Charting a Course Out of Hobart’s Housing Doldrums

Hobart’s property market has been on a rollercoaster ride of boom and bust as the once hot commodity fell out of step with mainland markets. The Tasmanian capital’s property market boomed in the 2010s, capped off by a pandemic resurgence as mainland buyers fled across Bass Strait in search of a sea change, Tasmania’s natural beauty or indeed the perceived safety of the island state during the pandemic. House prices in Hobart shot up by 28 per cent in 2021, and properties were changing hands in just 17 days on average. Low interest rates fuelled investor activity as limited housing supply in desirable areas drove rapid price growth. The market has since cooled considerably. The median home price in Hobart has dropped by 2.06 per cent to $671,000, as prices trended downwards for 27 consecutive months. The average time on market has ballooned to 89 days, well up from 66 days a year ago. The overall number of listings is now 35 per cent higher than the five-year average, according to Domain data. Rising interest rates have caused a market downturn. Home values are now 12.5 per cent below their peak, and the market is “flatlining” according to CoreLogic head of research, Australia, Eliza Owen. “Monetary policy and fiscal stimulus created a broad-based uplift in housing demand across Australia—Hobart was no exception,” Owen tells The Urban Developer . “I think it’s possible that may have masked what was going to be the start of the downturn in the Hobart market through the 2020s. “What we’re seeing now could be the corrective phase of the cycle kicking in from the start of rate rises and the withdrawal of physical stimulus.” ▲ CoreLogic head of Australia research Eliza Owen: Hobart market is flatlining. Tasmania’s population has grown by just 0.4 per cent last year, well below the national average. It’s experienced eight consecutive quarters of net interstate migration outflow and a net loss of 451 people to other states in the March quarter of 2024 alone. “That’s almost 3000 people over the year to March 2024,” Owen says. “That number may have been made up for by overseas migration to Tasmania, but overseas migrants don’t usually purchase when they first arrive to Australia. “So, the fundamental purchasing demand for Tasmanian property is not as strong as it was pre-Covid.” Ray White chief economist Nerida Conisbee agrees, saying, “Population growth has plummeted, so there’s simply not as much demand on housing, which has led to price softening”. Conisbee believes the market has dropped because “a lot of the people who bought in the last boom were from Victoria”. “And when we look at Victoria’s property market, that’s also doing pretty badly because sentiment is so poor,” Conisbee tells The Urban Developer . “So, it is likely that’s flowed on to what’s happening in Hobart.” Conisbee says the housing downturn is also a byproduct of a silver lining for the state. “It’s been very much an economic success story in Tasmania, and I think that people tend to focus on what happened to housing,” Conisbee says. “But if you have a look at the economy more broadly, it is still a good news story. They couldn’t sustain that growth because they just weren’t able to respond quickly to build enough suitable homes to accommodate the booming economy.” ▲ Ray White chief economist Nerida Conisbee: the Tasmanian economy is its own success story. Higher education and career opportunities on the mainland often draw young people away from the state. But, like the Victorian model, Tasmania’s higher education sector attracts international students to the Apple Isle, which Conisbee says, “also puts pressure on housing demand, particularly apartments”. “So, apartment prices go up. Then a lot of students can’t get apartments or smaller homes, so they move into bigger homes,” Conisbee says. “That highlights an efficiency problem in Hobart—[there are] a lot of big family homes, but the demand is for smaller house types, which pushes up the imbalance between supply and demand.” Despite recent price drops, housing affordability in Tasmania is still an issue. The search for more affordable housing options, ironically, is motivating some to leave when the recent property boom priced many out of the market. The PropTrack Housing Affordability Index shows Tasmania is the second least affordable state in the nation behind NSW. For a median income household in Tasmania (earning about $80,000 per year), only 9 per cent of homes sold in the past year were affordable—the lowest percentage of all states. Despite the gloomy outlook, there is hope. The removal of stamp duty on properties up to $750,000 has brought more first-home buyers into the market, providing a new source of demand. Agents report an uptick in investor enquiries, with savvy buyers seeing potential for future growth and capitalising on the current softer prices. ▲ Hobart’s Salamanca Place and Battery Point. The luxury property market is showing cautious signs of recovery, particularly in areas such as Battery Point and North Hobart. High-end properties are attracting interest from interstate and expat buyers, suggesting that Tasmania’s lifestyle appeal remains strong for those less affected by affordability constraints. And Owen is “fairly bullish” about the long-term investment prospects for Hobart. “If you look at capital growth rate of Hobart, it’s still relatively high compared to other capital cities,” Owen says. “During the past 10 years, the total capital growth for Hobart dwellings is 87 per cent. “Even if you compare that with some of the highest growth markets in the recent cycles, such as Perth where values are only up 52 per cent in the past 10 years, or Melbourne which is up 54 per cent, Sydney up 78 per cent. “The only capital city that’s outperformed Hobart on a longer-term basis is Adelaide where values are up 91 per cent in the past 10 years.” Looking ahead, the Bank of Queensland has forecast 4 per cent growth in 2024 and 7 per cent growth in 2025 for standalone houses in Hobart. Those positive projections suggest that the current downturn may be a temporary correction rather than a long-term trend. Finder’s Property Investment Index highlights suburb-specific growth potential at North Hobart, Seven Mile Beach, and Howden, which offer opportunities for targeted development projects. However, the cooling market has dampened the enthusiasm of some developers. There are fears the ambitious $1.5-billion Macquarie Point redevelopment project with a stadium at its heart may face challenges attracting investors and buyers in the current climate. The viability of a new Tasmanian AFL team that would call that stadium home depends on a growing economy and a robust local population to support it. “Population growth is a problem for the state,” Conisbee says. “For better economic growth, they need to attract more people.” ▲ MONA is the type of development Tasmania needs to boost it economy and housing market, Conisbee says. Conisbee uses the “big tourism boom that came of off the back of MONA” as an example of a development driving population growth. “If you look at MONA, it was just such a catalyst for the state because it kind of shifted it from being an agriculture state, a kind of slow-moving economy. “MONA was a game-changer in terms of restaurant development and hospitality and hotels, and all the rest, which was very good news for the area. “It really added this extra tourism element to the state. The tourism sector beforehand was OK, but with MONA it really went through the roof and then started to spark off all these other elements which led to such a great economic turnaround.” Increased job opportunities, particularly in high-value sectors, could attract and retain residents, according to Conisbee. Major infrastructure projects such as Macquarie Point and the potential AFL stadium could also create new property hotspots. Tasmania’s property sector is likely to find its feet once again. The question for developers is not if, but when, to make a move in this evolving landscape. “I think it’s going to be a little bit tricky for the Hobart market to start a robust recovery within this year,” Owen says. “The more we see investment into Tasmanian infrastructure, the greater the opportunity for a larger and more diversified workforce, and the more reasons to visit the state, which could help boost a recovery in housing values long-term.” You are currently experiencing The Urban Developer Plus (TUD+), our premium membership for property professionals. Click here to learn more.

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