A big driver for Victoria’s property market is employment across a range of industries. Over the 12 months leading up to June 2016, Victoria created a record 87,800 full time jobs. This was the state’s biggest annual job growth since June 1989 and actually surpassed the remainder of the nation collectively, as the number of jobs across the remaining states fell by 20,000. The growth in Victoria’s jobs was also even across the genders, with 42,800 full time jobs created for men and 45,000 jobs created for women.
Large internationally renowned companies such as BHP Billiton, Computershare, ANZ, NAB, Telstra and Bupa, to name a few, base their headquarters in Melbourne, sustaining thousands of jobs for the state’s economy and its residents. However cheaper overseas labour has meant a number of production job losses over the past few years, Ford’s Geelong plant which is expected to cease production in October 2016 is a prime example, with 850 jobs lost. While a job loss of this magnitude was significant for the region, the Victorian government has pledged $500 million over the next four years to its Regional Jobs and Infrastructure Fund which is in place to support major projects that will create jobs within Victoria’s regional communities, demonstrating the government’s commitment to the continued growth and sustainability of jobs in Victoria.
Lifestyle – Location
One of the main drivers of demand in Melbourne is lifestyle. Melbourne is a diverse city, offering all types of lifestyle choices, whether that is living close to the beach, being amongst trendy bars and cafes, proximity to public transport or proximity to the CBD.
Demand for residential properties within close proximity to the beach is one of the major drivers in the Melbourne market. This can be seen by the high prices at which properties are sold in suburbs along the south eastern coastline such as Brighton, Elwood and Hampton. Brighton’s median house price is $2.715 million, Elwood’s is $1.9 million, while Hampton’s is $1.765 million.
Another lifestyle choice that is increasingly driving the market is the proximity to trendy bars and cafes, along with other public infrastructure such as public transport and schools. The inner north of Melbourne is fast becoming one of the most popular areas to live. Suburbs such as Collingwood, Fitzroy, Brunswick and Northcote are all very popular and have seen massive growth in the past five to ten years.
Precincts such as Smith Street and Brunswick Street in Collingwood and Fitzroy, High Street in Northcote and Sydney Road in Brunswick offer residents a very social lifestyle.
Lifestyle – School Zoning
School catchment areas have and will continue to be a key driving factor of house prices within Melbourne. With the increasing population but finite number of school places and property to accommodate this demand, the resulting increase in house prices is inevitable. In particular REIV chief executive Geoff White said that parents preferred to pay for higher house prices in public school zones than pay private school fees and that schooling and education was a key driving factor of Melbourne house price growth.
The table below shows the extent to which being located in a school zone can impact median prices of homes.
From 1 July, changes to the Foreign Investment Review Board Regulations policy allow non-citizen children as young as six to study in Australia and also simplify the application process for Chinese students and their guardians. Chinese students already account for a quarter of Australia’s international students and therefore these changes to the visa will increase the pool of eligible applicants.
The school zone premium is not a new phenomenon, especially in the Bentleigh and McKinnon area which has experienced this effect for the past 20 years, however the introduction of Chinese purchasers who particularly value good education is seeing an additional premium being paid over what was previously regarded as the norm.
Affordability is a major driver of the residential property market. Therefore, we have seen an increase in the construction and purchase of apartments and townhouses across inner metropolitan suburbs as these provide a more affordable option than a house. Furthermore, there have been numerous new estates constructed on the urban fringe which provide more affordable housing options. Cranbourne East has been named the fastest growing suburb in Victoria, expanding by 88 people per week in the past financial year as stated by the Australian Bureau of Statistics. This is due to the fact that is provides an affordable option with a median house price of $418,750.
Investment is a key primary driver in Melbourne, both international and domestic. Investors look at both apartments and houses in order to receive maximum return on the dollar, through rent and capital growth. In the City of Melbourne, there were over 5,000 apartments built in 2015 and an expected 10,000 to be built over 2016 and 2017. Each project varies in respect to its owner occupier versus investor ratio, but recently there have been developments that have had 90% of purchases by investors, with a higher proportion of overseas investors to local investors. A recent study indicated that about 28% of all innercity apartments are owner-occupied.
As the Australian dollar has remained relatively stable but remaining lower than it was before the GFC, international investors have seen Australian property as an attractive proposition. However international investment has recently had tighter lending regulations imposed, with some banks outright refusing to lend. While this has had an impact on demand, especially for apartments, international investors have not left the market and continue to purchase.
Recently, especially during the election, there has been a debate about negative gearing and how that might be pricing first home owners and younger purchasers out of the market. While no action has occurred yet, there have been suggestions of phasing out negative gearing, with the idea that if investors no longer have access to offsetting their interest losses against their loan, they won’t have as much purchasing power, giving owner occupiers a greater chance of purchasing their desired property. If this were to come into effect, it will decrease the demand for investor properties.
Public transport and road infrastructure
The provision of quality infrastructure is widely and unsurprisingly linked to demand for property and property price growth. This is very evident in the rapidly developing suburbs on Melbourne’s periphery as well as in inner suburban areas.
The outer suburb of Epping, 26 kilometres north of Melbourne’s CBD, is forecast to experience rising values due to recent upgrades to the Western Ring Road as well as additional services on the South Morang train line as reported by News Corp (2016). A new train station serving Caroline Springs, 25 kilometres west of the CBD is scheduled to open in early 2017. This new station on the Ballarat line will serve 1,500 passengers per day. This is one of the key drivers that have seen the median house price jump 9.6% to $570,000 in the three months to March 2016 (Fairfax Media, 2016).
The announcement of the extension of the South Morang line to Mernda has already started to drive increased demand for housing in Mernda and Doreen (News Corp 2016). The extension is due for completion in 2019. Mernda’s average house price rose 9.4% to $412,892 in the year to January 2016.
It’s not just provision of new roads and rail links. Improvements to existing rail infrastructure can also drive demand. The Level Crossing Removal project is removing a total of 50 level crossings across Melbourne’s train network. Property prices are forecast to rise in the streets immediately surrounding the tracks when the level crossings are removed around stations such as Ormond, Bentleigh and McKinnon on the Cranbourne – Pakenham line (News Corp, 2015). Over in St Albans, 15 kilometres north-west of Melbourne, property prices are also tipped to rise by up to $100,000 in the suburb when the grade separation is complete (News Corp, 2016).
DISCLAIMER: The information contained in this article is correct at the time of publishing and is subject to change. It is intended to be of a general nature only. It has been prepared without taking into account any person’s objectives, financial situation or needs. Before acting on this information, Smartline recommends that you consider whether it is appropriate for your circumstances. Smartline recommends that you seek independent legal, financial, and taxation advice before acting on any information in this article.