Increased housing supply in Vic set to ease capital growth rates

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You shouldn’t expect capital growth rates in the Victorian property market to ramp up anytime soon, if the latest supply and demand figures are anything to go by.

Pointing to the latest National Housing Supply Council report, the Real Estate Institute of Victoria (REIV) has noted that over the last two years the estimated gap between underlying supply and demand has reduced significantly from 18,000 in 2009 to just 10,000 in 2011.

What this means, says REIV CEO Enzo Raimondo, is that supply and demand is very close to balance in Victoria, and this is one reason why the pressure on house prices has eased.

“Whilst the market is also affected by a range of other factors – the rate of economic growth, unemployment, interest rates and levels of consumer confidence – if there is a shortage of stock, this also results in pressure on prices,” he said.

“The strong price growth between 2005 and 2010 was in part due to high levels of population growth and a shortage of supply,” he added.

“This report now shows that the gap between the underlying demand and supply has eased, primarily because the number of new homes being constructed has increased. Dwelling completion data from the ABS shows that in the two years to the 2011 December quarter, 30% more homes had been built than in the preceding two years.

“On current projections, it does not appear that Victoria will face a critical undersupply of housing stock in the medium term.

He added that the report also highlighted the lack of affordable housing, particularly in the rental market, as rents continue to increase at a time when there is very little growth in overall house prices.

What are your views on the state of the Victorian property market? Have your say by commenting below, or joining the conversation in our property investment forum.

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