PROPERTY REPORT - June 2009

More fear, thanks to a misinformed media

by Terry Ryder.
creator of hotspotting.com.au

Introduction:
More fear, thanks to a misinformed media

It's surprising how many people thought the real estate world would end on 30 June, the original deadline for the First Home Owners Grant boost.

Actually, no, it's not surprising, it's disappointing.

In a situation which encapsulates everything that's wrong with the property information process, media kept telling readers that the activity in the first-home market had been caused by the FHOG boost - therefore, when the FHOG boost ended, the market would stop.

All the fear and speculation around 30 June was based on an incorrect assumption - that the FHOG boost was the prime cause of the heat in the first-home market. It seems no one who writes on real estate bothered to check their assumption. And it would have been easy to check, because several organisations had researched this very thing.

People assumed the FHOG had fired up the bottom end because the increase in activity coincided with the grant increase. They overlooked this important point: it's also coincided with three other major changes. All four changes have contributed to the active market but the FHOG was not the biggest of these factors. It was not even the second biggest.

Research shows the major inspiration for first-home buyers is lower prices. The second major factor is lower interest rates. These two elements combined have revolutionised affordability, the market's biggest single problem until recently.

The FHOG boost is the third factor, but relatively minor in the minds of first-time buyers, according to the research. And there's a fourth factor, overlooked by virtually everyone - the high level of incentives from state governments, who have their own grants and/or generous stamp duty concessions. In some states, first-home buyers now pay no stamp duty at all.

In any case, the FHOG - which has existed since 2000 - will continue after 30 June because the Federal Budget has extended it.

For a detailed analysis of markets nationwide, click on the topics below ...

National Overview	May announcements point to buoyant future
Feature topic	We need a new breed of economist - or maybe no economists at all
Adelaide	SA will continue to defy the sceptics
Brisbane	Plenty of budget goodies - and home loans on the rise
Canberra	Jobs fairly secure in the capital, so property remains solid
Darwin	Housing loans down, sales volumes down: the trend is not good
Hobart	It's affordable, so it's king
Melbourne	Population and housing loan trends positive for Melbourne
Perth	Geraldton the star of a stuttering market
Sydney	Indicators point to an impending upswing
Conclusion	It's time to think of the national interest

National Overview:
May announcements put to buoyant future

May has been a month of big announcements that will have lasting impacts on the property market - indirectly.

The Federal Budget has done much to boost the residential property market - but not because it extended the First Home Owners Grant. It's the spending on infrastructure that will underpin many markets around the nation over the next few years.

These big-ticket infrastructure projects - like the Werribee rail link in Melbourne, the Hunter Expressway in NSW and the Oakajee port in Western Australia, all billion-dollar undertakings - will stimulate economic activity, create jobs and inspire demand for housing.

Based on spending commitments in the Budget, we can expect to see property hotspots created in Geraldton in WA; Gawler in SA; the Hunter Valley in NSW; Gympie in Queensland; Wyndham City in Victoria; the Latrobe Valley in Victoria; Seaford in SA; Townsville in Queensland; Kempsey in NSW; and Ipswich in Queensland, among others.

We also saw BHP Billiton publish the Environmental Impact Statement for the planned expansion of the Olympic Dam mine in South Australia. This is a colossal project which will create the world's biggest open cut mine. It will need its own power station and its own desalination plant. At its construction peak, it will generate around 9,000 jobs.

The basic infrastructure needed to support this project will generate real estate hotspots in five different locations. Roxby Downs, the site of the mine, is an obvious beneficiary, but further afield Whyalla, Port Augusta, Adelaide and Darwin will all receive an injection of economic activity, infrastructure building and consequent real estate demand.

BHP Billiton also announced it has awarded a $500 million railway construction contract as part of a $6.8 billion expansion of its Pilbara iron ore operations. The contract has been awarded to Macmahon Holdings and Leighton Contractors to lay double rail lines along sections of the Mt Newman rail link, as well as building a 1000-room work camp, 10 bridges and 840km of fibre optic cable. Work is to be completed in the second half of 2010.

In Queensland, where greenhouse emissions and climate change are inconvenient truths, the largest coal mine in the nation has been announced. Endearingly named "China First", the project will cost $6.55 billion to set up. This will include $2.1 billion for a 490km rail link and $1.3 billion for port infrastructure.

Like the Olympic Dam mine, this project has the capacity to generate multiple hotspots - at the mine site near the town of Alpha, at Emerald which is the nearest major centre and at Bowen where the port facilities will be built.

WA's Environmental Protection Agency announced it has recommended approval for Chevron's Gorgon gas project (subject to, don't laugh, stringent conditions). It says that although it's still opposed to the liquefied natural gas facility on a protected nature reserve on Barrow Island, it has concluded the plan can meet the EPA's objectives.

The proposed plant would process an estimated gas reserve of 40 trillion cubic feet, which is about ¼ of Australia's known gas. The project will cost about $50 billion and create around 20,000 jobs.

The message in all this, for me, is that while the nation focuses on negatives there is an enormous amount of positive activity going on - activity that will underpin real estate markets well into the future.

Media is obsessed with pessimism and gives free rein to negatively-charged economists and political leaders who seem intent on talking down our economy. The positives are being overlooked.

Just as one example, how many people know that work has started on a new billion-dollar power station in country Victoria? This is a huge project and will generate, directly and indirectly, a thousand jobs. It's happening near Mortlake, a small country town north of Warrnambool. There hasn't been a word about it in the media.

But if someone lays off 200 workers at a nickel mine, it'll be on the front page.

Feature topic:
We need a new breed of economist - or maybe no economists at all

Australia is very poorly served by the economic analysis sector.

If I was as bad at predicting real estate trends as economists are at forecasting economic events, I would have gone broke years ago.

Economists are so bad as what they do, and the consequences of their incompetence so serious, that practitioners in the property industry should get together and mount a class action to sue them for negligence.

Here's the problem: economists keep telling us how bad things are and how much worse they're going to get. They keep getting it wrong, as the flow of data from the Australia Bureau of Statistics shows. But the collective impact of their constant negative patter - which is lapped up by a shallow media - has created a recession of the national psyche. Businesses are laying off staff and closing operations not because of what is actually happening but because of what they fear will happen.

In essence, we've talked ourselves into a recession we didn't need to have. And it's that inglorious gaggle of chattering economists who are most culpable.

Here's why they constantly get it wrong: economists don't get their hands dirty. Typical economists examine rows of numbers (which depict the recent past) and thereby make conclusions. They don't get involved at the coal face. They don't spend time in communities examining what is happening and what is about to happen (which depicts the near future). They don't interview the people, they interview their computers.

Here's another problem: economists by nature are pessimists. This is why economists have predicted five out of the last three recessions.

If you listen to the stream of negative prognostications from economists - and compare it with the actual results that come out of our very resilient economy - you'll know I'm right.

So what happens when economists get it wrong, which is most of time? Any set of ABS figures which contradicts the previous forecasts of the economist community is greeted with a mixture of disbelief and disdain. What follows is an attempt to discredit or dismiss the data. The recent numbers of unemployment, which shows jobless numbers had fallen, were discarded as "a statistical blip". The more-positive-than-predicted figures on retail spending and the balance of trade and lending for housing and commercial finance were shrugged away as irrelevant/unreliable/aberrant. When the numbers are negative they're accepted as fact.

I read the views of one economist about those unhelpful unemployment numbers: he said the fall in unemployment couldn't be right because he kept hearing stories about companies laying off staff. But he was overlooking the number of companies starting new ventures, opening new mines and creating new jobs.

Economists see the world through economic models. If their model leads to incorrect forecasting, rather than adjust the model to fit the world, economists expect the world to adapt to fit their model.

The situation becomes worse when economic modeling is viewed through the prism of university academia. If there's one thing more out of touch than a politician, it's a university professor of economics. They're as far from the coal face as anyone in society can get.

Examine, for example, the predictions about house prices. If certain academics were correct, our home values would now be 40% lower than 12 months ago. Of course, that has not happened - and it will not happen. Across the board, house values have declined about 6% in the past year. In some cities and in some market sectors, they have risen.

Wacky professors arrive at their absurd conclusions because they have economic models which dictate where prices should be and they're quite miffed that the market has not responded.

The problem with their economic models on house pricing levels is that they ignore important characteristics that can't be written into mathematical equations. There is a huge cultural component in the Australian housing market, more so than in most nations. There is an emotional factor.

The own-your-own-home ethic and the place of real estate as the bedrock of our retirement savings is huge in the Australian psyche. Our whole society, economy, finance industry and style of government is geared towards facilitating this very Australian obsession with home ownership. How do you put that into an economic formula?

As Peter Koulizos, the Adelaide lecturer on property investment, says: "A lot of economists don't realize that property for most people is their home. It's the last thing they'll let go. It's more about people behavior than economics."

He also says: "I don't think anyone needs to worry about property prices going down 20% or 40%. I hope someone goes to Professor Keen in two years and asks him to explain why prices didn't fall 40%."

I also suspect economists are pumping out-of-date information into their formulae. While they keep telling us our house prices are too high relative to incomes and compared to other nations, the latest data shows that affordability has improved dramatically recently. A combination of higher incomes, softer prices and lower interest rates have delivered massive improvements in affordability over the December and March quarters.

Another measure of affordability - the relativity between house prices and average incomes - shows that there has been big improvements in the last five years. In 2003 typical houses cost six times average annual incomes - today it's only four times.

The community of economists would be doing us all a great favour if they got out of real estate completely and stuck to what they do best - getting it wrong on the economy.

Adelaide and South Australia:
SA will continue to defy the sceptics

Late in April I wrote in my regular column in The Australian newspaper that I felt more confident about Adelaide's property market than most amid this downturn. I feel it has a positive combination of affordable prices, steady population growth, government infrastructure spending and significant business events to weather the storm as well as anywhere.

The key point here is that my views differ from the economist-analyst-academic view about South Australia. I keep reading that SA will suffer because its economy is too reliant on manufacturing, agriculture and mining, all sectors in decline because of drought, economic downturn and evaporation of resources demand. It's also below par on population growth (in the year ending September 2008, the population of South Australia grew 1.1% - the slowest growth rate in the nation, except for Tasmania).

Again, this view comes from people who examine sets of numbers but don't get out and get their hands dirty. SA has mitigating factors which are quite enormous in their scope and impact.

Defence contracts measured in multiple billions of dollars to build new ships and submarines; the huge expansion of the Edinburgh military base; Holden plans for a new small car to be built in Adelaide; and the extraordinary expansion of the Olympic Dam mine are among the factors underpinning an under-rated economy.

Adelaide was one of the better performers on price in March 2009 Quarter. The ABS House Price Indexes showed a slight decline in the Adelaide index, less than 1%, and a 12-month fall of just 1.9%. Adelaide's result in the December 2008 Quarter was a very small rise and a 12-month increase of 2%. So there's clearly been a decline, albeit a small one, early in 2009.

This follows Adelaide's performance in 2008 when the ABS, Residex and APM all gave the city capital growth in the 2% to 5% range, at a time when many cities saw prices fall.

Housing finance figures published in April 2009 show an upturn in loans to owner-occupiers recently. There was a downhill pattern until September 2008, when there were around 4,000 loans in SA, but since then the number of loans has risen steadily to 5,100 in February.

I see plenty of scope for rent rises in the Adelaide market. Its house rents rose a moderate 7% last year and are the cheapest capital city rents outside Hobart. Its unit rents rose just 4% and are the cheapest among the capital cities, on a par with Hobart.

Adelaide has produced some of the most positive statistics in the national retail property market, with vacancies the lowest in the nation and strip shopping precincts showing the highest rent rises across Australia. Many economists would refuse to believe that, because it runs counter to their formulae, but it's true nevertheless.

Brisbane and Queensland:
Plenty of Budget goodies - and home loans on the rise

Queensland got its fair share of boosters from the Federal Budget.

The humble, much-joked-about regional centre of Gympie, a little north of the Sunshine Coast, will have $500 million spent in its backyard through the upgrade of the Bruce Highway.

The status of the Ipswich corridor as one of Australia's most compelling growth areas has been cemented by $884 million allocated to the Ipswich Motorway upgrade. It's the most important road job in Australia, as this is the transport corridor that links central Brisbane with the region destined to absorb much of South-east Queensland's growth over the next several decades. It's desperately needed and developers of new residential estates in the Redbank area will be buoyed by the funding boost. So too will developers of major industrial estates which are evolving in this precinct.

Townsville in North Queensland is one of big winners, with multiple stimuli. There is spending to expand the already-major military presence in the city, as well as funding for new hospital infrastructure.

Meanwhile, Queensland continues to add more its population than any other state/territory, with 105,100 new residents in the year ending September 2008. It added 105,000 in the year to September 2008, ahead of Victoria's 97,000. Its growth rate of 2.5% is second behind WA's 2.9%.

The House Price Index for Brisbane published by the Australian Bureau of Statistics showed a fall of 1.1% in the March Quarter, following a similar fall in the December Quarter. Brisbane's index is now 6% below the level of a year ago.

But home loan data suggests a fairly healthy trend. The latest housing finance figures from the ABS show that Queensland has reversed the sharp downward trend which started early in 2008. The number of housing finance commitments fell from 13,300 in February 2008 to 9,700 in August, which was the bottom of the cycle. Since then commitments have been climbing steadily to reach 11,400 in February 2009.

The March 2009 edition of the ANZ Property Outlook says of Queensland: "The economy, a traditional out-performer, has virtually stopped growing and is set to contract slightly over the next year or so. This shock to the system, largely driven by resources sector weakness, and the announcement effect of a credit downgrading is still to play out and will be a major force in the housing market. Prices are vulnerable but are not expected to collapse."

Queensland still leads the nation in population growth and new home building has fallen to "levels not seen in over two decades" - so there is ongoing demand at a time of weak supply. "With approvals trending at a completions rate of around 21,000 - compared to an underlying requirement of 42,000 - pent-up demand will build rapidly this year. Furthermore, rental vacancies are low, suggesting the supply-demand balance is already very tight," the ANZ report says.

Canberra and the ACT:
Jobs fairly secure in the capital, so property remains solid

Canberra, according to some measures, is our least affordable capital city. This is no surprise as the national capital offers very few suburbs with median prices under $400,000. If you divide a market loosely into bottom end, mid-range and top end, Canberra has no bottom end in terms of price. Everything is mid-range or expensive.

This situation continues to be fed by the building industry. According to ABS figures in April, Canberra builds the biggest homes in the nation. It's the McMansion capital of Australia. It has the second highest new-home costs, after Darwin. The ABS data suggests the cost of building a new home in Canberra has quadrupled in the past 20 years.

The Canberra Times reported: "Demographer Bernard Salt says the trend is turning homes into suburban hotels, where a shrinking number of hermit-like occupants take up more and more space."

All this suggests the Canberra market, in this climate, should be one of the big strugglers. To date, however, it has held up quite well.

In the March Quarter, the ACT was one of only three capital cities to record a rise in its House Price Index, although the index was down 5% on a year earlier. Canberra prices rose 0.5% in the March Quarter, according to the Australian Bureau of Statistics. In the December Quarter Canberra rose 0.7%, so the Territory has arrested the price declines seen in previous quarters. According to the ABS, Canberra's House Price Index dropped 6.7% in 2008, while Australian Property Monitors recorded a fall of almost 8%.

The ACT has seen a pickup in home finance commitments in the early part of calendar 2009. Housing loan commitments hit of low of just 760 in November, but rose to 941 in January and 1,058 in February.

So, why is the Canberra market being so defiant? I think it relates to the unique nature of this place as a city of politicians and public servants. Relatively few jobs have been lost in the economic downturn.

The March edition of the ANZ Property Outlook confirms this thought. "With job losses in the ACT limited so far, incomes growth has remained intact and this has supported the local property market," it says. "Demand is coming back to the market with a strong rise in housing finance approvals in recent months. This may have been prompted by softness in house prices through much of 2008.

"Going forward, despite a marked slowing of the economy unemployment should remain low and income growth tick along at a reasonable pace. As such, the significant improvements in affordability should see prices well supported in the Canberra market."

Darwin and the Northern Territory:
Housing loans down, sales volumes down: the trend is not good

The Northern Territory stands out as an exception to the national trend of rising home loan commitments.

Other states/territories have seen a marked month-by-month uplift in housing finance since September last year, in line with the downward trend in interest rates. The Northern Territory, however, has not shown a rebound in loan commitments. The January and February numbers were well below those of late 2008. This reflects the waning market in Darwin.

The Territory is behind the rest of the nation in the property cycle and reached its peak later. As such, it's been the standout city market over the past 12 months.

Darwin has been the stellar performer on rents: in 2008 house rents rose 25% and apartment rents rose 20%, by far the biggest growth among the capital cities. Darwin, rather ludicrously, has the highest residential rents among the capitals.

Darwin was the market leader among the state capitals in the March Quarter, with a 2.2% in the ABS House Price Index - and a 10.8% rise year-on-year. This follows a 1.6% increase in the December Quarter.

The Northern Territory also has one of the highest population growth rates - 2.2%, well above the national average of 1.8%.

But the good times are now ending. There was a marked decrease in sales volumes in the March Quarter, which is often a precursor to price declines.

Darwin prices are too high to be sustainable in an economic downturn. It now has the most expensive apartments among the capital cities and the second most expensive houses. Like Perth before it, Darwin is hitting the affordability wall. Unlike Perth, which collided with the affordability problem while the resources boom and the WA economy were still raging, Darwin has arrived there at a time of economic decline and job losses.

The turnaround in the commodities cycle will hit the Territory hard, crimping export-driven growth through 2009," says the ANZ Property Outlook. "The unemployment rate has risen to almost 4% in February, up from lows of 3% in 2008. The deterioration of employment prospects through the year should see the very strong rates of population growth begin to wane. This may assist in a property market that remains very tight.

"A slowing economy should take some of the heat out of the NT property market. Further, the Government is also implementing policy to ease the housing crisis and add to the supply of housing."

Indeed, several new suburbs are being built in the Palmerston region, as well as the new suburb of Lyons in Darwin's north. This is set to remove another of the drivers of price growth in Darwin (the shortage of new supply) at a time of waning demand.

Hobart and Tasmania:
It's affordable so it's king

Hobart is one of the bright sparks of the national property industry. It may be the littlest state with the most insignificant population growth, but it has the most precious of all commodities: affordability.

Hobart continues to be one of the more defiant markets in the nation - the ABS House Price Indexes for the March Quarter showed Hobart to be one of only two capital cities with prices higher than 12 months ago. Hobart's House Price Index grew 0.1% in the quarter and 0.6% for the year. So that's about as small as growth can get - and effectively means that prices haven't changed over the past 12 months, but it looks a whole lot better than Perth's result (down 10% for the past year) or Sydney's (down 7.3%).

It helps the Hobart market that it's still by far the cheapest capital city for houses. Most of its suburbs have median prices under $400,000 and many are under $300,000.

The latest affordability index from the Commonwealth Bank shows Hobart and Tasmania showed the greatest improvement in affordability in Australia during the March Quarter.

Housing finance commitments in Tasmania show a rising market over the past six months. Home loans have risen from just 980 loans in September 2008 to 1,300 loans in March 2009, with steady month-by-month increases.

The March edition of the ANZ Property Outlook says: "The Tasmanian economy put in one of the better performances in the country in the December Quarter. State final demand growth was 0.8%, well above that for the eastern seaboard mainland states. Moreover, the unemployment rate remains relatively low at 4.5% and compensation for employees expanded 8.5% - both better than national averages.

"Supporting the property market is the composition of interstate migration. Arrivals are characterized by older people with greater incomes/assets, creating demand. Departures are usually younger people leaving their parents home and therefore not creating undue backfill supply.

"This solid backdrop has seen the Tasmanian housing market remain well supported. Housing finance approvals have grown 25% since lows in September. First-home buyers have led the way, accounting for just under a third of housing finance approvals in recent months. This is due to improvements in affordability (especially given Tasmania's relatively low median house price)."

There is also some room for rental growth in this market. Hobart has been an average performer on rents to date, with both house rents and unit rents rising 6-7% in 2008 - well below levels in most other capital cities.

Melbourne and Victoria:
Population and housing loan trends positive for Melbourne

People tend to overlook the population growth impact in Melbourne and Victoria. Melbourne has long been the leading growth city of Australia, thanks to healthy inflows of overseas migrants. And Victoria is mounting serious challenges to Queensland's title as population growth king of the states and territories.

In the year to September 2008, the most recent ABS data on population, Victoria added 97,000 residents, second behind Queensland's 105,000 and well ahead of the 63,000 added to Western Australia (which is the leading region for population growth rate - 2.9%). Victoria's growth rate is 1.8%, well ahead of NSW's 1.3%.

Where does all this new population go? Some, at least, goes into the new growth areas like Wyndham City, which encompasses the suburbs in the south-west, heading down the Princes Highway towards Geelong. This is the No.1 growth region of Victoria and includes locations such as Werribee, Hoppers Crossing, Wyndham Vale, Point Cook and Tarneit. It's an area recognized in the Federal Budget with $3 billion allocated to a new rail link to central Melbourne.

Melbourne's median price has fallen in recent quarters, largely because of price decline at the upper end of the market. Prices have been rising in the first-home buyer suburbs, but because there are more homes selling at the cheaper end, the overall city median has fallen.

The House Price Indexes published by the ABS recorded a 2.3% fall in Melbourne in the March Quarter, following a 1.7% fall in the December Quarter. Melbourne's index is now 6.7% below the level of a year ago.

But the overall market trend is healthy. The number of home loans has been trending steadily north since September 2008, with increases month-by-month. There were 11,600 home loans in September and 14,000 in March, according to ABC data.

The March edition of the ANZ Property Outlook says: "While slowing, the Victorian economy is expected to out-perform the national economy over the next couple of years, providing a relatively benign backdrop for housing markets, compared to some other states.

"Victoria's underlying demand-supply balance remains tight with a shortage equivalent to around one year's production. Tightness is also reflected in very low vacancy rates and double-digit rentals growth over the year to December.

"A more accommodating stance on land release, less prohibitive infrastructure charges and road-link improvements are facilitating the expansion of several growth corridors in and around Melbourne. These corridors offer fertile territory for first-home buyers."

Overall, the medium-term looks solid for the Melbourne market. Locations outside the capital worth watching include the Latrobe Valley (including towns like Morwell and Traralgon) and the Warrnambool region, where there are major energy-generation projects under way and in the planning.

Perth and Western Australia:
Geraldton the star of a stuttering market

Geraldton has been my No.1 tip for Western Australia for the past year or so, and its prospects went to another level with the Federal Budget. There was major funding for the Oakajee port development, a $4 billion project strongly backed by both Federal and State Governments.

There was also funding for Australia's bid for a major international science project known as the Square Kilometre Array. The only other contender is South Africa. Effectively, this is to create the world's most powerful telescope and the costs are around $3 billion. The target site is a sparsely populated area near Geraldton. There are substantial economic benefits just in the attempt to win the SKA, as it involves building a mini-SKA to show that we have the means and capacity to handle the end-game.

Other parts of WA are not so rosy. Kalgoorlie, Raventhorpe and Esperance all made the annual No Go Zones report, largely because of the evaporation of the resources boom.

The key factor for WA is that its property markets were in decline before the global economic downturn hit. Just as the state appeared to have worked through the bottom of the cycle and adjusted pricing to more sustainable levels, the recession hit.

Perth's house price index has dropped 10% over the past 12 years, the biggest decline among the states and territories. This included a 3.6% fall in the March Quarter. All major sources of price data, including the ABS, Residex, RP Data and Australian Property Monitors, agree Perth prices fell at least 6% in 2008 and the decline has continued into 2009.

It's significant that WA has not shown the pattern of rising home loans seen in other states over the past six months. While the number of housing finance commitments has risen nationally since September 2008 - a pattern seen in virtually all states/territories - in WA the number of home loans has been stuck between 6,000 and 7,000 per month for the past year.

The March edition of the ANZ Property Outlook says: "Both the WA economy and property market are in a fragile state. After being at the forefront of the commodities boom in the last few years, WA is now faced with the bursting of the resources bubble … The sharp falls in global commodity prices will drag on all sectors of the economy, particularly state and household incomes.

"The weakening economy will weigh on a property market that was already in slow decline. House prices fell 7% in 2008, the most significant median fall in the country. Weak sales numbers have seen many take properties off the market and put them up for rent, seeing vacancy rates rise to over 3%.

"Population growth was still running strong through 2008 yet we would expect this to slow considerably as employment prospects weaken. Household income is also expected to slow markedly. Both of these factors should see the property market continue to moderate through 2009."

Sydney and New South Wales:
Indicators point to an impending upswing

Sydney missed out on big handouts in the Federal Budget but other parts of NSW did well.

In particular, the Hunter Valley stands to benefit from construction of the Hunter Expressway. I've been a fan of some of the towns of this region, particularly Muswellbrook, which is a solid, affordable regional centre with extra impetus from coal mining and power generation.

This area has some big infrastructure improvements in the pipeline, including upgrades to rail links to Newcastle and expanded facilities at the Newcastle port. Put that together with the new expressway project and there's considerable prosperity in the offing for the Hunter Valley. Towns to watch include Branxton and Singleton, as well as Muswellbrook.

NSW, generally, is a perennial under-achiever in many areas, including population growth. Its current growth rate of 1.3% is bettered than every state and territory except Tasmania and South Australia. The national average is 1.8%. NSW added 92,000 to its population last year, but Victoria (97,000) and Queensland (105,000) did considerably better.

The House Price Index for Sydney has dipped 7.3% in the past 12 months (the capital city average was a fall of 6.7%), according to the ABS, including a 2.9% fall in the March Quarter. Only Perth has seen a bigger decline in house prices.

One area where Sydney has done well is in residential rental growth. House rents rose 17% in 2008, according to Australian Property Monitors, and apartment rents increased 9%. Only Darwin did better among the capital cities.

And, according to national valuation firm Herron Todd White, Sydney has better times in prospect. On the property cycle clock, it regards Sydney as being past the bottom of the cycle and moving towards the upswing phase.

I tend to agree. While the top end will continue to struggle, the lower end of the market is highly active and we are starting to see price growth in areas that have been in decline for the past five years. Recovery is long overdue.

The housing finance data is encouraging. In line with the national trend, the number of home loans in NSW has been rising month-by-month There were 14,000 home loans in October and over 18,000 in March.

Building approvals have continued at low levels - indeed at record lows, according to the March edition of the ANZ Property Outlook.

"Sydney median house prices have been flat-lining for around five years. While this has helped restore affordability conditions, it has (in the face of prohibitive developer charges) seriously undermined the economics of home production. A subsequent tightening in credit conditions and in pre-sale criteria introduce additional barriers to deal flow. The upshot is an inadequate supply of housing to the state.

"Our estimates of demand-supply balance suggest the NSW market is already in chronic under-supply. With underlying demand at around 41,000 dwelling and approvals trending at just over 16,000, the balance is deteriorating at a rapid rate. The tight conditions are manifesting historically low rental vacancy rates and rising rents."

ANZ doesn't see a turnaround in building levels any time soon, which suggest a continuation of circumstances which logically must lead to a rise in NSW home prices.

Conclusion:
It's time to think about the national interest

Watching the Federal Budget process unfold made me acutely aware of how self-absorbed many individuals and organizations are.

In real estate, the voice of vested-interest is so loud it often drowns out the truth. It's clearly true in other spheres as well. If you ignore all the noise from people pushing their own agendas, you eliminate 90% of the Budget reaction.

Australia is caught up in a landmark global event and the Federal Government has had to frame a Budget amid unusual and difficult circumstances. It's a time for citizens and community groups to be thinking about the national interest.

If you think the approach taken by the Rudd Government is not in the national interest, then fair enough, criticize to your heart's content.

But if you're standing in that endless line of Australians grizzling because their pet interest didn't get top priority or their project didn't get funded, then don't waste my time.

I read of one Mayor complaining because funding for a highway upgrade in his region was "only" $500 million. He felt his patch had been short-changed. He ought to understand that there are hundreds of Mayors all over Australia who would be happy to take that half a billion dollars off his hands if he feels it's inadequate.

I support the basic thrust of the Budget, which is to borrow to fund new infrastructure to generate economic activity and jobs. I think that's in the national interest. Time will tell whether or not it's successful.

I'm certainly not afraid of the nation being in debt. It's hardly an unusual situation for Australia or for any nation. The alternative is seriously unattractive.

I notice also that while Opposition Leader Malcolm Turnbull has repeatedly criticized the level of debt, he refuses to say what he considers to be an appropriate level of debt. Perhaps he just doesn't know.

The BRW "Rich List" says Turnbull is worth $178 million. I seriously doubt he accumulated that level of wealth without borrowing.

***************************