A look at how stronger home equity will re-energise Townsville businesses.
EQUITY AND BUSINESS GROWTH
One major influence on business activity in regional Australia that is rarely considered in any commentary is home equity.
There is a general expectation that the value of a home might double every 7 – 10 years, giving confidence to homeowners about spending money.
When home prices stagnate, or even fall, it is a normal reaction for many homeowners to tighten their budgets – and when the general community is spending less, businesses often need to work harder.m
For 10 years (2009 – 2019), home prices in Townsville steadily declined, impacting the confidence of local homeowners to spend money. So, for the past decade, business owners in Townsville have needed to work extra hard to sustain a business and continue to support local employment.
Since the Covid lockdown, many businesses in the Townsville region have enjoyed the best trading conditions in more than a decade. Most businesses are needing new employees after operating lean for so long and there is a high level of confidence that customer demand will remain strong for at least the balance of 2021.
… And now that local housing prices are increasing again, the likelihood that stronger consumer spending will continue past 2021 is very strong.
Better house prices mean two things for local businesses. Firstly, a more confident community spending money should bring more revenue. Secondly though, and more fundamental to the development of local businesses, is the fact that business owners have improved equity.
One of the biggest constraints to Townsville businesses starting or expanding over the past 10 years has been the restriction of funding and capital. It is difficult for a business owner to seek support from a bank if the core asset for any security – their home – is not increasing in value.
This has been a frustration in the market for so long in Townsville and has really impacted the ability to attract businesses into vacant tenancies. So often, new businesses or businesses seeking to expand/ relocate had the money for fit out, or reserves for trading up in a location – but not both.
Landlords had similar frustrations if the value of their commercial premises had not grown and their ability to support a new business tenant was limited.
The opportunity for stronger home equity allows business owners to be more comfortable about their position and as equity increases, more adventurous in their business operation.
FY21/22 AND EQUITY
The increases in house values in Townsville in 2020/21 have been encouraging and if history is a guide, then more growth is likely.
The motivation for growth is demand and demand is developing to very strong levels. In the first half of 2021, the number of house sales in Townsville was growing toward 100 sales each week. Two years ago, this rate of sale was only 50 sales per week.
It is likely that Calendar year 2021 will be a near record year in terms of sales volumes and in previous market upswings, a super year of sales preceded several years of house price growth.
Townsville experienced the misfortune of declining house sale prices for so long that sale price growth of even 10-15% over the next 2 years will only return the median price to where it was nearly 15 years ago – so prices are not hitting new heights in the very near future.
Currently, Australia as a whole has an unusual combination of increasing house prices and very low borrowing costs. There can be a reasonable expectation for businesses that while these 2 factors exist together, we will see strong trading conditions.
Townsville and several other regional Australia locations have a third beneficial factor – employment demand. The number of new major Resource and Manufacturing commitments in Northern Australia is genuinely encouraging and the likelihood of continuing strong employment demand in these sectors over the next 12 months will benefit Townsville directly.
It is a very good time to be a business operator in Townsville again and the confidence that so many of our customers will develop over the next 12 months should be met with a smile – they mean business.
By Craig Stack
Managing Director of Knight Frank’s Townsville and Mackay offices.