Is Darwin Too Hot?

It is no secret that the Darwin residential real estate has been the best performing housing market of all capital cities for most of the last decade. A quick glance at the ABS House price indices records that over the past five years, Darwin house prices rose at an annual rate of 13.6% compounded verses the national capital city average of 5.1%pa.

At one point in early 2009, Darwin was the second most expensive city based on its median house price.
The strong rise has given way to concerns of an overheated housing market. Indeed, according to vacancy rates from SQM Research, there does appear to be an issue on the number of new apartments in the CBD, with vacancy rates over 10%.

The CBD has been the recipient of redevelopment and major developments over the past decade.  Not just with apartments, but with other infrastructure projects such as the wharf development.

Outside concerns about an oversupply of apartments, it is clear that the driver behind the house price gains has been the super strong local economy. And while SQM Research cautions about the mid-term risk of a housing correction, it is the economy which is likely to underpin house price growth over the longer term  
The major contributors to the local economy are Mining and Tourism. The tourism industry employs approx. 8% of the residents with the mining industry contributing to another large portion of jobs. All up, the mining and energy sector is responsible for contributing approx. $2.5 billion per annum towards the economy – a staggering amount given the size of the city.

As of January 2010, the unemployment rate for the Northern Territory is 3.3%, well below the national average of 5.7% (source: ABS).  The mining and resources boom around Australia playing a big role in this positive employment outcome.

The strong economy has led to strong population growth. Indeed Darwin continues to be one of the fastest cities with the population growing at a rate of 2.6% since the last census in 2006. With growth comes the growth of surrounding areas. The likes of Palmerston and Litchfield have recorded strong population growth during this period.  Litchfield is expected to become the 2nd largest municipality in the Darwin metropolis by 2016.

Darwin also has plays host to the Australian Army, the United Nations, U.N workers and contractors. The Australian Army along with the U.N plays an important role in stabilising the East Timor region to this day.
All up, with a strong economy delivering jobs and encouraging migration, it is little wonder house prices have risen so strongly and assuming the economy continues at its current path, house prices will too deliver growth, notwithstanding short term periodical pull backs.

Louis Christopher
SQM Research

Louis Christopher is Managing Director of SQM Research and Head of Property with Adviser Edge.