Key Trends That Will Define The Sydney Housing Landscape In 2018
Article first published on AB+F.
The Sydney housing market has remained a contentious subject over the past 12 months, with 2017 recording its fair share of ups and downs – depending on your perspective of course, says CoreLogic head of research Tim Lawless.
Despite the recent slide in dwelling values across the city, CoreLogic data shows property prices are still 69 per cent higher than they were when the market reached a low point in Feb 2012 and, although interest rates remain low, affordability is still a talking point. So how will the current landscape inform government policy, developer activity and consumer behavior in Sydney over the coming year?
Investors are still active in the market, with the latest ABS housing finance data showing they comprise 51 per cent of new mortgage demand; well above the long run average of 37 per cent. This is despite tougher serviceability criteria and mortgage rate premiums.
That said, the share of investor mortgages across New South Wales has fallen from their peak of almost 65 per cent in 2015, and we could possibly see this decline further in light of slow capital gains and low rental yields in Sydney as well as credit restraints on investment and interest only mortgages.
On the other hand, first homebuyer activity, as a proportion of all owner occupier finance commitments, rose from 7.5 per cent in early 2017 to almost 15 per cent by the end of last year, indicating a rush from first time buyers to benefit from stamp duty concessions. But despite the increased activity, saving for a deposit is prohibitive for many and this cohort remains a small percentage of all buyers.
To combat this, ‘rentvesting’ – where you rent in your preferred area and buy somewhere more affordable - is likely to become more popular among younger buyers, as is staying at home for longer, or even moving interstate. This already growing trend for domestic migration out of NSW is set to continue as people consider how far their dollar will stretch outside of Sydney.
Rentvesting is likely to become more popular among younger buyers, as is staying at home for longer, or even moving interstate.
In contrast, strong overseas migration rates into Sydney are fueling greater demand for housing. As such, we can expect housing supply to be a priority among government housing policies, including more affordable options.
Taking a long-term view, this is bound to have a greater impact on housing affordability challenges then initiatives such as stamp-duty concessions, which stimulate demand and are likely to simply drive values higher across the more affordable priced areas of the market.
It should be noted that while net overseas migration remains at very high levels, net interstate migration is seeing an increasing number of residents of New South Wales moving to other state and territories.
Apartment construction has grown to unprecedented levels in recent years, stimulated by demand from local investors and foreign buyers. As these groups are no longer buying at the levels they were, this should influence an easing in high rise unit construction across NSW – mirroring a trend that has been emerging in Victoria and Qld since late 2016.
Instead, we can expect to see developers shift away from high-rise construction towards medium density options, building town houses and terraces that meet the needs of families. Medium density housing stock located close to the city and along transport spines are currently under supplied and will be highly sought after.
While the cash rate isn’t likely to rise this year, mortgage rates could still push a little higher due to increased funding costs on capital markets.
While the cash rate isn’t likely to rise this year, mortgage rates could still push a little higher due to increased funding costs on capital markets. Sydney homeowners with several years of property ownership under their belt may have built substantial equity in their home and be able to withstand interest rates moving higher. More recent buyers, particularly those with thinly stretched balance sheets, could find themselves at greater risk of mortgage stress.
However, it could be feasible for lenders to slightly relax their lending policies as APRA limits around credit growth and interest only lending have been comprehensively achieved. If lenders become more willing to lend for investment purposes, ensuring they remain within the regulatory benchmarks, it could help to ease the downward trajectory of Sydney home values.
While there have certainly been some positive outcomes for several players in the Sydney housing market over the past year, enduring challenges remain – particularly around affordability and supply. In a few decades time, this may be less of an issue with technology making it easier for people to live and work outside of the city. But in the short term, tackling these challenges has to remain a priority.
Article first published on AB+F here.
Director of Research
Published: 11 April 2018.