Lifestyle and limited supply of houses will continue to drive more modest detached house price growth in Hobart
As previously projected, price growth in Tasmania has decelerated.
Affordability issues, with preferred alternatives in Melbourne, created a situation where the Apple Isle became less resilient and the property market continued to experience decelerated price growth despite low supply of dwellings. While lifestyle changes have improved the demand for housing in Hobart, the market is likely to experience only modest price increases from this point in the cycle. Hobart is less attractive now to investors, particularly in comparison to the Melbourne property market, which has demonstrated its strong economy fundamentals and appreciation and housing prices over the past 10 years.
Lower median prices, the high rate of ownership for houses and solid equity (i.e. low effective LVR) for many investment properties that enjoyed strong capital growth in recent years, mean that further price increases are likely In the higher-demand areas in Hobart.
As in the other states, ultra-low interest rates make it cheaper to buy than rent in all of Hobart for owner-occupiers with interest-only loans.
It should be noted, however, that the demand for housing in some regional areas in TAS is relatively low. In the absence of strong growth drivers and with sufficient supply of housing, the capital growth in those areas is likely to be modest.
Hobart has the largest proportion (12.7 per cent) of workplaces in ‘vulnerable’ industries that have been hardest hit by COVID-19 such as accommodation, food services, and recreation industries.
These industries employ younger people who are a large cohort of renters. Therefore, rental units are experiencing lower demand and carry a higher serviceability risk for investors. Consequently, investor demand is further shifting towards detached houses.
Units also carry a higher level of risk due to the fact that houses are significantly preferred and due to the relatively high number in the pipeline compared to population growth.
The relatively high proportion of units that are investment properties also increases the risk associated with such properties, particularly with falling rental prices and increased vacancy rates.