Perth and It’s Lagging Growth
The average compound annual growth rate (CAGR) for property in Australia is typically thought to range between 5% and 7% over the long term, depending upon who measures it, what data source is used and the timing of the cycles. This growth is driven by supply and demand factors such as population growth, urbanization, economic prosperity, and low interest rates. You can see from the below chart that we have measured this CAGR to be closer to 8%.
The official story is that long-term inflation in Australia typically hovers between 2% and 3%, as measured by the Reserve Bank of Australia. We can see by the below graph however that this isn’t always the case. The 4.95% rate of inflation from 1973 to 2023 comes direct from the RBA’s Inflation Calculator https://www.rba.gov.au/calculator/annualDecimal.html
Whether inflation should be 2-3% or 4.95% and whether CAGR should be 7% or 8% is kind of irrelevant, right now we’re analysing the trend across the major capital cities to see how Perth lags behind the other capital cities.
You can see from the below graph that the other major capital cities are tracking at around 8% or slightly more for the 50 years leading up to 2023, whereas Perth was closer to 7.47% in December 2023 having a median house price of $691,100 according to www.statista.com (this has probably changed now due to the rapid growth of Perth property prices).
If we look at the second graph below using a forecast long term average CAGR of 8% which is closer to the rest of the major capital cities, we can see there is definitely room for the Perth median price to move up to $884,095 without upsetting the average CAGR across the major capital cities. An upward movement such as $192,995 shown below will bring the long term average CAGR to a fraction over 8%, which is in line with the 4 other major cities as shown in the below graphic.
References
Abelson, Peter & Chung, Demi. (2004). Housing Prices in Australia - 1970 to 2003. Macquarie University, Department of Economics, Research Papers.
https://www.statista.com/statistics/1035927/australia-average-residential-house-value-by-city/
