider range of product mix can cater to more budgets.

Despite SEQ’s increased square metre rates in recent years, the proportion of small lot product has remained relatively consistent. In Q1 2023, the average square metre rate of settled land lots was $746 per sqm and just 6% of total land sales were under 300sqm or less. This was the same share of small lot sales as seen in the first quarter of 2022 and 2021.

Source:

Compare this with Greater Melbourne when land prices were similarly approaching $800 per sqm in early 2018. At that time 12% (or nearly double SEQ’s share) of sales were from small lot product. The share has grown since then, and with a current square metre rate of around $1,060 per sqm, small lot product accounts for over 21% of Greater Melbourne's total sales and townhouses make up a further 6% of total greenfield sales.

It should be noted that this was assisted by the Victorian Planning Authority establishing the Small Lot Housing Code. The Code eliminated the need for a planning permit on lots less than 300sqm; given the homes meet design standards.

This highlights the importance of Queensland local and state government’s planning for this more affordable product type now, to enable a diverse range of buyers and income levels going forward.

MELBOURNE SIZE BY LOT RANGE

Source: RPM Research Data & Insights

Queensland Rental Crisis

The rental crisis has been a prominent and widely discussed issue in Queensland and throughout the nation. To address the challenges faced by renters, both State and Federal governments have introduced relief measures, including annual rent caps and an additional $2.7 billion in Commonwealth rent assistance over four years.

Despite the rental relief measures, the fundamental problem persists: rental stock continues to decline while the population continues to grow. Although Queensland’s vacancy rate experienced a slight increase from 0.8% in Q4 2022 to 0.9% Q1 2023, this remains well below the 3% market equilibrium.

Consequently, rental prices have significantly increased across all 12 LGAs over the past year. Year-on-year rental price increases range from 6% in Noosa to 32% in the Lockyer Valley. This upward trend is expected to persist until additional rental stock becomes available.

MEDIAN RENTS ALL DWELLINGS

Source: RTA Mar 23 – All Dwellings

LGA BONDS

WHAT HAS HAPPENED TO THE QUEENSLAND RENTAL SUPPLY?

Since 2015, there has been a noticeable shift in household composition of renters in Queensland, with the average number of people per household decreasing from 2.59 to 2.50.

From 2016 to 2021, almost half of new rental stock in Queensland (49%) was occupied by one-person households. As a result, more dwellings are now required to accommodate the same number of people, placing further strain on the housing market.

Furthermore, the recent series of interest rate rises has prompted many investors to sell their properties. Notably, Queensland emerged as the top location where investors sold their properties between 2020 and 2022, according to a study conducted by the Property Investment Professionals of Australia (September 2022). It was found that 65% of these investors sold to owner occupiers, further impacting the availability of rental stock.

These dynamics in the housing market indicate a complex interplay between household composition, rental demand, and investment patterns. The increasing preference for oneperson households necessitates a greater supply of suitable housing options, particularly smaller and more affordable dwellings.

SEQ Rental Cost Comparison

The most commonly rented property in SEQ is a two-bedroom unit in the Brisbane LGA. The following table presents a comparison of costs for renters and investors.

KEY TAKEOUTS REGARDING RENTERS

In the 12 months to March 2023, the average rent for a two-bedroom unit increased by $90 per week. This represents a significant burden on renters’ finances, particularly when combined with increased cost of living pressures.

KEY TAKEOUTS REGARDING INVESTORS

Mortgage repayments for rental properties have increased by an estimated range of $178 to $243 per week in the 12 months to March 2023. This rise in mortgage repayments adds to the financial strain for investors. Additionally, investors also face other costs such as increased council rates, owner’s corporate fees, and expenses associated with property management.

It is worth noting that many investors may already have a mortgage on their primary residence or may be dealing with rising rental prices themselves, further exacerbating their financial situation.

2 BEDROOM UNIT IN BRISBANE $550,000

Source: RBA, RTA Queensland, Pricefinder. Assumes 80% LVR.

FEWER NEW DWELLINGS FOR INVESTORS

New dwellings have also been produced at a lower rate than previous years due to labour shortages, supply chain issues, weather, and approval processes. Moreover, a higher proportion of these new dwellings have been purchased by owner occupiers, driven by incentives such as HomeBuilder and Stamp Duty concessions.

Over 2020 and 2021, there were around 9,389 more owner occupier loans for building new houses in Queensland than the historical average, largely due to Homebuilder. At its peak in February 2021, nearly nine out of 10 new homes being built were intended for owner occupiers.

WHERE DOES THIS LEAVE US FOR RENTALS?

Based on SEQ’s current population and the average household size for rental properties, we estimate a shortfall of approximately 25,347 rental properties in the region. This demonstrates the imbalance between demand for rental properties and the available supply.

Considering the Treasury’s estimation of a 32,000 dwelling shortfall for all of Queensland at the housing summit in October last year, it shows the state’s South East continues to feel the majority of the pain from the shortage of rentals. This will likely be exacerbated by the upcoming spike in overseas migration.

SEQ CURRENT RENTAL STOCK VS REQUIRED

CALCULATIONS AND ASSUMPTIONS

Shortfall as at March 2023

• Estimated SEQ population: 3,967,689 Q1 2023

• Percentage of renters: 30% (ABS Census 2021)

• Average household size for renters: 2.497 (ABS Census 2021)

• Accepted vacancy rate for market equilibrium: 3%

Rental properties required

• 3,967,689 x 30% = 1,190,307 renters

• 1,190,307 renters / 2.497 per dwelling = 476,694 dwellings required

• 476,694 + 3% vacancy rate = 490,996 rental properties required

Rental properties on market

• Current bonds held SEQ Q1 2023: 461,695 rental properties

• REIQ vacancy rate Q1 2023: 0.9% (4,153 vacant properties)

• 465,648 total rental properties on market

Calculation

• 490,996 required - 461,695 current = - 25,347 shortfall

QLD Treasury estimates

• 32,000 dwelling shortfall (Housing Summit, October 2022)

Source: RTA Queensland, ABS, REIQ & Treasury

Building

QLD's dwelling approvals were down -6% in the year to April, but there is notable variance amongst dwelling types. New house approvals were down -15% while apartment approvals increased by nearly 40% over the same period.

House construction is reaching record levels, indicating strong demand for the dwelling type. On the other hand, apartment completions have decreased, reflecting the impact of the low level of approvals over the past two years.

Although apartment approvals are now increasing, the soaring construction costs have added additional pressure to the financial viability of projects. This has made it more challenging as apartments do not generally achieve higher sales prices. As a result, it is often the high-end owner occupier projects that are able to generate the necessary sales prices to keep projects financially viable.

Source: ABS Approvals April 2023

QLD APPROVALS BY DWELLING TYPE

Build-to-rent (BTR)

While it is hugely common in the UK and other European countries along with the USA, BTR in Australia is relatively new. Developers have always stated that the tax implications were too great to enter the market. This has been addressed in the recently handed down Federal Budget. The BTR tax concession, aimed at producing 150,000 new dwellings nationwide over a span of 10 years, reduced the withholding tax from 30% to 15% and increasing depreciation from 2% to 4% annually. This is a significant step towards addressing the housing shortage. However, it may not have an immediate or major impact in Queensland with the majority of work currently under way and future known projects in the populated states of Victoria and New South Wales.

As of 2022, Charter Keck Cramer found there were just over 289 completed apartments operating under the build-to-rent model in Brisbane. There were 4,952 additional apartments in the pipeline, with a primary focus on the city centre. While these numbers indicate some progress in the BTR sector, they are relatively modest compared to the overall housing demand in the region.

In addition, to date the projects are largely high-end apartments which command a higher-than-average rent as developers bundle in a large amount of on-site amenity. This ultimately does not address affordability and accessibility. Nevertheless, the lower barriers are expected to entice more developers into the market, which in turn, will play a role in addressing the housing shortage.

Greenfield Market

SEQ greenfield pricing has remained resilient to the interest rate rises across the past 12 months, with the median settled land price growing 14% to $330,000 in Q1 2023.

Stock levels have begun to increase throughout the beginning of 2023, however, many developers are still working through the construction and delivery of sold lots, creating lengthy registration and settlement timeframes.

Although buyer incentives (such as rebates and discounts) have become more evident throughout the market, buyers remain cautious due to the current environment of rising interest rates and construction costs.

What does a 400sqm lot cost?

Logan saw most of the settled sales for SEQ in the year to March with 27% of the total. This was followed by Ipswich and Moreton Bay both accounting for 13% of sales. Gold Coast's share of 4% is reflective of the lack of registered land in the region.

SEQ Land Prices and Sizes

Greenfield Development Sites

The first half of 2023 has witnessed a scarcity of greenfield development opportunities with substantial yield that are publicly marketed for sale. As a result, intense competition persists when these opportunities are brought to the market or become available.

Consequently, we have observed a surge in inquiries and buyer interest for smaller development sites, as well as alternative housing options such as LLC or townhouses, particularly those with existing development approvals.

Notably, there is a significant demand from development groups, including both local and international entities, who actively seek high-quality and sizable greenfield sites to expand and secure their project pipelines. This heightened demand has resulted in robust prices being achieved, whether through on-market or off-market transactions.

We are currently engaging with numerous interstate developers, particularly those from Victoria and New South Wales, who are keen to capitalise on opportunities within South East Queensland as they arise.

Broadhectare land suitable for residential development

Moreton Bay

The forecasted population growth of nearly 45% in Moreton Bay, reaching 690,000 residents by 2041, poses a significant demand for housing. Based on the current average household size of 2.6, approximately 4,108 additional dwellings will be needed annually to accommodate this population growth.

MORETON BAY POPULATION FORECAST 2021-2041

Historically, Moreton Bay has averaged around 3,147 dwelling approvals per year, which accounts for approximately 19% of SEQ’s total new dwellings. While this indicates some level of housing supply, it may not be sufficient to meet the projected demand.

MORETON BAY QUARTERLY APPROVAL REGISTRATIONS

Source: ABS, Moreton Bay Regional Council 2023

Source: Queensland Treasury

In terms of land availability, Moreton Bay has averaged 35 active land projects since 2010, resulting in approximately 150-160 land sales per month. Currently, there are 40 active estates in Moreton Bay, offering a total yield of over 21,100 lots. Of these, approximately 10,079 lots have been sold, leaving around 11,720. Based on the average land sales in the region, this represents slightly over six years of land supply.

Source: RPM Research Data & Insights

Source: RPM Research Data & Insights PRICING

REGION

Caboolture West PDA

One key area of new housing supply in Moreton Bay is the Caboolture West Priority Development Area.

Caboolture West is a 3,480 hectare future regional city in Brisbane’s Northern Growth corridor. Over the next 40 years it is expected to accommodate approximately:

• 70,000 people

• 30,000 new homes

• 17,000 jobs

PRECINCTS AND TIMING

• Neighbourhood Development Plan 1 (NDP1) – First estates on market late 2023 - early 2024 (STCA)

• Caboolture West Interim Structure Plan (CWISP)

• Growth Area: 13,000 homes over the next 15 years

Department of State Development, Infrastructure, Local Government and Planning

Source: RPM Research Data & Insights

DEVELOPER HELD SITES CABOOLTURE WEST

Our Team

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.