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The Housing Supply That You Can’t See

The Housing Supply That You Can’t See
February 25, 2022 Propertyology Head of Research and REIA Hall of Famer, Simon Pressley

Housing supply might sound like a simple term, but measuring it is far from ‘simple’.

The volume of properties FOR SALE and FOR RENT at a moment in time are very important components of housing supply. But they don’t provide the full picture.

Just as important is what one can’t see with the naked eye.

In this short report, we take a sneak peek at what housing supply might look like in a year or two from now.

To develop an educated assessment of whether the total volume of dwellings within a chosen city is sufficient or not one needs to review the housing construction pipeline.

Housing does not drop out of the sky overnight.

 

Related article: 59 locations where rents will rise $5,000 in 2022

 

Right now, wherever one lives in Australia, their hometown probably has a significant shortfall in volume of properties listed for sale and for rent to meet current demand.

But one would be completely oblivious to the fact that a number of property markets across Australia may be suffering from oversupply as early as next year.

Over the last two calendar years ending December 2021, the city councils of Australia’s 8 capital cities and hundreds of regional cities approved the construction of 411,907 new dwellings (73 percent were in capital cities).

Australia’s 2-year residential construction pipeline equates to enough extra housing for 1 million people, whereas the national population only increased by 200,000.

 

Case Studies

One only needs to reflect back to 2016 when both Sydney and Melbourne were in the middle of a strong property boom.

On the back of capital growth rates in the high-teens in the previous year, 2016 was also very strong with median house price increases of 7 and 11 percent, respectively.

Unbeknown to the 95,000 (Sydney) and 76,000 (Melbourne) buyers who transacted in the 2016 calendar year, there was an over-supply simmering beneath the surface and a property market downturn that would commence in the second half of 2017.

Over the following 2-years to mid-2019, the median house price declined by $190,000 in Sydney and $134,000 in Melbourne. Property prices throughout the rest of Australia mostly increased during this time.

Brisbane apartments have a similar story of sufferance from over supply. An overzealous construction industry played a significant role in the median apartment value only increasing by 5 percent over the long 10-year period ending June 2019.

The gestation period from the time a property developer buys a site, completes feasibility studies, gains regulatory and finance approval, commences construction, rolls out their marketing campaign, and eventual completion of new dwellings is typically 2-4 years.

Before a property developer is permitted to bring in machinery to begin preparing a site for housing construction, the relevant local city council must first have approved it.

In attempt to evaluate whether the road ahead is bumpy or smooth, Propertyology collects, formats and analyses building approval data for every single location (capital city and regional location) throughout every single year. We compare current data to trends from the last 10-20 years.

The most recent data for housing supply pipelines uncovers some interesting intelligence:

 

Sydney NSW

Pre-pandemic, Sydney became accustomed to annual population growth of circa 70,000. With the international border closed for 2-years plus more people relocating away from Sydney, the annual population growth slipped to just 10,000 (equating to core demand for 4,000 extra dwellings).

Over the 2-years ending 2021, 79,000 extra dwellings were approved in Sydney. That is a similar volume of dwellings approved to the 2-years ending 2014 when Sydney’s population increased by 164,000 people. However, the total population growth for the last 2-years was a very mild 20,000.

 

Melbourne VIC

Official ABS population data for 2021 wont be published until later this year, but we have pieced together a few related ABS metrics that suggests Melbourne had a net population *decline* of 70,000 over the last 2-years.

That’s a big fall from the 230,000 population increase over the 2-years ending June 2019.

Multiple lengthy lockdowns and subsequent business closures clearly aren’t carrots worth hanging around for.

The Victorian government’s economic recovery plan is to stimulate construction. During the 2020 and 2021 calendar years, 101,000 extra dwellings were approved for construction in Melbourne.

For perspective, at a time when Melbourne’s 2-year population decline is as big as a major regional city the size of Shepparton, it has started building enough extra housing supply to accommodate an entire city the size of Geelong (population 265,000).

Hmm, watch this space in 2023-24.

 

Perth WA

Back in its hey-day years of 2007 to 2013, Perth’s annual population growth was roughly 50,000, which was matched by 20,000 extra dwellings per year.

The resource sector downturn then kicked in and annual population growth dropped right back to an average of 23,000 from 2014 to 2021.

In addition to having a weak economy throughout those 8-years, there was an overhang of excess housing supply. During this period, Perth’s house and apartment median values declined by $18,000 and $48,000, respectively.

 

Related article: 2022 Property Market Outlook [nationally]

 

Over the last 2-years ending 2021, Perth’s 40,000 total population increase equates to core housing demand of 16,000. The latest ABS housing supply data confirms a total of 37,000 dwellings were approved.

Only time will tell how much closing the iron gates to the rest of the country will suppress growth in Western Australia.

Propertyology are national buyer’s agents and Australia’s premier property market analyst. Every capital city and every non-capital city, Propertyology analyse fundamentals in every market, every day. We use this valuable research to help everyday Aussies to invest in strategically-chosen locations (literally) all over Australia. Like to know more? Contact us here.

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