Undersupply on the horizon for Victorian housing market
A SERIOUS housing undersupply looms for Victoria, as elevated population growth continues to outpace dwelling commencements.
The Urban Development Institute of Australia’s latest Victoria Residential Development Index says the record levels of commencements in the years to come will not be enough to sustain the high levels of demand for new housing, which is set to outstrip supply by 4,000 dwellings.
It shows the industry operating at an index of 112.0, with historically high levels of activity across all sectors of the new housing market.
“The supply of new housing being delivered right now is being driven by high population and employment growth. This growth is positive and has supported strong levels of activity from the sector as it delivers new housing which has progressed through the planning, approval and funding pipeline in recent years,” Danni Addison, Victorian chief executive of the UDIA said.
“However, the forward pipeline for the years to come tells a very different story, and the RDI points to a serious housing undersupply. This is cause for major concern both from an affordability, liveability and economic perspective as Victoria’s population only looks increase on recent projections,” she said.
Development activity is at a historical high with dwelling commencements peaking in FY2015-16 at 68,730 per annum, down to an average of 66,829 per annum over the past two years but still clearly above the 10-year average of 52,300 per annum to FY2015-16.
Addison said Victoria’s residential development industry faces a number of challenges, including an unclear future urban renewal pipeline, recent policy changes such as increased taxes on foreign purchasers and the removal of incentives for investors, and production capacity challenges for new housing in Melbourne’s growth corridors.
“These issues will undermine the affordability and supply of new housing across all market segments if they are not urgently addressed,”
Townhouses in Melbourne’s middle and outer rings are performing “very well”, as are smaller apartment projects in the inner region. The UDIA said it predicts dwellings other than houses will become the majority of dwelling commencements seen across the state.
The report said new houses made up 77% of all building approvals in FY2006-07, but was down to just 53% in 2016-17. Approvals for apartments in buildings of four or more storeys rose from 8% in FY2006-07 to a peak of 31% in FY2014-15. Townhouses have ranged from 11% to 16% of approvals since FY2006-07, peaking at 16% in FY2016-17 with a forecast of 10,978.
“Middle Melbourne represents Victoria’s strongest apartment market having a total of 6,526 apartments commencing in FY2016-17 YTD,” Addison said.
“Over the period FY2014-15 to FY2016-17 YTD, middle Melbourne has accommodated around 37% of metropolitan Melbourne’s apartment commencements,”
The Moonee Valley LGA has been the strongest performer in the FY2016-17 YTD, with 1,408 apartment commencements, well above activity in the previous three years. It now has the largest volume of commencements of any LGA in the region.
New data from JLL showed that apartment completions would peak at record levels this year before tighter lending conditions on developers drag down numbers. Melbourne has already seen apartments under construction fall by 3% in the June quarter.
Research released this week from Oliver Hume showed population growth had crunched the average time on the market of new lots in Melbourne from more than six months to just 30 days since 2012.
The June quarter figure is the shortest average period recorded, with the peak of 6.6 recorded at the end of 2012.
The growing rush to secure land has seen prices in the quarter jump from $640 per sqm to $654 per sqm. Median land prices rose by 2.3% to $268,000, and the median lot size has waned from 410 sqm to 403 sqm.
Data from project marketers Red23said Melbourne's outer suburbs had witnessed the price of new housing lots skyrocket by 17% in the first six months of this year.
It said the median price of a standard housing lot reached a record high of $283,000 in June, up from the $241,000 recorded in January.
The UDIA said in Melbourne’s established suburbs moderated in FY2015-16 after approvals in the inner and middle rings grew by 25% and 36% respectively in FY2014-15. Growth areas have experienced growth in approvals since FY2013-14, with building approvals forecast to reach 19,149 dwellings in FY2016-17.
Oliver Hume research manager, George Bougias, said Melbourne’s record population growth was the principal driver of demand for new land.
“Recent figures from the ABS show Melbourne had the largest growth of any capital over the last 10 years with nearly one million (964,600) extra people now calling the city home and a total population of about 4.72 million,” he said. “There is a range of reasons people want to live in Melbourne. Housing affordability, lifestyle and economic opportunity are the main reasons but as a city we are doing a great job of attracting people to live here.”
Melbourne was named as The Economist’s world’s most liveable city for the seventh consecutive year this week.
SQM Research managing director, Louis Christopher said this week he agreed with “Dick Smith and other economists on proposed immigration cuts” as a way of curbing price increases.
“The surge in population is the primary reason why the RBA’s warnings last year and earlier this year of an oversupply in Sydney and Melbourne have not materialised,” he said.
“I suspect surging population growth is also the reason why APRA’s actions in 2015 to slow the investor market place in order to take the heat out of the Sydney and Melbourne market only worked temporarily.
“If we do not address this issue in the manner required, it is unlikely housing affordability is going to materially improve from this point. Indeed, affordability could further deteriorate in the form of higher rents and higher house prices with the only other remedy being aggressive interest rates rise from the RBA,” Christopher said.
Addison said the trends in vacancy rates and rents suggest that investor stock being sold to the market is being absorbed by Melbourne and Victoria’s growing population.
The latest SQM Research figures showed Melbourne’s vacancies were stable in July at a tight 1.7%, and had firmed from 2.1% over 12 months. Rents had eased in July but were annually up by 4.6% to $507.5 per week for houses and by 5.0% to $399.1 per week for units.
Australian Property Journal