The clock might be ticking for Hobart’s run at the top as housing affordability begins to decline

Hobart is still staking its claim as arguably the best-performing capital city in Australia, but it may not hold on for much longer.

“Hobart has been the strongest-performing capital city over the last two years, but with investors moving their aim to the next ‘hotspot’, Hobart’s strong property price growth will slow down in 2019,” says Kate Forbes, national director of property strategy at Metropole Property Strategists.

“Over the last five years, median dwelling prices have increased at about double the rate of household income growth, creating a deterioration in housing affordability in the Apple Isle.”

The June 2018 Housing Affordability Report published by the Real Estate Institute of Australia (REIA) confirms that both housing and rental affordability declined in the 12 months to June 2018. This could be a troubling development for Hobart, given that its affordability is a main selling point for buyers, and gives credence to the idea that Tasmania is a flash-in-the-pan market.

“It’s lovely to visit, but I’m not keen to invest. Tasmania is an island that relies on tourism. It’s not a major part of the Australian economy,” says Multifocus Properties CEO Philippe Brach.

“It’s true that Hobart has got good price growth at the moment, but if you look back in history, I can’t get excited about investing there.”

Tourism: boon or bane?

The affordability of apartments, on the other hand, has improved over the period 2015–2018.

“That’s been underpinned by sea changes from the eastern states, particularly Melbourne. A lot of retirees or telecommuters have moved into Tasmania, particularly Launceston and Hobart,” says Malcolm Gunning, president of REIA.

“Tasmania has its own little bit of momentum like northern Queensland, as there is strong interest in people relocating down there because it has a very well-developed food and lifestyle culture.”

The lower cost of living and relaxed vibe in the Apple Isle draws residents seeking that laid-back atmosphere. But while tourism continues to be Tasmania’s strong suit economically, the state’s dependence on this industry could have a negative impact.

“The strongest economy is tourism, which could be affected depending on cost of travel. The unemployment rate is still one of the highest in Australia, but tourism has soaked up a bit of that, particularly the younger population,” Gunning says.

SUBURB TO WATCH

RIVERSIDE: Low prices with growth potential

Less than 5km from Launceston, the suburb of Riverside highlights the growing popularity of areas beyond Hobart.

House prices increased by 12% in the year to August 2018, pushing the median value to above $350,000. The median unit price is just over $250,000, making properties in this area quite affordable, while still having considerable growth potential.

In the rental market, houses are in greater demand than units. Their rental rates increased by 6.1% over the 12 months to June 2018. This type of property also generates a higher average return than units of 5.4%. By contrast, unit rents dropped by 3.7% to a weekly median of $260, with an average yield of 4.9%.