Australia’s capital cities may be coming off the boil, but what of their metropolitan siblings?
Secondary cities such as Geelong, Newcastle and Launceston have been on a run, proving more affordable options for buyers after prices shot up in the closest major capital city. But with prices in some capitals declining – most notably in Sydney and Melbourne – some secondary cities now don’t look quite as good value as they did a year or two ago.
The outlook for prices in major regional cities Newcastle, Wollongong, Gold Coast, Sunshine Coast, Geelong and Launceston is analysed below.
Secondary cities boomed after major cities became too expensive
When capital city prices become too expensive for first-home buyers and investors, aspiring capital city home buyers often look to nearby regional cities as a cheaper alternative. These secondary cities are often close enough to a major capital that people can commute to the capital city for work.
Price growth in major cities and secondary cities generally track pretty closely together, but sometimes with a delay of around a year. For some cities, the major city in some city-pairs can lead turning points in the price growth of the secondary city.
Sydneysiders consider Newcastle and Wollongong, Melburnians often look to Geelong, and Launceston, Tasmania’s second-largest city, is considered after Hobart. In Queensland, the typical house in Brisbane is cheaper than in the Gold Coast and the Sunshine Coast, but these coastal cities are both within commuting distance to Brisbane and are obvious alternatives to Queensland’s capital.
Property prices in Wollongong, Newcastle and Geelong began rising a year or two after Sydney and Melbourne property prices began taking off around 2013. Launceston house prices have increased significantly since 2017, a couple of years after Hobart’s price boom started in 2015. While price growth has been more subdued up north, Sunshine Coast and Gold Coast house prices have increased by more than those in Brisbane.
|Most secondary cities have experienced stronger house price growth than their nearest capital cityMedian house price, December quarter|
|2015||2016||2017||2018||Per cent change,2015-2018|
|Notes: Capital city house prices are Australian Property Monitor city regions and are a stratified median price. Secondary cities are ABS Significant Urban Areas and are a raw median price.|
What’s in store for secondary cities house prices?
Several indicators are used to predict price growth in secondary cities in the coming years.
The first method is comparing the ratio of the median price in a capital city with the secondary city’s median house price. The higher the capital city/secondary city price ratio, the more expensive the capital is compared to the secondary city (for example, a ratio of 2 indicates a typical house in the capital city is twice as expensive as the secondary city).
If a capital city/secondary city price ratio is below average, then this may indicate the secondary city is overvalued, suggesting the secondary city may see weaker price growth in the near future (and vice versa).
Buyer interest in an area – using changes in the number of views per listing from Domain’s website and apps, a leading indicator of future price growth – is also analysed. The economic outlook and job prospects in secondary cities, including the interconnectedness of the secondary city with the closest capital city, are also considered.
While Wollongong’s economy is performing well, its prices are likely to stagnate or fall in the year ahead. The main reason is that the Sydney/Wollongong price ratio has fallen just below the 2010-2018 average and is back close to the level over the 2003-2013 period, where the median house price in Sydney prices was approximately 50 per cent higher than in Wollongong (see graph below). This fall in the price ratio was due to Sydney house prices falling by more than Wollongong house prices over the past two years.
While prices are likely to remain fairly stagnant over the next one to two years, Wollongong’s improving job market and growing links to Sydney should provide support to Wollongong property prices in the medium term.
Wollongong has seen strong jobs growth in the past couple of years, with the unemployment rate for the Wollongong LGA falling from almost 7 per cent in 2016 to 4.5 per cent in 2018.
Wollongong is also a growing commuter town: in 2016, more than 21,000 people commuted from Wollongong to Sydney for work (the second largest regional city to capital city commuting pair, behind the Gold Coast to Brisbane). Wollongong and Illawarra residents may also benefit from the construction of the Badgerys Creek airport, which will be just over an hour’s drive from Wollongong, although construction is not expected to finish until 2026.
Newcastle is likely to see weak price growth or modest price falls in the next year or two. The Sydney/Newcastle price ratio has fallen below the 2010-2018 average as prices have grown slowly in Newcastle over the past year, but fell by 10 per cent in Sydney. This indicates Newcastle houses may be becoming overvalued compared to Sydney.
Buyer interest in Newcastle also appears to be waning. Domain’s views-per-listing measure for Newcastle fell by 2 per cent over 2018 as there were fewer buyers or they began looking elsewhere.
Another reason property price growth in Newcastle might be subdued is that there is no clear jobs boom on the horizon in the region. Newcastle’s unemployment rate has hovered around 6 per cent over the past couple of years, which is above Sydney’s unemployment rate of 4 per cent.
The Melbourne/Geelong house price ratio fell significantly over 2018 as house prices increased in Geelong and fell in Melbourne. The Melbourne/Geelong price ratio now sits at 1.5, meaning a typical house in Melbourne is 50 per cent more expensive than a typical Geelong house. The ratio is now below the 2010-2018 average.
With Melbourne house prices forecast to continue falling in 2019, Geelong’s relative affordability will decline further, so this may also see prices in Geelong stagnate or fall modestly. The Geelong market is already losing momentum, with house price growth slowing in Geelong over 2018 and Domain’s views-per-listing measure for Geelong falling at the end of 2018.
While the analysis of the Melbourne/Geelong price ratio suggests Geelong prices may fall, there are some promising signs for Geelong’s economy. Some sectors are seeing jobs growth, particularly government jobs, and the city is on the rebound after the end of car manufacturing in 2016. Geelong’s unemployment rate has hovered around 6 per cent since 2016, but a very low unemployment rate in Melbourne of 4 per cent (down from 6 per cent over the past year) may help push Geelong’s unemployment rate lower.
Geelong is increasingly interconnected with Melbourne, which should see the Geelong property market become further tied to the Melbourne market. There are a number of transport infrastructure projects planned, or underway, that should improve travel times between Geelong and Melbourne, including the West Gate tunnel project and planned improvements to the Geelong-Melbourne rail service.
These projects – combined with strong population growth and lots of homebuilding in Geelong and surrounding towns – mean the number of commuters from Geelong to Melbourne will likely increase from the 15,000 commuters in 2016.
An above-average Hobart/Launceston price ratio, increasing buyer interest and brighter economic prospects all indicate that Launceston may see further price growth over the next one to two years.
Price growth in Launceston, Tasmania’s second-largest city, is closely correlated with price growth in Hobart. As Hobart’s prices boomed over the past few years – house prices have increased by more than 40 per cent since early 2015 – Launceston has become relatively cheaper. The Hobart/Launceston price ratio has increased, with a typical house in Hobart now 40 per cent more expensive than a typical Launceston house, up from a 20 per cent difference a few years ago.
But Launceston prices have also grown strongly since 2017, resulting in the price ratio stabilising, with the relative affordability of Launceston likely to encourage some investors and migrants to buy in Launceston instead of Hobart.
There is also growing buyer interest in Launceston. Views per listing in Launceston increased by about 40 per cent over 2018.
Launceston’s economic prospects are also improving. Unemployment recently fell to its lowest level in more than seven years, although it remains elevated at 6.8 per cent. Launceston is the subject of a City Deal partnership between federal, state and local governments to boost the Launceston economy.
The annual MONA-FOMA festival has been moved from Hobart to Launceston, so Launceston may benefit from some of the “MONA-effect” that has boosted Hobart’s economy. A weaker Australian dollar should continue to support Tasmania’s economy by boosting tourist numbers to Tasmania, as well as making Tasmania’s exports cheaper for overseas buyers.
Unlike other city-pairs considered in this article, few people travel between Launceston and Hobart for work (only 275 people commuted from Launceston to Hobart in 2016).
Brisbane-Gold Coast and Brisbane-Sunshine Coast
Moderate price growth in the Gold Coast and the Sunshine Coast compared to slower price growth in Brisbane over the past two years has made a house in Brisbane relatively cheap compared to the coastal cities. The Brisbane/Gold Coast and Brisbane/Sunshine Coast price ratios have fallen and now sit below the 2010-2018 average, suggesting the coastal cities are slightly overvalued.
Because the smaller Queensland cities have a higher median price than Brisbane, the Brisbane/Gold Coast and Brisbane/Sunshine Coast price ratios are below 1, meaning a typical Brisbane house is about 10 per cent cheaper than in the Gold Coast and the Sunshine Coast.
South-east Queensland is highly interconnected. More than 30,000 people commuted from the Gold Coast to Brisbane for work in 2016, the biggest city pair in Australia, while 8400 people commuted from the Sunshine Coast to Brisbane.
Job prospects have been better in the Gold Coast than in the other cities. The Gold Coast’s unemployment rate has fallen from 5.5 per cent in late 2016 to 4.3 per cent at the end of 2018, whereas the unemployment rate hovered around 6 per cent in Brisbane in 2018 and increased to 6.5 per cent in 2018 in the Sunshine Coast.
The price ratios suggest Gold Coast and Sunshine Coast house prices may grow more slowly than Brisbane in 2019. But the Domain views-per-listing measure for the Gold Coast and the Sunshine Coast increased in the second half of 2018, and job prospects look better in the Gold Coast, suggesting there is scope for further price growth for both secondary cities.
Secondary cities are closely tied to the performance of their closest capital. Over the next few years, as jobs continue to concentrate in Australia’s major cities, secondary cities will likely become even more closely linked to their nearest capital city.
The outlook for some capital cities is for further falls in 2019 before prices bottom-out later in the year, so the likelihood is secondary cities will see prices stagnate or fall in 2019, although Launceston looks to be an exception.
This article was first published in www.domain.com.au. Here is the link to the original article: https://www.domain.com.au/news/are-australias-secondary-cities-still-a-bargain-or-have-they-run-their-race-801179/