South Australia is commonly known throughout the land as “The Festival State” and “The Wine state”. In recent times the state has been garnering more attention in various media publications of late, with claims of “imminent growth” on the back of commencement of new infrastructure projects.
In this article, we will take a closer look at the underlying market drivers to see which moniker is more appropriate and if the claims give rise for celebrations or commiserations.
The performance of the Adelaide economy has typically exhibited a series of small “booms” and “busts” in comparison to the economies of Sydney and Melbourne.
Looking at the graph below, SA achieved almost half the national average GDP growth over the past five years .however; there has been a sharp increase in GDP growth.
Source: ABS Cat Series 5220.0, Meridian Australia.
Since the early 90’s, Adelaide has faced several structural challenges such as; the decline of the manufacturing sector, an aging population as well as a shallow pool of export-oriented knowledge services. The combined effect has contributed to GDP outputs below the national average.
More recently, the continual decline of the manufacturing sector has further weakened employment conditions, and there has only been small gains in GDP growth in other industries.
This lead to a steady decline in the working age population as residents leave the city in search of greater employment prospects. Evidence of this is seen in the net migration outflows over the period; particularly in the 20-44-year age bracket.
Presently, the SA government is undergoing a period of challenging economic conditions with decline of the manufacturing sector as well as the completion of several key infrastructure projects such as completed, including the Noarlunga Line Electrification, the South Road Superway and the Southern Expressway Duplication.
According to leading Economics, BIS Oxford Economics “As the SA economy transitions away from its reliance on the manufacturing industry, much of the SA government’s budget has been dedicated to addressing the needs of an ageing population whilst also investing in the dollar exposed industries such as education and tourism."
Much of these efforts are tied into several key infrastructure projects with funding predominately focussed on improving road and public transport, as well as hospitals and education facilities.
Another key project which has attracted much attention is the Tesla Lithium Battery Farm. The project is being heralded as the solution to an ailing electricity network, but in terms of job creation, the project is only expected to support around 50 jobs throughout the construction phase.
More recently, there is growing noise from industry commentators lauding the positive impact of the Submarine Production Contract on the Port Adelaide precinct. Whilst there is anecdotal evidence that sentiment is building, it is unlikely that this project alone will be able to fill the void left from the manufacturing sector.
To put this into context, the closure of the Holden plant in Elizabeth resulted in the loss of approximately 1,600 jobs at the plant itself and with further job losses occurring across an estimated 500 suppliers.
At a cost of 50billion dollars, the proposed submarine project is anticipated to around 1100 Australian jobs and a further 1700 Australian jobs through the supply chain.
Whilst the budgeted infrastructure spending on new projects gives cause for optimism; these projects are not of a similar scale to what has recently completed.
 BIS Oxford Economics- RPP 2018-2021
As such, it is anticipated that the current population growth trends will continue, with high migration outflows and muted net population growth expected.
In the absence of any game-changing announcements, the economic outlook remains weak.
Subsequently, it is anticipated that dwelling completions will continue to outpace underlying demand, resulting in an excess in residential housing stock remaining through to June 2020. This will likely have a detrimental impact on vacancy rates and rental growth as competition increases for tenants and landlords discount asking rents.
The impact of this will likely be felt on the unit market; particularly in areas closer to the CBD where there is an abundance of high rise, multi-dwelling unit stock.
Source: BIS Oxford Economics
On the upside, strong affordability will continue to support interest from the First Home buyer and Changeover buyer segments of the market.
Areas located in the immediate vicinity of employment nodes, will likely see some moderate growth as major projects gain momentum, however, this is likely to be short-lived and investors should be wary of rising supply levels in these areas.