Housing prices in Canberra continue to soar, as evident today by the sale of a three bedroom house in Canberra’s inner North for almost $700,000. This begs the question – will Canberra’s property prices become affordable to the hundreds of first home buyers in the region? If not, how can this be achieved?
In the short term, its anyone’s guess as to whether prices will fall or continue to rise. What is certain is that $700,000 can buy you a two bedroom ocean front property on the NSW north coast; a beautiful three bedroom unit on Melbourne’s North Bank Yarra, or a high level, two bedroom unit overlooking the Brisbane river and a stone’s throw to the CBD.
On the whole Canberra’s prices aren’t as outright ridiculous as say, Sydney’s as they’re actually somewhat justified by the rents. If you look at the rental yields in Sydney they can be ridiculous low, especially when compared to the interest rates available on savings accounts.
Housing in Australia is some of the most expensive on the planet though.
Ooh ooh me first, “I’m going to wait until prices drop to half what they are now then I’ll buy a bargain and all you people buying houses at todays inflated prices are going to realise that you’ve been ripped off, and I’ll be soooo smart and you’re all sooo stupid” ROFPMLMAO
Seriously though, not really fair to make comparisons to coastal or unit properties. Perhaps you’d like to draw a comparison to a similarly aged free-standing property a similar distance from the CBD of other major cities.
Depends on what you mean by Canberra. If you’re including Canberra region, you can have a beautiful 3br house in Goulburn for $250K or less, and in Yass, the early $300s. I know not everyone likes to commute, but it is possible to work in Canberra and own an affordable home.
A search on allhomes.com.au shows 98 house with atleast 3 bedrooms, between the price of $100,000 and $450,000.
First home buyers needs to realign their expectations and build their way up to their dream home. I’m in my first house and have been here for 5 years; starting low is not that bad.
canberra is absurdly overpriced. new builds have outpaced population increase by a considerable margin, meaning that there is–or ought to be–a lot of slack in the market. Certainly there has been no changes in the demand side of the market to justify the enormous jump in prices over the past year. i reckon we are seeing the effects of the fhog boost last year. people sold overpriced hovels to unwitting fhbs who had their deposit handed to them by the gov’t, and now those people are upgrading to less-hovel-like (but no less overpriced) houses in more central suburbs.
all it would take is one solid round of PS budget cuts (and subsequent layoffs) to bring the whole house of cards tumbling down. alas, as rudd is in charge & his idea of a “horror budget” and “razor gang” and taking a “meat axe” or “blow torch” to the budget is to simply borrow hundreds of billions, that ain’t gonna happen.
on a happier note, you can probably rent that 700k house for around 450 a week. and the lucky landlord can look to a gross return on his/her investment of 3.3% annually (deduct property management fees, repairs, rates, water connection etc from that). There is no logical reason for the recent upswing. if people are lucky we will be looking at an extended stagnation in prices. if they are unlucky things will fall apart.
This is really simple. Supply and demand. And right now we have the highest average incomes in the country, and a big supply problem.
screaming banshee said :
Canberra is hardly a “major city”. It shouldn’t be compared to the likes of Sydney or Melbourne, because, well, it’s not Sydney or Melbourne.
gun street girl said :
What is it exactly that Sydney and Melbourne have that we dont? Honest question, what in you mind makes them a major city and Canberra not?
Or $700k will buy you three large and modern houses in many major US cities. Next year you might even get 4 American houses for that money.
Tulips, the East India company, poseidon shares, Japan’s miracle economy, dot coms, and sub-primes all went one way, but this time it will be different for Aussie house prices.
It’s time to throw the Griffin legacy out the window and open up the tracts of land that separate the Canberra satellite cities. It’s absurd that each Canberra city is surrounded by bush when there are acute land shortages and a rental crisis.
You have more money than sense.Go north you stupid public servant.looking at the ocean is heaps better than watching the neighbors washing dry!!!!!!!
OK then. Who here reckons that house prices will tumble, say, within a decade?
@ Tony, sure, realigning expectations is fine. However a search for 3 bedder houses from 0 to 350k gives a whopping… 0 results. one auction and two houses (no land to put em on).
so if you accept that FHBs should be looking at spending 400k plus, yeah there is a very small number of 3 bedroom houses available. if you want to have a life and a house, you have much fewer options.
It’s not about FHBs being spoiled brats – look at a chart of housing price growth in the ACT since 2000 – from a median of $175k in 2000 to 505k in 2010? Nearly tripling in 10 years? Nah, that’s perfectly normal and the people who complain about it being overpriced are just greedy, whinging gen x-ers who don’t know the meaning of the word save? I don’t think so.
screaming banshee said :
A much greater size and population to start with, and the social options and infrastructure that comes with that. I’ve lived in both in the past; and really, comparing Canberra to a large city is like comparing apples with oranges. Similarly, I wouldn’t compare Canberra to Paris, Tokyo or London!
I was at the auction referred to in the article. It may not have been big, but it was a nice house on a quite decent-sized block. It’s probably in the nicest street in its suburb.
all it would take is one solid round of PS budget cuts (and subsequent layoffs) to bring the whole house of cards tumbling down.
Historically when this happened (i.e. 1996) prices fell by only, I understand, 3% on average and the inner North didn’t fall – merely stagnated.
on a happier note, you can probably rent that 700k house for around 450 a week.
The real estate agent suggested $550 per week, but I think the buyer was actually looking to move in, not invest.
The other factor here is that Canberra has, I think, the highest average wages of any city in Australia. That means, proportionally, a whole lot more people than in Sydney or Melbourne who can afford higher priced houses.
housebound said :
Me.
In cases where rental income doesn’t more or less justify the market price, part of the price is based on expected capital gains. People aren’t just buying houses to live in now, nor to rent out. They’re buying them because they believe that the price is going to increase further.
It won’t ‘level off’ in the long term because once it becomes apparent that endless capital gains at the rates we’re used to (and the anticipation of which is built into prices) aren’t going to happen, paying far more for a property then it’s rental income justifies(for simplicity’s sake, negative gearing) no longer looks like such a good idea.
And endless capital gains at the current rates simply can’t happen because incomes aren’t rising as quickly. Where is the demand for goods and services produced by industries that actually employ people going to come from if a sizable proportion of the population is sinking most of their income into their mortgages? Cause that’s what’s going to happen.
House prices getting higher and higher mean ever larger mortgages and ever larger repayments. It can’t grow at a higher rate then incomes forever.
If you think real estate is expensive now, wait another 5-10 years. Chances are you’ll be thinking 700K for that Dickson place was cheap. Six years ago we paid mid 400s for a three bedroom original/unrenovated inner north property. Seemed a bit exxy at the time, but looks dirt cheap now.
The thing that continually amazes me is not the prices houses sell for, but the prices entry level apartments sell for. That really highlights just how high prices have risen in the last few years.
One bedroom apartments in Gungahlin are selling for 330K+. There’s your housing affordability crisis! And I’m not bagging Gungahlin, I lived there for seven years, and quite enjoyed it. But that’s a lot of money for an entry-level apartment out in the ‘burbs.
$700k in the inner north is pretty much standard, the price is reflecting the location of the property. The closer to the CBD, the higher the land value. Most first home buyers don’t expect to buy a $700k home in inner Canberra, as seen in the popluarity of outer lying new suburbs.
The problem could have been partially addressed years ago, but Stanhope has never been a forward thinking man and likes until everything goes up the creek before taking action. I don’t expect the housing market to “crash”, but the market operates in a cycle where as interest rates become higher, more properties at the lower end of the market will become for sale. It will also help when the supply of new properties increase, not surprisingly there have not been any substantial new land releases in this city for a good 6-8 months.
Or do what I did, move OS.
I could stay in Canberra, pay my massive HECS debt, take out a mortgage I will never repay (or not till I’m in my 80’s), put all my income into hecs and mortgage rather than Superannuation etc. etc.
v’s
Move OS, never repay my uni fees, buy a house that is affordable and have a well paid job.
I believe they call it a ‘brain drain’.
Everything that has been done in the last 15 years or so in Australia has been an encouragement to leave Australia. Crazy!
I don’t know who they expect to pay the baby boomers pensions but it won’t be me.
housebound said :
Some Interesting facts:
I was browsing through the ACT heritage library, and came across a photo of a house with the caption “Even at $67,900 these homes are located on large blocks with plenty of room for children and future extensions”, dated 1986. In 2009, the average house price in Chisholm was $395,000.
The ABS says that in 1986, the average weekly income for all employees in the ACT in 1986 was 422.4, so I deduce a yearly income of 21,964.8. In November 2009, the average weekly income for all employees in the ACT was $1126, or $58552 per year.
So, using these figures as a rough guide, incomes have grown 2.7 times since 1986, whilst house prices have grown by 5.8 times. Alternatively, the ratio of income to house price was 1:3.1 in 1986, and is now 1:6.7.
That rings alarm bells for me, the price of housing I believe can’t keep growing unless incomes rise dramatically, people simply wont be able to service the sort of debt needed to purchase a house otherwise. So, assuming that incomes don’t rise vastly in the near future, the housing market will plateau until incomes catch up, or the price of housing will drop to match current incomes.
screaming banshee said :
Are you freaking serious?! I can think of so many things that even writing one would turn this from a post to an encyclopaedia volume.
I couldn’t agree more with Stereo Henry @ #10. There is so much empty land (or pretty looking bush environs… whatever) around Canberra that could be opened up. There’s no reason for Gungahlinites to be living on top of each other when there’s so much space between them, Lyneham and Belco. Also, there’s no reason Crace should exist. There’s enough space here for everyone to have an acre of land and still drive max 40min Gungahlin to Tuggers. Until the preschool politics of the ACT grows up, I can’t see these draconian ideas moving forward.
@Urchin, aren’t they called first HOME buyers, since when does your first home have to be a house anyway, if people can’t afford a house ‘because they have a life’ perhaps they don’t need more than a place to rest their head and a simple flat in QBN would do. Or perhaps they should be re-assessing their priorities in life.
@gsg, Infrustructure, there’s a beauty. Would that be the infrastructure that so efficiently transports the population to their destinations in such a timely manner each and every day. As for social options, well thats always going to be speculative, but I think we have a fantastic array of cultural institutions and social & recreational venues, all within a stones throw and with easy access.
@Tetranite, Re rental income, its simple short term loss for long term gain. If it cost the same to rent a house as to buy one, then almost no-one would rent. The benefit is only realised after several years of growth when the rental income yields more than the loan repayments. Those that can dedicate sufficient funds to the process will always win, its only the length of time that varies.
As for demands for goods and services falling away, thats the role the cash rate plays in controlling consumer spending. With all the recent increases have people stopped throwing their money at retailers, no, and in the event we have another global financial hissy fit our reserve bank have taken steps to ensure that we have room to move to ease the pressure on the australian economy should we need to.
Its the same actions previously that saved us some of the pain last time around, and from memory its actions taken by the hawke/keating govt during periods of around 16% (thats not a typo for those that don’t remember – sixteen percent) interest that had a stabilising effect on the australian economy. The house price boom we all know of is a direct result of the combination of an end to the extended period of stagnation brought about by those sustained high rates and the sharp rise in average earnings pushed along by the resources boom, it was more of a catchup then a bubble.
Will house prices stagnate – for a while, perhaps
Will house prices go backwards – in horrible economic times, by no more than 10%
Will the value of real estate rise – you bet, and around 40% every 10 years on average is a fairly safe bet
Would I buy property at today’s prices – as much as the bank will let me get my hands on
My ONLY regret is not buying my first property sooner
I find it very interesting that during these times where housing is apparently very unaffordable, flat screen TV and international travel are still luxuries enjoyed by most employed people. The cold reality is that prices are not set by what investors can make in terms of rental yield, but by how high the expectations are of the lifestyle-wannabes (who typically seem to have money to waste on socialising and luxury items even when they are crying poor).
The medium term outlook is that Canberra median house prices will be over $1,000,000 by 2019, remembering that we have an artificially inflated market due in some part to government policies regarding land sales.
Having said that, there are plenty of properties on the market around the $380- $420K price.
luther_bendross said :
Well then don’t write the full encyclopaedic version, such paraphrase in a few dot points.
Sydney has a harbour, Melbourne has trams. Neither of these things make me think that either of those cities are better or worse than Canberra.
Something to peruse for those interested in housing affordability in Canberra relative to the rest of the world. Canberra gets a mention on page 4.
http://www.demographia.com/dhi.pdf
luther_bendross said :
You agree with the ‘urban infill’ idea but also want everyone to be able to have an acre of land? Lots of problems with that theory including a rising population and the limited size of the ACT. Plus all the do good hippies would have a fit if the Government tried to develop Canberra’s precious wide open spaces!
mistertim said :
What was the multiple of house prices vs. household disposable income in 1996 vs now?
In 1996 median gross household income in the ACT was $939/week (48,828/year according to ABS), median house price was $139,950 (according to allhomes) for a multiple of 2.87
In 2007-08 (latest data i could find on abs) median household income was $1762/week ($91624) and, averaging the medians on allhomes for 07-08, median house price was about $440,000, for a multiple of 4.8.
So in terms of multiples of price to household income houses are 1.67 times more expensive. Perhaps that’s why prices only dropped a little in 1996 but are more vulnerable now?
To those rah-rahing housing as the one and only investment ever guaranteed to go up ad infinitum, please explain why. We have new suburbs springing up faster than pimples on a teenager, new housing is (and has been) outpacing ACT population growth by a considerable margin, house prices have been outpacing household income growth for many years. At some point the party is going to have to stop. What will happen to attitudes about housing when the promise of extravagant capital gains goes away? Will people still be willing to pay such enormous premiums to own over renting?
We came pretty close to that scenario about 18 months ago, with the crisis diverted only by Rudd sacrificing FHBs to the cause of ever rising housing prices. Funny how short people’s memories are. 18 months ago a crash seemed frighteningly close and the sky was about to fall in, now people are dead certain it could never happen.
I think we have diverged a long, long way from the fundamentals of the market. buying to live in is not so bad (if you can find a place you can afford) as you can offset the outrageous cost of the house against the semi-outrageous cost of rent. as an investment i think the risk is understated and the returns overstated. to each his/her own.
What is it exactly that Sydney and Melbourne have that we dont? Honest question …
Here’s a few things that come to mind:
1.An hour’s drive to a hospital with another four – five hours wait in emergency;
2.Traffic so bad it can take you over an hour to cover six kilometres;
3.Early-bird discount parking at the fire-sale price of $36 a day;
4.Public transport systems that make points two and three seem like viable alternatives;
5.Three layers of Government bureaucracy to deal with;
A much greater size and population to start with, and the social options and infrastructure that comes with that.
I assume that by ’social options and infrastructure’ you mean ‘catching a train’, because that’s pretty much the only thing Sydney, Melbourne, Paris, London, Tokyo and New York have that we don’t – urban rail transport. Well, that and Ikea, and I can get that delivered.
One thing people need to remember when making these “oh back in the 90s i could buy 23 houses for the cost of a postage stamp” comparisons. This was before full de-regulation of interest rates… in the 70s, 80s and 90s the average interest rate was 14-15%. From 2000 onwards we have seen the first sustained period of low interest rates in decades (order of 6-7%).
To put it in perspective:
- a 150k loan 15 years ago at 15% has loan repayments of $881
- a 450k loan now at 6% has loan repayments of $1,332
Now lets factor in inflation (~3%pa for 15 years). Those repayments of $881 inflation adjusted come out at $1372 in todays dollars.
Hey what do you know, it costs me the same to pay back a house now as it did 15 years ago. Get over it whingers.
harvyk1 said :
For all of those rushing in to sing the praises of Canberra – you’re missing the point and preaching to the choir. This isn’t a discussion about what’s better in the ACT or another city – it’s about whether Canberra is an analogous “big city” akin to Sydney, London or whatever. I choose to live here because it’s a really just large country town, with all the benefits of a large country town. It shouldn’t be compared to a large city, and indeed, much of the Canberra bashing that goes on in the press occurs because people unfairly expect it to live up to big town expectations – it’s a contextual error. A “big city” it ain’t – but it’s demanding the price of big city living, regardless.
DeadlySchnauzer said :
Good point, well presnted. You rock Deadly Schnauzer!
Was lurking here and saw this story, and just couldn’t let it go…
Housing has become more expensive in Canberra for several reasons:
1) People have more money to spend
2) There’s not enough supply (especially in the more desirable areas)
3) Interest rates are lower than they used to be
4) Lending criteria is softer than it used to be
5) People have higher expectations than they used to
Now, let’s look at some interesting points:
1) The ‘average’ family is, these days, more likely to have 2 incomes than one
2) Disposable income has increased, and many consumer services and items (including cars, electronics and travel to name a few) have decreased in cost in real terms
3) During the 1990’s, which is when people seem to love comparing current prices to, property was actually pretty cheap (it was a low point in the cycle)
As a property investor, I don’t realistically expect all properties to magically double in price every 7 years. That said, if I buy in the right area, and at a good time, the continued growth of the outer suburbs combined with growing population makes the inner suburbs relatively more scarce, and desirable to a larger number of people, whilst supply is severely constrained. And guess what – those with the most $$ set the price.
So, going forward… I think we have a bit more growth left yet (several years at a modest rate), but after that will have a period of stagnation as more people start to genuinely run out of housing options, and as the govt finally realises supply is the only answer (although they’ll have to ship in more tradies, who will also need somewhere to live). Then, in perhaps 12 or 15 years, when housing has become relatively cheaper again, Gen X will hit its peak spend years, and we’ll have another housing boom.
In the meantime, it’s still possible to find good value properties with a decent yield, if you look hard and move quickly when you find one. If you’re a young first home buyer, I’d encourage you to buy something at the cheaper end of the spectrum, and then renovate to add value and perhaps upgrade as you have the means. If you’re 30 or older, and have spent your entire 20’s partying and traveling and have nothing material to show for it, either get used to renting or start making some serious lifestyle cutbacks, cos you missed your chance big time.
DeadlySchnauzer said :
This is a good point. Consider also that the average size of a new dwelling is 50% bigger than 20 years ago.
DeadlySchnauzer said :
in 1995 the RBA cash rate was 7.5%, putting mortgage rates probably somewhere around 10-11% (http://www.loansense.com.au/historical-rates.html). Today OCR is 4.0% & NAB offers variable mortgage rates at about 6.75%. but i will give you 6% as one can probably get better deals with other lenders.
So 150k at 10.5% for 30 years = 316.49 per week
450k at 6% for 30 years = 622.18 per week.
using real inflation numbers (not your made up ones) between 1995 and 2010 (from http://www.rateinflation.com/) that gives a repayment of $466.73. So repayments today are roughly 33% higher than in 1995. Furthermore, it is clearly much more difficult to burn down the principal of the loan through overpayments when the principal is 3 times bigger.
Mind you, this is at a time of near record low interest rates in an environment when rates are climbing. The OCR is predicted to be at around 5% in a year. If banks don’t tack on extra boosts (one can dream) that makes payments for that 450k loan $690/wk or nearly 50% higher than 15 years ago (inflation adjusted)
Yeah, people are just whinging.
VYBerlinaV8_the_one_they_all_copy said :
And what is the average size of the land that goes with that new dwelling? As I recall buildings depreciate, houses appreciate. So we have bigger, more expensive depreciating assets on smaller, more expensive appreciating assets. And for that privilege we pay only 30-50% more than we did 15 years ago. sounds fantastic!
gun street girl said :
But it does have certain aspects of a “big city” that affects the housing market.
For example, how many large country towns house 2 major universities and the related demand for house of it’s students that no one was mentioned yet.
Nor has anyone really delved into the other side of the rental market – the investor.
If everyone decides that housing prices are too high to buy-to-live-in and decide to rent instead, where will they rent if there are no rental properties on the market due to no investors?
And there is a lot of blame put onto investors as being the driving force behind rising housing prices. This blame is probably coming from the same people who are renting these investors’ properties in the first place.
It’s a fine balancing act that the housing market must play out. If the returns aren’t there, then investors won’t have properties available to rent, but if the prices are too high, it is assumed that people won’t buy properties to live in (but where will they rent?).
What is certain is that housing is a necessity and the majority of people will always find a way if being able to afford a roof over their heads.
Prices will rise at least 10% in the ACT in 2010
Prices in the Inner North are massively inflated. As far as I can tell it is because lemmings who went to Uni 10-20 years ago and always lived in the Inner North now must must must live there, or they’ll DIE.
Guess what. They won’t.
A search of allhomes for 3 beddies in Inner North and Belconnen throws up any number that are high 300s, low 400s. Is living in Dickson worth $300K!? Not in my book. Clearly is is important for a lot of people, otherwise the price wouldn’t be so high.
The forces that apply to “inner” housing in Sydney and Melbourne (terrible traffic, long commutes etc) just don’t apply in Canberra. But we already now that people don’t make rational decisions when it comes to housing.
I wasn’t very clear above… when searching for 3 bedroom houses in Inner North and Belconnen, heaps come up for around $400k .. IN BELCONNEN. Inner North comes in at $615k.
Just say no.
Don’t forget that 30 year loans were a lot less common 15 years ago than they are now, although offsetting that is that more deposit was required.
urchin said :
D’oh! Should read “land appreciates” not houses… i blame it on the cold medicine.
Funky1 said :
I haven’t mentioned it, because the UC and the ANU were also around when house prices, rentals and the general cost of living in Canberra were rock-bottom.
Long Face @ #19 got it right.
And those of us who can are preparing to do just that.
screaming banshee said :
Rubbish.
If the (after tax) rental yield exceeds the cost of financing, you lose.
If you’re borrowing at 6% to buy an asset that generates 4%, you lose.
Rents don’t justify the prices, people are chasing capital gains.
screaming banshee said :
They could drop the cash rate to 0% and it still wouldn’t allow house prices to increase forever.
I didn’t say it was a problem now, I said it meant that it was 100% impossible for house prices to increase faster than income forever. And when it does, that is certain to become a problem because as pointed out, a significant proportion of current prices is speculative.
screaming banshee said :
Compared to median income Australian housing is among the most expensive in the world and has been that way for several years.
What about Australia justifies this? how is Australia so special? It isn’t there aren’t other resource rich countries.
screaming banshee said :
Maybe in nominal terms, but that’s meaningless. To sustainably increase by 40% ever 10 years in real terms, real wages have to be doing the same thing – ~3.42% a year.
Not impossible for a specific 10 year period, but a little implausible in perpetuity, particularly with an aging population.
For the last 15 years, we’ve averages 3.6% GDP growth, but that isn’t per capita and a lot of it comes down to population growth.
“Would I buy property at today’s prices – as much as the bank will let me get my hands on
My ONLY regret is not buying my first property sooner”
go for your life.
oops – 3.42% per year is GDP per capita, not real wages
and make that “if the rental yield exceeds the after tax cost of financing.
…I’m too tired for this.
Tony said :
It kind of reminds me of a Ponzi scheme. The folk over here( http://bubblepedia.net.au/tiki-index.php )have been talking about the cost of housing for years. There are some interesting observations about the housing price bubble; I find it re assuring that im not the only person who thinks the cost of housing is out of control.
WhyTheLongFace said :
No, don’t pay society back for support you have received in gaining your education – lovely Gen Y attitude – it’s all about ME! Do you know how much a university education costs in the US? But, I would also be reluctant to pay a “massive” HECS debt, if my university education didn’t teach me the appropriate use of apostrophes (see quote). OS might be a good place to escape an inadequate education, but I wouldn’t call it a ‘brain drain’. A ‘brain drain’ is properly educated people leaving for OS and taking their skills with them – and that is something Australia should be worried about….