ECONOMY - A decade of change

The past decade has been a tale of two distinct five year periods, RP Data reports

Over the 10 years to July 2011, capital city home values have increased at an average annual rate of 6.8 per cent. The growth in house values have been well in excess of inflation which has increased at 2.9 per cent annually over the 10 years.

Undoubtedly the growth has occurred during a time when access to credit was much easier to obtain and interest rates were inherently lower than what was recorded during the previous decade. As a result many home owners have reinvested their equity into the property market, buying additional investment properties as values have continued to rise.

Looking at growth over the entire decade only tells part of the story; in fact, the first five years of the decade recorded very different outcomes for the property market compared with the second half of the decade.

Over the first five years, home values across the combined capital cities increased at an average annual rate of 8.6 per cent. Average annual capital gains across each city varied during that period from 4.7 per cent growth in Sydney to 22.1 per cent growth in Hobart.

In each city except for Melbourne, home value growth over the first half of the decade was in excess of the decade average.

During the second half of the decade, average annual growth in property values has generally been much more subdued, with Melbourne the one exception.

Across the combined capital cities, home values have increased at an average of 5.1 per cent annually between July 2006 and July 2011 compared to 8.6 per cent annually over the preceding five years. While the top performing capital city during the previous five years (Hobart) recorded average annual value growth of 22.1 per cent, the top performing city during the most recent five years (Darwin) has recorded value growth of 10.1 per cent.

Some may find the Perth and Hobart results to be quite startling. After recording average annual growth of 21.2 per cent and 22.1 per cent respectively during the first five years of the decade, over the most recent five years values in these cities have growth at average annual rates of 1.1 per cent and 3.4 per cent respectively. Average annual property value growth in Brisbane, Perth and Hobart has been less than half of what it was during the preceding five years.

Over the past ten years, average annual value growth for houses (7.1 per cent) has been superior to that of units (6.1 per cent). Focusing on the most recent five years shows that units have actually enjoyed a superior level of value growth. Across each five year period the average annual value growth for units has been quite consistent whereas house value grew by 9.5 per cent pa during the first five years and almost half that (4.8 per cent pa) during the most recent five years.

The recent superior performance of units as opposed to houses continues today and is reflective of changing lifestyle patterns. In particular, first home buyers and young professionals are likely to be much more attracted to an inner city unit rather than a house 20-plus kilometres from the city centre, especially if they work centrally and they also work long hours.

With housing credit growth constrained and affordability a barrier to market entry, property values are likely to grow at a slower pace and the likelihood of large spikes in value growth over a 12-24 month period as witnessed at times during the past decade is less likely.