Hobart house prices tipped to keep rising despite strong gains in recent years

Property prices are set to keep rising in Hobart, experts say, offering no relief from the affordability crisis facing Australia’s southernmost capital city, after rapid rises in recent years.

Locals report a continued influx of mainlanders moving to the Tasmanian capital, but doubt the city’s housing prices will follow the pattern of Australia’s two largest cities and fall back after earlier strong gains.

Instead, prices are tipped to increase even further, albeit at a slower pace.

“Prices are still going up here, but not as spectacularly as they were,” said independent economist Saul Eslake. “My expectation would be for further modest gain, there is no [talk of a] fall back … as there was in Sydney and Melbourne.”

The city’s median house price, at $482,960 last quarter, jumped 35 per cent over the three years to September, Domain data shows. Meanwhile, unit prices increased more than 50 per cent to $395,715.

Hobart became the fourth most expensive apartment market in 2019, overtaking Brisbane and coming in behind Sydney, Melbourne and Canberra. This is a stark contrast to two years ago when it was the most affordable.

“There is a perception that Tassie doesn’t represent the value that it did years ago, but there are still plenty of people moving here and it could be that some of those are seeking to escape the heat,” Mr Eslake said.

He noted upward price movements had been driven by a significant turnaround in population growth — with more people migrating south and fewer locals leaving — increasing demand for homes.

Rob Henry of Harcourts Hobart has seen an influx of mainland buyers in recent times as east coast housing prices have jumped.

“They’re coming back, they’re definitely coming back,” he said, particularly those from Sydney and Melbourne, who dropped off during the respective market downturns in their cities.

“Even this week, we’ve got a lot of people from Melbourne and Victoria wanting to invest … they want to buy now and look at moving here in the future,” he said. However, he noted he had seen fairly even interest from Queenslanders and NSW buyers and also had interest from lots of local buyers.

He also highlighted the heat baking the mainland: “We do have a more stable climate down here at the moment.”

The undersupply of housing has put a squeeze on Hobart’s rental market, the most rapidly rising of all the capital cities – with rents increasing 9.8 per cent for houses and 12.9 per cent for units over the year to September.

Hobart also has the lowest vacancy rate, sitting at 0.6 per cent in December compared to the national rate of 2.4 per cent.

“Vacancy rates are very, very low, you don’t get one or two people applying for a rental, you get 10 to 15 people wanting to put in rental applications,” Mr Henry said.

Tony Collidge of PRDnationwide Hobart said a shortage of properties for sale and rent meant Hobart was still facing a housing and rental crisis.

Mr Collidge noted one recently advertised rental property had drawn about 140 people and more than 20 applicants – prompting some home hunters to offer more money. Meanwhile, he added, strong demand was seeing more properties sell off-market, to buyers already on agent databases.

“There have been questions for some time about when the market will stop, because it can’t keep going, but we’ve still got population growth, we’ve still got a growing tertiary student group … and it’s been predicted our tourism market will grow by another 4 per cent this year,” Mr Collidge said.

While he felt investors had dropped off — particularly speculators from the mainland hoping to capitalise on upswings in Sydney and Melbourne, or the slow market conditions in Perth — he expected to see continued price growth for both the sale and rental market.

“Our builders are at maximum capacity … we just can’t build fast enough to fill that [supply] void,” he said. “There really is no end in sight.”

Domain economist Trent Wiltshire said although Hobart’s property market levelled off to “more modest single digit growth” in mid-2019, it is likely to follow price rises seen in Sydney and Melbourne in recent months.

“There’s a good chance that the market … will get a boost from lower interest rates and the flow on from higher mainland prices,” Mr Wiltshire said.

“Hobart has boomed and is facing an affordability crisis, especially for renters, but the rest of the state is not really seeing that yet.”

The population and tourism boom — which has resulted in more investment properties used for short-term letting — has left the rental market undersupplied, Mr Wiltshire said.

“A big issue they’re grappling with is that, yes, the economy is relatively booming for Tassie … but that’s not really filtering down yet to lower income [earners but it] is hurting them a lot in terms of much higher rents,” he said.

While building approvals are about 20 per cent higher than two years ago, they had been slow to come through, Mr Wiltshire added.

“It’s taken a while for them to build new housing to meet up with greater demand from tourists, tree-changers and more young people staying because there are better job prospects,” he said.

“Because Tasmania’s population had grown so slowly for a long time, I think people were a bit wary of whether this pick-up in demand will continue, so that may be why it’s a bit more sluggish.”

Despite the increase in new building activity, Mr Eslake said, strong population growth, current undersupply and a tight rental market, would keep prices rising at a “fairly healthy” rate.

Mr Eslake said it was a telling sign that Hobart first-home buyers faced the same price caps for the new First Home Loan Deposit Scheme as their Adelaide and Perth counterparts – where the population was five and 10 times greater, respectively.

“I think it’s [the tight vacancy rate] going to continue,” he added. “[But I’m] not sure it will get worse … certainly the government is trying to pick up the pace of social housing construction and other ways to make stock available.”