A study conducted by analyst and buyer’s agency firm Propertyology revealed that Sydney and Melbourne markets continue to see housing oversupply, which is likely to cause slowdown in areas located in two of the major capitals.
The oversupply has been driven by dropping property prices, increasing vacancy rates and easing rents.
Propertyology Head of Research Simon Pressley said that despite the slowdown in Sydney building approval volumes over the past 18 months, recorded figures are still well above historical averages.
“Of even more concern is the spike in Melbourne’s building approval volume over the past 12 months. While it’s highly likely that many of these projects, especially high-rise apartments, will be put on the shelf for a few years, developers don’t lodge building applications for practice,” he added.
Residential construction had been tracking upwards in Sydney and Melbourne over the past few years, and this had also helped in pushing the number of supplies in specific locations within these cities. Now, market performance of these locations is projected to fall short.
“Analysis of building approval volumes at a granular level provides insight in to individual municipalities where property values and rents, primarily apartments, are likely to soften most” Pressley explained.
In Sydney, these include Rockdale and Sutherland in the Eastern region; Canterbury and Liverpool in the Southern region; Ryde, Hornsby, The Hills in the Northern region; Blacktown, Parramatta in the Western Region; Botany Bay, Leichhardt and Marrickville in the Inner-west; and Camden in the Outer south-west.
In Melbourne, meanwhile, the areas include: Melbourne City, Boroondarra, Yarra in the Central region; Glen Eira, Whitehorse, Casey, Cardinia in the East; Maribyrnong in the West; and Darebin, Moreland, Hume in the North.
Nationally, supply is also trending higher. While the total volume of new homes approved is subduing after four years of record starts, some locations remain in the oversupply territory at the same time as other markets are tightening.
At a macro-level, home supply saw an average of 170,577 additional dwellings completed each year over the past ten years. The average annual dwelling supply over the last four years, on the other hand, was 200,034. This marked a significant rise compared to the 10-year average.
“The excess housing supply in Australia’s pipeline has been building up for about three years however, the momentum in buyer activity that had accumulated during the Sydney-Melbourne boom was acting as somewhat of a smoke screen over the true position,” Pressley shared.
Another highlight of the report was Australia being at the “age of the attached dwelling,” with around 50% of new dwellings completed over the year ending December 2017 being units or townhouses.
Attached homes accounted for 78% of new supply in Canberra, 68% in Sydney, and about 54% in both Melbourne and Brisbane.
