Will Adelaide’s Housing Market Perform over the midterm?

Posted by Jack Guthrie

We regularly get questions about interstate markets and why they aren’t approved by our model for investment. With volatile performance impacting the appeal of select few housing markets throughout Australia, many current questions are based around the relatively dormant Adelaide housing market. This week, I want to highlight that while the city of churches may be one of the most beautiful places to live in the country, it may not be beneficial to investors over the long term.

Often those who have invested in Adelaide are happy with the slight uplift they have experienced but don’t realise the opportunity cost that has impacted their real return. According to the ABS national housing index, Greater Adelaide’s median house price is currently fluctuating around $470,000 and have risen in line with inflation for the past decade. Alternate markets, on the other hand, have doubled, tripled and even quadrupled this rate of growth.

There are a number of key elements that are dampening the performance of the market and will likely continue to do so over the midterm.

An Underperforming Economy

Unfortunately for our southern city, property markets need rapid job creation to grow. This is something that Adelaide’s economic market has struggled to generate over the past 5-year period. The local economy is strongly reliant on small to medium industries, with manufacturing and agriculture as anchors for the city.

Data collated by the Australian Bureau of Statistics show that since 2014, only Western Australia (which is currently experiencing a mining downturn) has had weaker employment growth. Until the city generates significant investment in diversified service industries, the housing market will continue to suffer.

Weakened Population Growth

The by-product of a weakening economy is often a declining population. With fewer jobs and economic activity drawing new residents to the city, home buyers and settlers will often look elsewhere for a place to settle and call home. Depicted in the below, South Australia’s level of net interstate settlers has been negative for the last 16 years straight – reactive to low demand from home buyers from external cities.

South Australia’s Quarterly Net Interstate Migration (Source: ABS Cat – 3101.0)

On a national scale, South Australia’s rate of population growth remained the second-lowest in the country throughout 2018. The population is still rising at a rate of just 0.8% per annum – far below the national average.

Infrastructure Spending

Infrastructural investment is essential to the development of a market. Not only does it provide primary employment to trade and engineering industries, but it gives usable civic amenity to commercial industries.

A proposed $11.9 billion worth of infrastructure has been committed to by the SA state premier. This spend is dwarfed by the investment of our eastern seaboard markets, which continue to provide a strong opportunity for investment. Brisbane in comparison currently has a $21 billion infrastructure pipeline within 5km of the city centre.

The bottom line is that property markets are governed by the balance of supply and demand. Currently, Adelaide’s market depicts a macro environment of dampening local demand – a situation that rarely transfers to buoyant prices over the midterm.

Adelaide will remain on Blue Wealth’s radar, however, for the time being, relative affordability seems to be the driving factor for the housing market. Before you opt to put your money in a market, remember price doesn’t reflect value and cheapest isn’t always best.

Posted by Jack Guthrie, on 13th Aug 2019