As previously projected, price growth in Tasmania has decelerated, followed by some modest price reductions.
While the unemployment rate in Tasmania improved significantly through the cycle, affordability issues, with preferred alternatives arising in Melbourne, created a situation where the housing market in the Apple Isle became a little less resilient.
The local property market continued to experience decelerated price growth followed by modest price reductions, despite the comparatively low supply of dwellings.
COVID-19 has had a material impact on demand with a 1.4 per cent drop in house rents and a 2 per cent drop in unit rents since March 2020.
These measures provide an indicator regarding the unattractiveness of the market to property investors.
While property prices have shown only very slight price reductions of 0.1 per cent, this could in part be attributable to AVM measurement challenges (for more information, refer to RiskWise's April 2020 special report).
A high rate of owner-occupiers for houses and a low effective LVR for many investment properties that enjoyed strong capital growth in recent years, mean that price reductions are likely to be modest, particularly in the highest demand areas in Hobart.
Hobart's preceding boom cycle bites
Following a quiet decade, a combination of affordability, a tightening rental market, interest from buyer on the Chinese mainland, and lower mortgage rates culminated in a significant growth cycle for Hobart's housing market.
Over the past 5 years the prices soared by 57 per cent to a median house price of $531,400 for Greater Hobart, taking the price to income ratio for houses up to 8.3.
As such the affordability advantage of the Tasmanian capital has now been eroded.
Hobart's property market is dominated by houses, although unit prices have also experienced a significant growth cycle over the past five years.
The median unit price for Greater Hobart is now $425,000, with a price to income ratio of 6.6.
Recently buyers have been finding more attractive alternatives with strong prospects in well-located peri-urban locations on the Victorian mainland, such as in Geelong.
Rental market supply
Detached house approvals followed prices upwards to hit decade highs in 2019, in response to the heightened demand.
Unlike the mainland capital cities, however, Hobart did not experience the material glut of medium-density projects or high-rise towers, with this product not being so favoured in Tasmania, and with developers from the mainland less inclined to undertake major projects in Hobart.
Indeed, attached dwelling approvals have been close to zero in 2020 for Greater Hobart, with the modest level of demand in this market already being met in full.
Overall, the rental market in Hobart has remained in reasonable shape, with vacancy rates tracking at under 1 per cent.
However, the relatively high proportion of units that are investor-owned increases the risk associated with such properties, particularly given the prospect of falling rental prices.
There is a high ratio of renters for units, which places reliance on the presently low level of investor activity.
Rental apartments have an associated cashflow or serviceability risk, in addition to the equity risk that is, over the medium and longer term, materially higher than the risk associated with detached houses.