The balance of supply and demand in Brisbane

Posted by Dominic Cavagnino

The Brisbane market has always been a long-term proposition. Over the last few years, Brisbane’s subdued performance has been due to the low interest rate environment resulting in an increase in property supply. Supply peaks are a normal part of a market cycle and history suggests that they occur every 7- 8 years. What often follows is a period of market recalibration. In this instance, the recalibration has been caused by rising construction costs, restrictions on development funding and limitations on foreign investment.

We’re now experiencing that market re-calibration with the numbers of development approvals declining significantly. The same can be said for new project launches which are feeling the effects of the tightening bank lending, restrictions on foreign investment and rising construction costs. The Financial Review reported that in Brisbane there were 12 new project launches in 2017, as opposed to the 57 launched in 2016.

With slowing supply, it’s interesting to see how demand for property is reacting. Typically, what has occurred in previous cycles is that as Sydney approaches its peak, affordability and the desirability of the Brisbane lifestyle drives an increase in interstate migration to Queensland. We’ve had a look at two of the largest contributors to population growth in Brisbane, interstate and overseas migration.

The data below shows that significant decline which has occurred in building approvals has occurred in line with a significant increase in population growth. It is important to remember that a building approval does not necessarily correlate with what will be delivered. Many projects are not being launched and as a result approved property will not be brought to market until the next development cycle in Brisbane. The project launch data reported by the Financial Review supports this.

	QLD Net Interstate Migration	QLD Net Overseas Migration	QLD Building Approvals	Building Approval % Change (Year on year)
2014	5,753	22,431	18,345
2015	6,417	18,917	19,555	+6%
2016	11,582	28,744	12,534	-35%
2017	15,716	27,107 (Jan – Sept – Not including the last quarter of the year which on average would add another 9,000)	9,747	-22%

Source: ABS

As the balance of supply and demands shifts toward being more demand heavy, this is likely to be a key driver for price growth in Brisbane. Brisbane’s affordability relative to Sydney will continue to drive population growth for the medium term. Median house prices in Sydney are 84% more than Brisbane’s while median household incomes in Sydney are only 12% higher than that of Brisbane. The significant disparity in house prices and minimal difference in median incomes is a key demand driver for the Brisbane market.

The Queensland Government have also dedicated a significant budget to Brisbane’s infrastructure. In the coming years Brisbane’s inner ring will see the completion of projects such as; The Queens Wharf Casino Redevelopment, the Brisbane Showgrounds redevelopment and the Howard Smith Wharves Redevelopment which will redefine the perception of Brisbane and enhance its transition into a world city. More information on the investment in Brisbane’s infrastructure can be found here.

Posted by Dominic Cavagnino, on 26th Jun 2018