Narre Warren Assessment Local Economic Analysis 9 February 2011

Transcription

1 Narre Warren Assessment Local Economic Analysis 9 February 211 MacroPlan has been commissioned by Providence Housing to undertake a local economic analysis of Narre Warren and prepare forecasts of economic and property variables to 222. As part of this assessment, the following components have been considered: (1) Macro economic analysis; (2) Local Area analysis; and (3) Project specific analysis. Macro Economic Analysis Macro Economic Analysis: Overview of market conditions in metropolitan Melbourne which may impact on the future residential market of Narre Warren; Local Area Analysis: Assessment of the key demand, supply and pricing fundamentals in Casey (C) Berwick SLA including population growth, employment conditions, building activity, land production, sales activity and pricing trends. Project Specific Analysis: Consideration of the subject site / suburb s potential with respect to its micro economic environment and locational attributes. The Victorian economy emerged strongly from the Global Financial Crisis (GFC) with positive growth in Gross State Product (GSP), labour force, income and housing activity. The Melbourne metropolitan area is currently undergoing significant change. Record population growth, increasing numbers of overseas migrants and the ageing of the population indicate that the population of Melbourne is not only becoming larger, but older and more diverse (see Figure 1). Based on Victoria in Future (VIF) population projection, Melbourne s population will grow from 3.9 million people in to 5. million people in 226. This will support strong demand for housing in Melbourne. Analysis of residential building activity demonstrates that supply of housing has not kept up with this growth in demand and this has been reflected in increasing prices in Melbourne. Figure 1. Historical Population Growth, Melbourne Persons (million) Persons (LHS) Growth Rate (RHS) Source: ABS cat () Growth Rate (%) Melbourne s median house price increased from $19, in 2 to $495, by equating to average annual growth of 9. per annum. However, analysis of prices over the past two quarters suggests that prices are likely to move at a slower growth pattern and lower than the long term average. Furthermore the impact of the GFC led to a reduction in residential land and building activity putting further pressure on the shortage of housing. While building approvals have improved in recent times, this lag in supply has created significant latent demand for affordable product that is well located. Housing affordability is also becoming an increasingly important issue as prices and interest rates rise and housing affordability decreases (see Figure 2). This is particularly an issue for older Australians, many of whom are under superannuated and look to their family home to fund their retirement. This is also making it difficult for emerging market segments (e.g. single parent households and single person households) to enter the housing market. Figure 2. and Interest Rates, Melbourne $6, 1 $5, 9% 8% $4, 7% $3,, $1, $ 2 (RHS) Standard Variable Interest Rate (LHS) Source: Valuer General (), Reserve Bank of Australia (). Interest Rate This in turn puts pressure on demand for rental accommodation particularly from these price sensitive market segments. This has been reflected in the exceptionally tight rental market in Melbourne as shown in Figure 3. Melbourne s vacancy rate has averaged 1. in which is significantly lower than the average of 3. between 2 and. This is expected to continue given the build up of latent demand and the continued undersupply of residential stock. This problem is exemplified in Casey given there is next to no supply of affordable, high density rental product to meet diverse population demands. Figure 3. Historical Vacancy Rates, Melbourne Median Rent ($/week) Jan 7 Feb 6 Mar 5 Apr 4 May 3 Jun 2 Jul 1 Aug Sep 99 Dec 7 Nov 8 Oct 9 Sep 1 Source: Department of Human Services ().

2 Interest rates have been low in recent times and have improved housing affordability. This appears to be driving property price growth since the GFC. After successive interest rate rises, prices have started to moderate in line with affordability issues and constraints. MacroPlan expects interest rates to remain at current levels until later in the year before increasing to previous peak levels over the period MacroPlan expects price growth to remain flat in 211 although more affordable locations, supported by accessibility and services, are likely to perform above the Melbourne average. Within this environment of slower capital growth rates, there is expected to be higher demand for rental stock of smaller product such as units. Consequently, growth in unit prices is expected to outpace house prices while also increasing rental yields. Over the past 1 years, Australia s Consumer Price Index (CPI) has steadily increased from in March quarter 2 to 174. by December quarter as detailed in Figure 4. The CPI (rent sub group) for Melbourne has increased more rapidly than the overall CPI, particularly post which further indicates the increasing demand for rental accommodation in Melbourne. Figure 5. CPI and CPI (Rent) Forecasts CPI CPI (Rent) 2.8% % 5.8% % % % % % % Source: MacroPlan Australia (211). Local Area Analysis Based on this analysis, MacroPlan have established the following key parameters for CPI and CPI (Rent) Indices (see Figure 5): CPI Growth 211: 2.8% 215: 3. per annum 222: 3. per annum CPI (Rent) Growth 211: 5.8% 215: 4. per annum 222: 4. per annum Narre Warren (defined as the Statistical Local Area of Casey (C) Berwick) is within a high population growth region, Casey (C). Between and, the resident population of Casey (C) increased by around 65,8 people at an average growth rate of 3.9% per annum (8,2 persons p.a.). Similarly Narre Warren has experienced significant growth over this period capturing 47% of the additional 65,8 people in Casey (C). Between and, Narre Warren s population increased by an additional 31, people at an average growth rate of 4.8% per annum (see Figure 6). In 9, Narre Warren experienced population growth of 1,91 people, equating to an annual growth rate of 2.. While this level of growth was slightly below the Melbourne average of 2., it is more of a reflection on limited supply as opposed to demand. Narre Warren has experienced strong population growth across all market segments including first home buyers, young professionals, and young and mature families as well as empty nesters (see Figure 7). However these trends are being limited by the available housing stock in Narre Warren. Figure 4. CPI Australia and CPI (Rent) Melbourne Consumer Price Index Source: ABS cat (). Figure 6. Historical Population Growth, Narre Warren Persons Mar 2 12, 1, 8, 6, 4, 2, Dec 2 Sep Jun CPI Mar Source: ABS cat (). Dec Persons (LHS) Sep Jun Mar Dec Sep CPI (Rent Sub Group) Jun Growth Rate (RHS) Mar Dec Sep 1 9% 8% 7% Share of Population Growth MacroPlan forecasts that the population of Narre Warren will increase by almost 2 over the period to 23. Both Narre Warren and Casey (C) are expected to outpace growth in Melbourne over this period as detailed in Figure 8. Figure 8. Population Projections, 226 Narre Warren (no.) Avg Ann Growth Rate (%) 12, ,95 123,38 127,837 25, Casey (C) 259,28 311,624 35,342 37, , Melbourne 4,39,24 4,396,916 4,74,719 5,,48 96, Source: Victoria in Future (), MacroPlan Australia (211). Figure 7. Population Growth by Age, Casey (C) Narre Warren Source: ABS cat ().

3 Narre Warren has seen strong increases in building activity with every quarter since December above the five year average of 628 approvals per quarter as shown in Figure 9. The share of residential building approvals in Narre Warren is primarily of houses comprising 95.9% of total residential building approvals in the September quarter. This highlights the continued mismatch of supply with the demand for smaller dwellings including flats and units. After a significant slowdown in sales during the late and early, sales activity in Narre Warren has improved. Sales in averaged 65 sales per quarter which is 5 more than at its lowest point in March quarter. In December quarter, Narre Warren recorded 638 sales as detailed in Figure 1. This was above the 2 year average of 597 sales per quarter and indicates a stable continuation of sales activity since late. Once again, unit sales comprised only a small percentage of total sales. Figure 9. Building Approvals, Narre Warren Building Approvals Sep 1 Jun 1 Mar 1 Dec 9 Sep 9 Jun 9 Mar 9 Dec 8 Sep 8 Jun 8 Mar 8 Dec 7 Sep 7 Jun 7 Mar 7 Dec 6 Sep 6 Jun 6 Mar 6 Dec 5 Sep 5 Source: ABS cat (). Houses Other Residential Average Figure 1. House and Unit Sales, Narre Warren 1, Number of Sales Dec 9 Sep 9 Jun 9 Mar 9 Dec 8 Mar 1 Jun 1 Sep 1 Dec 1 Figure 11. and Growth, Narre Warren $45,2 18. $4,2 16. $35,2 14. $3,2 12. $25,2 1.,2 8. $15,2 6. $1,2 4. $5,2 2.. Houses Units Source: Residex (). Source: Residex (). House prices in Narre Warren have increased significantly in recent years from $19,6 in to $42,7 in. This equates to average capital growth of 9. between and. This is slightly lower than the capital growth rate for houses in Melbourne of 9. per annum. Similarly, unit prices in Narre Warren have also grown significantly between and. Median unit prices in Narre Warren increased from $166,9 in to $327,3 in equating to average capital growth of 7.8% per annum. Whilst capital growth in both houses and units slowed noticeably during the GFC, the recovery has seen prices stabilise in as detailed in Figures 11 and 12. Figure 12. Median Unit Price and Growth, Narre Warren $35,2 2. Median Unit Price $3,2 $25,2,2 $15,2 $1,2 $5, Median Unit Price Source: Residex (). The median rent of two bedroom units in Narre Warren ( Narre Warren Hampton Park region defined by the Department of Human Services) increased from $16/week in September quarter to $255/week in September quarter as shown in Figure 13. This equates to average annual rental growth of 5. per annum which is slightly lower than that for Casey (C) (5.9%). Figure 4 previously highlighted the rapid increase in the CPI (rent sub group) post. This trend is also reflected in the significant house and unit rent increases experienced in Narre Warren and Casey (C) over the same period. Growth in median rents of two bedroom units in Narre Warren accelerated post. The average annual rental growth between and was 2.. Between and, this growth rate increased to 9. per annum. Figure 13. Median Rent, 2 Bedroom Units $3 Median Rent ($/week) $25 $15 $1 $5 $ Narre Warren Casey (C) Source: Department of Human Services ().

4 The rapid rental increases post is also reflected in the significant drop in the share of affordable rentals (of total rentals) in Victoria and particularly in Casey (C). The share of affordable rentals in Casey (C) dropped more considerably than Victoria. In September quarter, around 77% of total lettings in Casey (C) were considered affordable compared to 4 in Victoria. By September quarter, the share of affordable lettings in Casey (C) has dropped below that of Victoria at 18% compared to 2 as shown in Figure 14. In MacroPlan conducted a detailed market, demographic, demand and supply assessment which identified the following market segments were not catered for: Students, One Parent Families, Low Income Workers and Retirees. Figure 14. Share of Affordable Rentals 1 Share of Affordable Rentals Casey (C) Victoria Source: Department of Human Services (). Meeting the requirements of the market segments identified above will demand the provision of both rental and purchased accommodation of smaller, medium to high density types. However the homogenous housing stock typifying Casey (C) and Narre Warren means that the needs of a number of key market segments are not being met in the locality. This supports MacroPlan s assumption about strong rental growth potential (if supplied) given this build up in latent demand. As a growth location on the urban fringe, there are a number of regional drivers that will impact on the future demand for smaller, affordable dwellings in Narre Warren and Casey (C): Strategic support for higher densities in and around Town Centres; Proximity to educational institutions (i.e. Monash University s Berwick campus and Berwick TAFE); Access to high quality public transport network; Development of major employment nodes (e.g. C21 Business Park, Cardinia Road Employment Precinct); and Future developments of community facilities such as the Casey Hospital that will further attract key workers to the area. In MacroPlan also prepared a Residential Demand Index (RDI) that measured the relative attractiveness of Casey Gardens and Narre Warren to surrounding areas in relation to the development of affordable housing product. The RDI considered a number of indicators of attractiveness to affordable housing product: Affordability; Availability of stock; Market demand; Accessibility; and Amenity. Based on these indicators, Narre Warren achieved a score of 11.9 making it 1 more attractive than the surrounding areas as detailed in Figure 15. This highlights the advantage of developing affordable housing in Narre Warren over surrounding areas. Based on this analysis, MacroPlan have established the following key parameters for Narre Warren (see Figure 16): House Price Growth 211: 3.7% 215: 4.8% per annum 222: 5.7% per annum Unit Price Growth 211: : 5. per annum 222: 5.9% per annum Rental Growth (2 Bedroom Units) 211: : 8. per annum 222: 6. per annum Figure 15. Residential Demand Index Index Score (Base = 1) Casey Gardens project Narre Warren 11.1 Ringwood 18.2 Dandenong 18.1 Frankston 13.7 Cheltenham 11.2 Knox 89.3 Source: MacroPlan Australia (). Figure 16. House, Unit and Rental Growth Forecasts House Unit Unit Rent 9.9% % % % % 3.9% % 6.9% % % 4.7% % % Source: MacroPlan Australia (211).

5 Project Specific Analysis Locating a significant medium to high density housing project such as Casey Gardens in the heart of a high growth location such as Narre Warren has the potential to deliver a number of long term benefits for the region, namely: The vision to create a quality, high density and affordable residential development that is not typically provided in the City of Casey has the potential to appeal to market segments not typically catered for in the local market including students, key workers and retirees, thereby attracting diversity and improving affordability for a greater proportion of the population. Provision of a diverse mix of housing also allows existing and future residents to move through the housing life cycle within Casey and age in place. The Development Plan will directly address key policy initiatives aimed at relieving the housing affordability at the national level, namely the National Rental Affordability Scheme (NRAS) and the Housing Affordability Fund (HAF). There is also potential to achieve master planned outcomes that support the strategic directions of Council and State Government. Melbourne 23 and 5 million are State Government Plans aimed at managing growth and change across Melbourne. Developments in close proximity to Principal Activity Centres, public transport networks and employment such as Casey Gardens will address these key initiatives. Figure 17. Casey Gardens Site Plan Source: KLM Spatial (211). As highlighted previously in Figure 15, Narre Warren is considered relatively more attractive than surrounding areas for the development of affordable housing product. In particular, the Casey Gardens project achieved a score of making it 2 more attractive than the surrounding areas and 1 more attractive than Narre Warren in general. Therefore it is likely that price growth for units at the Casey Gardens project will be faster than for the broader Narre Warren area. Based on this analysis, MacroPlan have established the following key parameters for the Casey Gardens project: Figure 18. Casey Gardens Unit Price Growth Unit Casey Gardens % % % Source: MacroPlan Australia (211). Unit Price Growth 211: : 5. per annum 222: 6. per annum Level Collins Street Melbourne VIC 3 t f e info@macroplan.com.au