The Adelaide housing market has outperformed almost all other locations across the country since the start of 2022 for a range of reasons. But with interest rates rising and some steam coming out of the market more recently, investors will have to tread carefully to enjoy similar gains in 2023 and beyond.
What will drive house prices in 2023?
The most significant driver of long term housing demand is population growth. Population growth is largely determined by the Commonwealth Government through its migration program. Immigration is picking up speed following the COVID-19 lockdowns and border closures. The Commonwealth Government has increased the migration limit to 195,000 places. In part, this has been done to address skills shortages that have impacted almost every industry in the Australian economy over the past 2 years. The latest data shows population growth surging with record levels of net overseas migration in the March quarter of this year (the most recent quarter that data is available).
The key question for 2023 is whether housing supply will be able to keep up with this post-COVID surge in immigration. Historically, housing supply has struggled to keep up with demand, pushing prices higher. The housing supply shortage has been exacerbated by the impact of the pandemic, which saw remote working become widespread, and a surge in demand for larger homes with a study or home office. The demand for larger houses had the effect of reducing the available housing stock because most buyers now want an additional room in each home.
As a result, we expect that, in the absence of significant changes in the short term to make it easier for construction, population growth will place significant upward pressure on house prices. With interest rates peaking, growing demand might begin to offset the impact that recent interest rate hikes have had on purchasers’ borrowing capacity.
Where can investors look in Adelaide for opportunities?
By looking at historic population trends and land supply constraints, Property Investment Coaching’s research suggests Adelaide’s northern suburbs are where most population growth will be concentrated. By crunching the latest data, we’ve found that since 2001 population growth has been greatest in the northern suburbs of Adelaide. This trend can be explained by the natural barriers that define Adelaide and prevent large-scale development in certain areas - the Adelaide Hills in the east, the beach in Adelaide’s west, and the wine region in the south, all limiting large-scale development in areas other than the northern suburbs.
Property Investment Coaching internal modeling predicts that the latest surge of immigration will be strongest in the suburbs of Munno Parra and Angle Vale, where investors could see the greatest total return. Our research aligns with the official population projections by the South Australian state government, which predict a 142% rise in the combined population of the Munno Para West and Angle Vale suburbs by 2036. This is the largest rise predicted for any area in metropolitan Adelaide.
These suburbs have the infrastructure to service future population growth, including public transport, schools, shopping centres and hospitals. Government investment has improved most of these services and the Northern Connector project has reduced travel times to Adelaide’s CBD.
But land availability is becoming a problem in the northern suburbs as large housing estates have been established in the area recently and sold to first home buyers and investors, reducing land supply. As demand rises and supply remains constrained, land prices are expected to rise further and with them, broader house prices in the area.
Shayne Holmes
Managing Director
Property Investment Coaching
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