Melbourne leads house price growth

7 September 2001
By Josh Gordon and Aileen Keenan

Melbourne house prices are climbing at a rate far exceeding those in other capital cities, new figures revealed yesterday.

The Australian Bureau of Statistics said the price of the average Melbourne house grew by 7.1 per cent in the three months to June, almost double the national average of 3.6 per cent, which itself was the largest increase since the housing boom of the late 1980s.

It compared to increases of 2.7 per cent in Sydney, 2.6 per cent in Adelaide and 1.5 per cent in Brisbane.

In the year to June, Melbourne prices leapt 14.3 per cent, well ahead of the national average of 8.2 per cent. Melbourne's rise was the largest annually since the December quarter 1999 and provided a better investment return than that offered by many super and managed funds.

Building construction costs in Melbourne rose 10.2 per cent over the year, but dropped by 0.3 per cent in the June quarter, compared with a national rise of 0.2 per cent.

An interest rate cut of 0.25 percentage points announced by the Reserve Bank on Wednesday took standard variable mortgage rates to just 6.55 per cent, prompting concern among some analysts that the lowest mortgage rates in two years would fuel an already overheated real estate market in Melbourne.

National Australia Bank chief economist Alan Oster said it was "one rate cut too many".

An influx of interstate migrants into Victoria and the federally funded $14,000 and $7000 first home buyers grants have also buoyed Melbourne's housing market.

Housing Industry Association chief economist Geoff Bills said the figures reflected a positive construction environment, noting that Victoria's July building approvals were very strong.

Real Estate Institute of Victoria chief executive Enzo Raimondo said the ABS figures confirmed land values were appreciating.

Ahead of key GDP figures to be released next week, other figures from the bureau showed new business investment rose by a stronger than expected 1.6 per cent to $9.8 billion in the June quarter.

It was driven by a huge 24 per cent surge in new building investment, which reached $2.5 billion but was offset by a 4.4 per cent fall in plant and machinery investment, indicating many businesses are still reluctant to invest because of fears of a global recession.

Other figures showed the total value of building work competed in the June quarter rose by 1.6 per cent, following a 3.4 per cent rise in the previous period.

Economists said they would revise up their forecasts for June quarter GDP, which will be revealed next week.