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These Australian regions have seen ‘astronomical’ price increases, but there’s a catch
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These Australian regions have seen ‘astronomical’ price increases, but there’s a catch

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There is a lot of money to be made in Australia’s ‘ghost towns’.
Scattered along the country’s coastlines and nature destinations are places where most homes sit empty for much of the year, awaiting the return of their owners or short-term vacationers in the summer.
Nationally, just over a million homes were vacant on Census evening in 2021 – around 10 percent, but down from almost 11 percent at the previous Census in 2016.
But there are parts of the country where vacancy rates are rising – and so are house values.
While it is difficult to know exactly how many of the vacant properties on that Census night were vacation homes, August 10, 2021 was a Tuesday evening in winter, and many of the county’s shelters were likely sitting idle.
Recent analysis by real estate firm Ray White identified ten regional areas with high vacancy rates where house prices have seen ‘astronomical’ growth over the past decade, ‘defying’ conventional logic that high vacancy rates reflect slow market growth.

Of the ten areas it highlighted, the highest vacancy rate was on Moreton Island, off the coast of south-east Queensland, with a population of less than 300 residents and a vacancy rate of 66 per cent.

Moreton Island, off the coast of south-east Queensland, has a population of less than 300 and a vacancy rate of 66 per cent. Source: Getty / Reinhard Dirscherl / ullstein photo

The island has experienced a 140 percent growth in average home prices over the past decade, with the average home now at $1.25 million.

But there are less extreme examples. Tasmania’s Central Highlands had an occupancy rate of 58 percent, with growth of 157 percent over ten years.
Both Point Nepean and the Lorne-Anglesea regions of Victoria had vacancy rates above 55 per cent, with ten-year growth of 99.9 per cent and 103.4 per cent respectively.
The average house in Point Nepean is now $1.31 million, while in the Lorne-Anglesea region that figure rises to $1.57 million.

On the NSW south coast, the 15km stretch between Callala Bay and Currarong had a vacancy rate of 48 per cent – ​​but a growth rate of 126.8 per cent over ten years, with the average house now at $1.15 million.

A graph showing regional areas with the highest growth and vacancy rates.

Source: SBS news / Madeleine Wedesweiler

Vanessa Rader, head of research at Ray White, said the report shows that Australia’s holiday home phenomenon has a concentrated geography, and these areas challenge fundamental assumptions about property investment returns.

“Using vacant property data as a proxy for vacation home concentration shows that regional markets operate on very different economic principles than metropolitan housing investment,” Rader said.
Nicola Powell, Domain’s head of research and economics, agreed that the locations were united by their lifestyle and holiday home appeal.
‘Classic’ coastal or nature destinations have boomed in recent years as Australians “increasingly sought out lifestyle properties”, especially after the outbreak of the COVID-19 pandemic in 2020 and the move to remote and hybrid work, she said.

“I think it has permanently stimulated demand for homes in scenic areas and lower-density areas,” Powell said. “If you look at these regions, they offer second vacation homes as well as short-term rentals.”

Powell said the scarcity of homes for sale is also keeping real estate prices high in those areas.
“The limited inventory and high vacancy rate of homes are really fueling this,” she says.
Given this surge, a vacation home may seem like a simple investment for those wealthy enough to build one.

But appearances – even unspoilt and located on the coast – can be deceiving.

What other considerations are there?

Rader warned that vacation homes can incur “huge” operating costs before a buyer has even spent a summer in them.
“Regions with high vacancy rates have infrastructure designed for seasonal rather than permanent populations. Vacation home owners face service connection delays, limited provider options and higher costs due to peak period capacity constraints,” she says.
Rader said recent regulatory changes designed to respond to affordability pressures in the housing market could also reduce rental income potential for holiday home investors – such as Victoria’s 7.5 per cent levy on short-stay platforms and councils introducing rate surcharges for Airbnb properties.
In the case of a remote location like Moreton Island, she said construction materials and tradesmen required ferry transport, which significantly increased maintenance costs.

But perhaps the most important concern is that many areas with high vacancy rates faced environmental risks greater than those faced by most traditional residential investments – and therefore higher insurance premiums.

According to Ray White’s report, properties in coastal areas can often command insurance premiums that are 20 to 30 percent above regional averages. For example, according to Ray White’s analysis, premiums for Moreton Island are often 30 to 40 percent above mainland alternatives.
“[Premiums] have grown so significantly, and we are a country that unfortunately experiences many major natural disasters like this, especially fires and floods. It’s really built into this kind of new cost to even own these properties,” Rader said.
“To retain these assets, expenses are much higher than in the past.”
Powell also said Domain’s research showed Australians were taking into account considerations such as bushfires and river flooding when buying a home, with the price impact increasing as those risk factors increased.
However, she said coastal erosion – the loss of land along the coastline due to factors such as rising sea levels – did not appear to have the same impact on the price.
“What we found was that buyers prioritize location and views over long-term risks. For every 10 meters away from the coast, the value of the house fell by 2.6 percent,” she said.
“We discovered that if a property is first in line [to the sea]it adds 20.4 percent to the home’s value, and if there is no road break, it adds another 5.4 percent. So it really shows that Australians are prioritizing lifestyle over risk.”
Powell said anyone looking to purchase from one of those locations should exercise caution.

“If you’re not sure what risk is associated with the house you’re looking at, the best way to find out is to get an insurance quote. The premiums really tell you the risk profile.”

Will the bubble burst?

Powell said there will “always” be an element of demand for properties in these prime holiday locations.
But it remains to be seen whether price growth in these areas is sustainable. Over the past year, Glamorgan to Spring Bay in Tasmania experienced an annual decline of 6.5 per cent, with an increase of 0.4 per cent in Tasmania’s central highlands.
Although both Lorne-Anglesea and Point Nepean experienced high growth over a ten-year period, they both had a ‘modest’ annual growth rate of 3.8 per cent. Rader says this suggests premium markets are “reaching natural valuation limits as affordability constraints limit buyer expansion.”

As climate change continues to exacerbate risks such as rising sea levels and extended bushfire season, Rader said the long-term viability of homes in these scenic – but vulnerable – locations was also increasingly threatened.

However, Rader made the point that even with a price ceiling, “if there’s a nice, nice, newly built house, [high] prizes are still being won”.
Does that high housing growth translate to commercial markets? It’s unlikely, Rader said.
“Say you have a retail suburb, and you can’t keep your tenants there because there isn’t enough through traffic, or because they can only survive three to six months of the year… not all businesses can do that,” she said.
“How viable is that for that business? And then how viable is that for the landlord who’s trying to rent it out? So they need to take a look at their lease terms to make sure they keep the tenant there.”
As rising prices push people out of these areas, these locations are likely to move towards holiday tourism markets, cyclically leading to higher and higher vacancy rates.

“That market would brand itself primarily as a tourist destination, more than a residential location. But people also need to live in these places,” she said.

“If it were more of a trend and prices rose that much, we would find that locals would probably move a little bit outside of those sort of core locations,” she added. “Prices at that location would continue to rise and with that the occupancy rate would continue to decline.”
Rader said that as values ​​rose in what were otherwise quite regional locations, with limited infrastructure because the population couldn’t support it, “there’s only so much you think those markets can grow more broadly.”
“People aren’t there all the time. There are only so many stores that can be there, or so many activities that can go on all the time, or gyms and things that people like to go to, and also hospitals,” she said.
“If you want to go on holiday somewhere, you want to have such a holiday experience. But can that holiday experience really be there if no one actually lives in these locations for half the year?”

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