In Australia’s major cities an undersupply of apartments is looming. Property advisory group Charter Keck Cramer, is forecasting that by 2022 there will not be enough apartments to meet demand fuelled by increased population. The imbalance in supply-demand is being worsened by reduced construction activity and as a result, rents and property prices are forecast to increase over the next 5 years.
Australia’s population is surging. The Australian Bureau of Statistics (ABS) has released figures showing the population grew to 25.2 million during 2018, an increase of around 1.6 per cent. In particular, births reached a highest ever total of nearly 315, 000, with migration accounting for nearly a quarter of a million. The ABS expects Australia’s population to reach around 30 million by 2029, notwithstanding ongoing debate about levels of immigration and the nation’s capacity to manage such projected growth.
There has been a significant rebound in the price of dwellings in the nation’s biggest cities (for example: Melbourne 1.2% over January, Sydney 1.1%) this recovery from large prior slumps has not impacted positively on building activity which, in respect of new apartments continues to trend down.
Sydney for instance needs around 41,000 extra dwellings to cater for its current population growth but its apartment completion rate declined 17% from the 30,900 apartments completed in 2018. It is a similar tale of construction decline in both Melbourne and Brisbane. The latter is likely to be the first major east coast city to experience an under-supply of apartments. Brisbane requires about 23,000 additional dwellings per year to cater for its population growth, due to the migration of workers on the biggest infrastructure investment in South East Queensland history. Though there were 5,100 apartments commencements in 2018, construction began on only 2,100 apartments in 2019. This year – 2020 – it is likely to record the lowest level of completions since 2013. Over this period, discussion of housing needs has been characterised by debate on over-supply/under-supply issues. What tends to emerge is that supply is not meeting demand and that current construction rates are inadequate to meet what will be needed.
Total approvals are more than 20% down compared with the same time last year with apartment approvals falling by more than 40%, the lowest since 2012-13. The lag between approvals can take up to 18 months so whether or not the bottom has been reached or the market is stabilizing is an open question. One positive sign is that rental yields are more than 5% up on average in capital cities – a fact that might stimulate investor demand enough to counter falling unit values in some areas.