There is a lot of talk about Tasmania and the property market in that state. It comes without mention that Tasmanian property and Hobart in particular have had a stellar performance in the past year. Hobart houses have risen over 8.31% year on year at the time of publishing of this article, while units skyrocketed over 10%. This is a fantastic performance by any metrics.
However, in this article we will try to dive deeper into Tasmania property market and analyse the drivers behind this property price growth. In the past Hobart has been known to be a boom and bust market. Unless there are a sustained ongoing drivers that would support property market in Tasmania in the future, we are expecting that the known cycle of boom and bust will continue as in the past. Let us look into the key drivers together!
House are built for people to live in. Regardless if it is an investment property or an owner occupier house, there needs to be a person (or a family) that would like to rent the house or buy it to live in it. Population growth, in our view, is a key statistic to look at. The higher the population growth the more demand there is for housing stock. Tasmanian population in 2011 was 495,354, while in 2016 it has grown to 509,965. That represents a 2.95% growth over 5 years, an abysmal performance in our view. The situation didn’t change much in 2018. The population growth year on year (between 2017 and 2018) was 1.1%.
Sources: Australian Demographics, June 2018
By comparison both Victoria and Canberra exhibited population growth of 2.2% over the same period. It is important to note that Victoria and Canberra are coming of a much larger base, so they require a significantly larger inflow of people to get to the same growth number as Tasmania.
Tasmanian population is aging faster than any other state. Almost every fifth person in Tasmania is over 65 years old. In fact median age in Tasmania was 40 years in 2011 and this has increased to 42 in 2016. Tasmania continues to struggle to attract younger population, and this also impacts the composition of demand for housing in that state. Older people tend to be drawn to smaller properties that are easier to maintain, retirement villages and similar products.
Economy has as significant impact on property prices. Employment creates income, which in turn is directed towards mortgage payments or rent payments. Property prices tend to closely follow employment statistics. If wages are rising and unemployment is falling, there is a likelihood that property prices will increase. A good example is News South Wales and Victoria, where unprecedented infrastructure spending along with strong private emp0loyement created a competitive job market.
Looking at Tasmania, this state has the lowest participation rate among all other states. This means that less people, out of total population tend to look for or participate in workforce. This is partially explained by Tasmanian population structure, with a significantly larger proportion of people in retirement age. Unfortunately, retires are not usually awash with money and they don’t tend to be a key driver in property prices. Instead retirees are usually among the first demographic that moves out of an area if it booms due to affordability issues.
Tasmania also has some of the highest unemployment rates in the country. Current unemployment is almost 6%. Moreover, the risk is that the employment trend is starting to trend lower.
We don’t believe that the historical
trend of boom/bust in Tasmania will change anytime soon. We think that 2019
would a very interesting year for Tasmanian and Hobart property. We expect
property prices to peak in Tasmania towards the end of 2019. Post the peak we
expect Tasmanian property prices to correct significantly, albeit be higher
than the last peak. We don’t believe that entering into Hobart property market
at this stage is a great deal, unless all the fundamentals of the property
stack up. No one can predict the future with full accuracy, and no one has a
crystal ball. Our thesis remains the same, if the property has all the
fundamentals and numbers stack up, it will be a great property regardless of
the market or location.
Important: People don’t buy a “market”, what people buy is a particular property on a particular street with a specific set of characteristics. Even if the market goes up, down or sideways; the property could outperform or underperform based on that property fundamentals.