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8731.0 - Building Approvals, Australia, Mar 2002  
Previous ISSUE Released at 11:30 AM (CANBERRA TIME) 03/05/2002   
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Feature Article - Average value of new houses


INTRODUCTION

The increase in the price of newly completed houses is a topic that is currently of great interest. This article presents the average value of new houses over a thirteen year time period, from 1987-88 to 2000-01, along with estimates of the average value per square metre.


METHOD

The data used in this study relates only to new, completed houses and has been obtained from the quarterly Building Activity Survey. The value represents the actual completion value based, where practicable, on the market or contract price of jobs including site preparation costs but excluding the value of land and landscaping.

The average value per new house is calculated using the ratio:
The average value per new house is calculated using the ratio

A value per square metre was calculated using the ratio:
A value per square metre was calculated using the ratio:

Floor area was not stated for about 10% of houses and therefore these houses were excluded from the analysis on average value per square metre.

This analysis assumes a simple relationship between the value of a new house and its size. As such it ignores any impact of changes in building quality (e.g. inclusions, fittings, etc.) that have occurred over time.


RESULTS

Average value per new house

The table below shows the average value per new house for the States and Territories and Australia. It also illustrates the percentage change over the last five years and the last thirteen years. For Australia, the average value of new houses has increased by 40% from 1995-96, and by 125% from 1987-88.

The average value of new houses in New South Wales, Victoria, Northern Territory and the Australian Capital Territory are all above the national average of $145,726. The largest percentage change over the last five years occurred in Victoria, which increased by 49%. The smallest percentage change was in Tasmania with an increase of 28%.

AVERAGE VALUE PER HOUSE, New houses

87-88
95-96
00-01
87-88
to 00-01
95-96
to 00-01
$'000
$'000
$'000
%change
%change

NSW
67.3
118.1
162.2
141
37
Vic.
71.5
100.3
149.3
109
49
Qld
59.6
99.4
139.7
134
41
SA
59.4
86.5
119.0
100
37
WA
56.0
99.3
132.1
136
33
Tas.
56.3
91.7
117.6
109
28
NT
73.8
110.2
154.7
110
40
ACT
74.4
112.7
153.2
106
36
Aust.
64.7
104.1
145.7
125
40



The following graph presents the average value per new house in both original and chain volume terms, for Australia, over the last thirteen years. The chain volume estimates measure the change in value after the direct effects of price changes have been eliminated.

In original terms, steep increases in prices of average value of new houses occurred before 1990-91. After stabilising for several years the average value grew steadily through the second half of the 1990's. Following the introduction of the GST in July 2000, the growth in average value rose strongly.

In chain volume terms, a rise over the thirteen year period is evident but the average value has been relatively steady over the last two years.
Graph - image - average value per new house


Average value per square metre

The July 2001 issue of Building Approvals, Australia (Cat. no. 8731.0) included an article on the average floor area of new dwellings. It indicated that there has been an increase in the size of houses over time. The following tables examine the average value per square metre of new houses which has the effect of removing the size of houses as a factor in increases in the value of houses.

In Australia, over the last thirteen years, the average value per square metre has increased steadily. There has been an increase of 74% between 1987-88 and 2000-01, from $364 to $633. The largest increase occurred in Western Australia over this time period. Over the last five years, the largest increases have occurred in the Northern Territory, South Australia and Western Australia.

AVERAGE VALUE PER SQUARE METRE, New houses

87-88
95-96
00-01
87-88
to 00-01
95-96
$
$
$
% change
% change

NSW
379
592
650
72
10
Vic.
407
552
685
68
24
Qld
341
509
591
73
16
SA
351
457
575
64
26
WA
283
452
571
102
26
Tas.
376
538
603
60
12
NT
508
632
855
68
35
ACT
443
647
676
53
4
Aust.
364
531
633
74
19



The graph below compares the average value per square metre of new houses in original and chain volume terms. In original terms, noticeable increases occurred during the period up to 1990-91, in the late nineties, and in particular 2000-01. This is a similar picture to the analysis above on average value of completed houses. However, in chain volume terms, where the effect of price increases are removed, the average value per square metre for new houses has remained relatively flat over this time period. This suggests that the main reason for an increase in the value of new houses over time, once the effect of price change has been removed, has been due to the increase in house sizes.

Graph - image - Average value per square metre, Original and chain volume terms(a) - Australia



Ratio of earnings to average value of new houses

It is interesting to analyse average earnings and its relation to the average value of new houses. When average earnings are a greater proportion of the average value of new houses, with other factors such as savings, interest rates etc. aside, new houses become more affordable.

Annual earnings estimates were calculated using data from Average Weekly Earnings, Australia (Cat. no. 6302.0).

The following graph depicts the ratio of average earnings to average value of houses over time. There was a sharp drop from the mid eighties up to 1990-91, followed by a slight increase in the early nineties, but the ratio has generally tapered off since 1994, with a noticeable decline in the last three years.

One of the reasons for the decline observed over much of the period is the increase in the size of houses over time.
Graph - image - Average annual earnings as a percentage of average value per house - Australia


For more information on this topic contact Roger Mableson on 08 8237 7494.


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