Is Darwin about to boom, or will it be a bubble and bust?
Many investors and buyers agents are turning their attention to Darwin, and it’s little wonder, because Darwin has the lowest median house prices of any capital city and the highest rental yields. John Lindeman investigates whether Darwin is set to be the next boom city, or whether it could become a bubble and bust.
Greater Darwin, (which includes the twin city of Palmerston) has only 150,000 residents, making it the smallest capital city in Australia and it also has the lowest median dwelling prices. Until recently, there had been no price growth for over a decade, but the market is experiencing a remarkable turnaround, as this graph shows.
Over the last year, the number of sales has been rising strongly, while advertised listings have been rapidly falling. As a result, CoreLogic data shows that Darwin was the best performer of all our capital cities during the March Quarter, with price growth of 2.5% and the rate of growth is accelerating.
Will Darwin boom in the way that Perth and Adelaide have done?
Some experts predict that Darwin is set to boom, but is there genuine demand for more housing, or is the demand driven by speculative investors? A big clue to Darwin’s potential performance is the high interstate mobility of its population.
Twelve percent of the Northern Territory’s residents migrate to or from other States and Territories each year. That’s one in eight residents, which is much higher than in other jurisdictions. As the graph shows, only about three percent of Queensland’s population move interstate each year, and it’s even lower in the other mainland States. This high interstate movement gives Darwin’s housing market far more volatility than other capital cities.
Of even greater significance is the fact that in recent years the Territory’s interstate migration has been negative, with 4,000 more people moving out of the Territory to other States than those arriving.
Why are more people leaving for other States than arriving
According to the Australian Bureau of Statistics, Greater Darwin’s major industries of employment are in administration, health services and defense. Darwin plays a crucial role in Australia’s defense capabilities, being the location of RAAF Base Darwin, Robertson Barracks, and HMAS Coonawarra.
Large numbers of defense and support personnel were also stationed there during Operation Sovereign Borders and our military and peace keeping engagements in Afghanistan and the Middle East. With the winding down or ending of these operations, the numbers of defense personnel stationed in Darwin has fallen, causing the net interstate migration drain.
Only babies and overseas arrivals are keeping the Northern Territory’s population in growth, but the annual population growth rate of just 0.7% is the second lowest of all States and Territories.
There’s a strong link between interstate migration and housing prices
This interstate migration drain is significant, because as the graph shows, there’s a strong correlation between net interstate migration changes and housing price movements in Darwin.
Whenever the net interstate migration rate improved, as it did in 2012 and 2020, the increased demand for housing led to a rise in housing prices. But, when the net interstate migration rate fell, as in 2014 and 2021, the lower demand for housing caused a subsequent fall in housing prices.
Based on the current negative interstate migration trend, housing prices could be expected to continue falling, but as the graph also shows, this trend has temporarily been reversed by the massive buyer’s agent and investor buying spree which has recently pushed up prices.
This means that only those investors who get in and out of this market early will do well and it’s certainly not a long term investment opportunity. So how will we know when the turning point is on its way and it’s time to sell?
Rental demand is the key to Darwin’s future performance
With investors doing all the buying, the key to this market’s performance is rental demand, because nearly half of Darwin’s residents are renters, which is far higher than other capital cities.
The Rental Vacancy Rate is currently only 1.6%, indicating that there’s no need to panic, but the indicator to watch is the total number of advertised rental vacancies and according to REA, there are 313 advertised rental vacancies in Greater Darwin.
If too many investors buy property, advertised rental vacancies will quickly increase and savvy investors will take this as an early warning sign that Darwin’s turning point has arrived.