Sydney, Perth and Noosa possess higher risk than most cities. Meanwhile Dubbo, Adelaide, Mildura and Toowoomba are among a long list of Australia’s most resilient property markets.
Propertyology has conducted detailed analysis of historical real estate performance of each of Australia’s 400+ townships to identify the cause of property market downturns and prolonged lean periods.
This evidence enables us to evaluate the risk profile of each city.
Almost every capital city and each of hundreds of regional townships saw house values triple (or more) over the last 20-years.
But the start to finish trajectory was far from linear.
Every location has experienced multiple lean periods in the past, each of varying lengths.
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In this report, we use official statistics and graphical illustrations from thirteen (13) different cities across Australia to demonstrate differing degrees of Market Risk.
Using decades of evidence, Propertyology has been able to identify each city’s unique triggers for property market volatility.
We have concluded that the actual levels of inherent market resilience of many Australian towns and cities are quite different to people’s perceptions.
For different reasons, Sydney NSW and Darwin NT have indisputable volatility.
Bendigo VIC, Orange NSW and Albury-Wodonga have been Australia’s most consistent performers.
Dubbo NSW, Wangaratta VIC, Cairns QLD and Mount Barker SA are significantly safer investment propositions than Perth WA, Byron NSW and Noosa QLD.
The evidence confirms that a city’s property market possesses higher risk by virtue of greater volatility associated with two key characteristics:
- A large portion of households with high mortgages – exposed when either credit becomes difficult to acquire or the cost of credit increases, and
- A local economy with too much dependence on a key industry sector (such as tourism, manufacturing, mining, etc) – exposing a significant critical mass of job losses and diminished local confidence.
Downturns occur in isolation
Australia’s four biggest cities have experienced multiple lean periods, with each period ranging in length from 5-years to as long as 14-years without any capital growth.
Official statistics confirm that the total size of a town or city’s population does not correlate with the degree of risk associated with its property market.
Of the eight capital cities, Adelaide’s performance across the last 35-years was the least volatile, followed by Hobart and Brisbane.
Many of Australia’s most stable and dependable property markets are regional cities with populations of between 40,000 to 200,000 people.
Australia’s most volatile property market
At its peak in 2013, the coastal township of Port Hedland in the north-west of Western Australian officially had the highest median house value of any Australian township.
Even Sydney’s median house value of $670,000 in 2013 was 34 percent less than Port Hedland’s $900,000.
Then it tanked!
Within just 5-years, the median house value in our 134th largest township (population 17,300) came crashing down from $900,000 to $210,000.
As with literally every other Australian location, Port Hedland’s property market did well when its local economy was strong, and it performed poorly when the economy was weak.
The volatility of Port Hedland’s property market is far more pronounced than any other Australian city because it lacks economic diversity – it is the stereotypical one industry town.
As illustrated in this chart, there is a strong connection between iron ore prices and Port Hedland’s capital growth rates.
High household mortgages
While there is zero doubt that the year-to-year health of each city’s economy has the biggest influence on property market performance, there is also compelling evidence that locations with noticeably higher household mortgages possess potential to be more volatile.
Fluctuations in the RBA cash rate have a significantly bigger dollar-value impact (up and down) on households with a home loan of say $1,000,000 than other households with smaller debts to service.
The chart below illustrates the property market performance of Inner-West Sydney for the last 35-years:
- Of the 5-lean periods, interest rates were rising during 3 of them,
- In those same years that Sydney languished, many other cities with lower household mortgages produced impressive rates of capital growth,
- Sydney’s worst period was mid-2017 to mid-2019. Popular locations like Balmain and Leichhardt saw $260,000 wiped off the median house value.
- While the price of credit was affordable during that period (1.5 percent Cash Rate), APRA’s very tight credit policy meant that the availability of credit was more difficult for households requiring higher debt levels.
The evidence also confirms that, relative to capital growth rates in locations right across Australia, Sydney apartments have consistently been an underperformed asset for the last 2-decades.
INVESTMENT COMPARISON (Dec 2014 to Dec 2024)
Scenario ‘A’
Inner-West Sydney apartment:
Purchase Price $665,000 >>> End Value $911,000 = Growth $246,000 (37%)
Scenario ‘B’
Albury NSW standard house:
Purchase Price $315,000 >>> End Value $645,000 (105%)
plus Hobart TAS standard house:
Purchase Price $350,000 >>> End Value $740,000 (112%)
Combined asset value:
Purchase Price $665,000 >>> End Value $1,385,000 = Growth $720,000 (108%)
Holidays and heartstrings
Lots of property investors have allowed the joy of a holiday to drive an emotional decision to invest in their favoured holiday location.
Popular townships such as Noosa QLD and Byron NSW offer amazing lifestyles, and their respective property markets performed significantly better than every capital city over the last 10-years.
But they’ve had other long periods that left property owners with strong regrets.
An important lesson to learn from history is that locations with a local economy that depends too heavily on tourism (such as Port Douglas, Airlie Beach, Broome, Yamba) have higher market risk than locations with greater economic diversity.
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While it currently seems very unlikely that a Australia will experience a major recession or GFC anytime soon, one can never know when the next major attack on discretionary incomes will occur.
Across this incredibly big and diverse country, there are countless great towns and cities which consistently attract a healthy tourism trade while also having numerous other strings to their economic bow.
Some such examples include, but are not limited to, the Gold Coast, Sunshine Coast, Cairns, Townsville, Port Macquarie, Hunter Valley, Armidale, Orange, Geelong, Bendigo, Ballarat, Mildura, Victor Harbor, Murray Bridge, Launceston and Hobart.
Running out of gas
Despite being the 18th largest out of 400+ townships, the only meaningful economic development in Darwin NT during the last 20-years has been a couple of enormous offshore gas projects.
Darwin’s property market volatility is a byproduct of this disappointing lack of economic diversity [refer here].
A typical apartment in Australia’s smallest capital city is currently worth 13 percent less than 15-years ago.
And Darwin house values have only increased by 10 percent over the same period.
It is a reasonably similar story for the property market of Australia’s 4th largest city, beautiful Perth.
While Perth’s economy certainly does have some economic diversity, it is left wanting during prolonged periods of low commodity prices. Perth’s property market performance is intertwined.
The mining industry supports 1 in every 3 jobs in WA, while royalties generate $13 billion per year for the state government. That enormous amount of revenue is important for investment in Perth’s public sector workforce, health, education and infrastructure.
Despite its glorious lifestyle and consistently attracting above-average population growth, the last mining downturn meant that Perth’s median house value of $490,000 in 2020 was the same as 14-years earlier, in 2006. Ouch!
Safe as houses
Approximately 100 out of Australia’s 400+ townships have significant economic diversity and decades of runs on the board to be regarded as having a ‘Low Risk’ property market profile.
The cost of a standard house in those locations currently varies from circa $650,000 to over $1 million.
Related article: The right strategy and investment budget
In attempt to be generous and to share the love, below are examples of lesser-known ‘Low Risk’ cities from a variety of states.
There literally are dozens of great cities that, at the right time, will produce exciting opportunities for property investors.
The historical trendline of their respective median house price contains 35-years of evidence that they are capable of producing average annual rates of capital growth which are equal to or greater than the biggest capital cities.
As the Australian pioneer and most experienced borderless property investor, Propertyology makes a conscious effort to provide clients with professional guidance towards cities with identified inherent resilience.
Doing so provides no guarantee about future performance, but it does minimise investor’s potential risk from future market volatility.
Related article: How to accumulate a property portfolio
As mentioned earlier, every location will produce lean periods, but locations with substantial economic diversity are less likely to produce decade long lean periods.
It is also prudent to respect the intelligent principle of not placing too many eggs into any one basket.
As a property investor, that means having the discipline to resist investing capital into expensive assets and to spread capital across multiple different cities and states [just like this].
Propertyology are national buyer’s agents and Australia’s premier property market analyst. Every capital city and every non-capital city, Propertyology analyse fundamentals in every market, every day. We use this valuable research to help everyday Aussies to invest in strategically-chosen locations (literally) all over Australia. Like to know more? Contact us here.
Here’s how we combine our thought-leading research with Propertyology’s award-winning buyer’s agency services.
