A “tsunami” of new dwellings over the next 12 months will push property markets in all but one Australian state into oversupply according to forecasters BIS Shrapnel.
Released this week, BIS Shrapnel’s Building In Australia 2016-2031 report predicts the coming 12 months will see the number of new dwellings in Australia peak, before activity, particularly in the apartment market declines.
The BIS Shrapnel report predicts that over 2015/16, housing starts in Australia reached a record high of 220,100, driven by a 7% increase in the number of multi unit starts to a peak of 107,100.
Detached housing starts totaled 112,950 over the same period.
“After recording strong growth during the past four years, we estimate that total dwelling starts reached an improbable 220,100 in 2015-16, an all-time high,” Kim Hawtrey, associate director at BIS Shrapnel said.
“From this level, national activity is forecast to begin trending down over the following three years, with the high-flying apartments sector leading the way down,” Dr Hawtrey said.
BIS Shrapnel expects to see construction activity begin to fall in 2016-17 (-16%) as pressure goes out of most markets.
The decline will be led by the high-rise sector (4+ storeys) as it slumps back from its unsustainable high, while medium density (1-3 storeys) and detached house starts will ease down more gently.
The report predicts that apartment commencements will total just 53,800 across Australia in 2019-20, a 50% fall from current levels.
But the fall in activity won’t come quick enough to prevent oversupply issues from rearing their heads.
“Low interest rates have unlocked significant pent up demand and underpinned the current boom in activity, but with population growth slowing and a strong backlog of dwellings due for completion, new supply will outpace demand,” Dr Hawtrey said.
“This will see the national deficiency of dwellings gradually eroded and most key markets will begin to display signs of fatigue,” he said.
Only New South Wales is expected to avoid oversupply issues in the near term, however affordability constraints in Sydney could pose an issue in the future.
BIS Shrapnel claims Australia had a dwelling deficiency of 58,000 as of June 2016, down from the peak of 117,000 just two years prior and as investor and first home buyer activity cools, there simply isn’t enough demand to absorb the stock currently under construction.
“With investors facing finance restrictions and first home buyers sidelined, it will be up to upgraders/downsizers to help cushion the decline in activity,” Dr Hawtrey said
“But we’re not confident, given that the national stock deficiency will have been largely satisfied by 2017.”
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