Housing supply and demand may be drawing level
Skyrocketing house prices in Australia can be blamed at least partly on an imbalance between supply and demand which has long been out of kilter. Thankfully it looks like the supply side of the equation may be catching up as more and more homes are being built throughout Australia.
As record dwelling approvals begin to change the landscape of the Australian property market there are also other forces in play. While populations increase so too does demand for property causing the equation to balance out again.
How are these two basic forces affecting the Australian property market right now and what affect are they likely to have in future? Is new construction keeping up with demand fuelled by population growth? Let’s have a closer look at the property market to extract some answers.
Over the 12 months to December 2015 190,072 dwellings were constructed nationally.
Over the 12 months to December 2015 CoreLogic RP Data shows that 190,072 dwellings were constructed nationally. This is a record-high that shows developers are taking note of the rampant demand increases building at a faster rate than ever to keep up.
This is only the tip of the iceberg though. A summer 2015 report by Commbank revealed that at the end of last year there were over 180,000 residential dwellings in the planning, marketing or approval stages of development. This number reveals that the staggering construction numbers recorded last year will most likely continue through 2016 and perhaps 2017.
Movements in Sydney and Melbourne
The report also revealed that Sydney’s development may not be keeping up with demand while Melbourne’s might. Metropolitan Sydney accounts for 38 per cent of Australia’s expected population growth up to 2017 yet only 33 per cent of dwelling approvals.
The median house price in the city are already sitting at over 1.1 million in Sydney.
The median house price in the city are already sitting at over 1.1 million in Sydney according to CoreLogic so further increases may cause (more) problems particularly for younger first home buyers.
Melbourne’s dwelling completions on the other hand account for 46 per cent of the national total. While the Victorian capital’s population is growing by a rate that is 0.4 per cent faster than Sydney’s, the huge number of developments should far outstrip any demand driven by this growth. This might allow Melbourne’s property supply to draw level with demand.
Interestingly Melbourne’s dwelling completions are focused on the CBD, with 25 per cent total located there. This is the highest percentage nationally.
Population vs dwelling construction
The Australian Bureau of Statistics found that the national population increased by 326,073 over the 2015 year. This number represents a lower rate of increases down from the heights of 2008 where the population increased by 459,504.
The national population increased by 326,073 over the 2015 year.
Coupled with incredibly high construction approvals last year, might this slowed rate of increase help to level demand?
Assuming the ABS reported Australian average household size of 2.6, more homes are being built than required by the population growth. While these are incredibly simple measures of a very complex market, they are still promising signs going forward. Rates of dwelling completions compared to population increases show this, sitting at 2.4 in NSW, 1.9 in Vic and 1.6 in QLD.
What does it mean?
At its most basic increasing dwelling numbers relative to population growth shows that the balance between demand and supply will improve. Basic economic principles dictate that this will reduce upwards pressures on prices and may eventually contribute to their decrease.
Those looking to buy real estate may lament the lesser capital gains, but in future if this continues it should create a more affordable and accessible property market for all.