A lot is made of Australia’s so-called housing affordability crisis, with most alarmists blaming a consistent accommodation shortage that’s plagued us for decades now, it seems.
Potentially confusing for the property market layman however, are conflicting reports that bob along on the real estate media tide around stock saturations, particularly when it comes to inner city, high-rise apartment buildings.
This extremist, ‘too much or too little’ debate that goes on between industry experts does little to add any clarity around whether we do in fact have a housing affordability issue that is in fact, caused largely by a supply/demand imbalance.
But the ongoing conundrum of where most new dwellings are coming on line and whether that increased supply runs parallel to purchaser and tenant demand, has once again reared it’s confounding head with newly released ABS building data.
The January 2015 building approval numbers showed that over the first month of this year, dwelling approvals surged to an all time high, while the number of annual approvals has also reached a historical peak.
Seasonally adjusted figures indicate that 19,282 new residential buildings were approved in January, representing a 4.9% increase on the previous record-breaking pinnacle reached in November 2014.
This stronger construction pipeline is perhaps most evident when you consider that building approvals are now up by 10.8%, year on year.
Tide is turning?
Once a population renowned for our love of detached suburban dwellings, it seems the tide is turning when it comes to how and where Australians choose to reside.
At least, that’s what one is led to believe when you consider that in a further rare occurrence, more units were approved for construction than housing according to national figures.
In fact detached housing approvals fell by 0.4% in January 2015, while unit approvals increased by a considerable 17.5%.
Now if you’ve been living under a rock for the past six or so months, you’d be forgiven for failing to notice all the hype around the alleged ‘runaway’ construction of vertical, inner city monoliths where shrinking box-like apartments are crammed in for maximum developer profit.
And as it turns out, ABS data only confirms what many are suggesting to be the case – much of the new supply we are seeing is concentrated in and immediately around our major CBD’s.
Over the past 12 months, there’s been a record high 153,323 dwelling approvals across the combined capital cities. Not surprisingly, the majority of approvals were for units as opposed to houses.
Interestingly, when comparing the types of approvals across all major capitals, Melbourne and Perth both approved more houses than Sydney, despite the Harbour city’s overall larger population.
Some interesting trends
So why are we seeing such an increased impetus in the construction of inner city apartment stock, as opposed to the more traditional family style home on a large suburban block?
And what impact is this having on the current state of play with our property markets? Well, some of the more notable developments that have occurred off the back of this dwelling downsize trend include:
- An increased number of investors targeting cheaper, entry-level unit stock (often purchased off the plan) to get a foot in the inner city property door.
- Sluggish value gains across Melbourne and Brisbane’s unit market (where apartment construction has been most intensely concentrated). House values increased by 8.0% and 6.5% respectively across the capital cities, while unit prices rose by a comparatively dismal 2.8 and 0.5%.
- Aligned with this lackluster rate of capital growth around Melbourne and Brisbane’s unit market, has been a tendency for the annual increase in rental yields to track slower for units than houses across both cities.
This supply and demand see-saw is a timely reminder that as a property investor, you need to act according to a precise strategy driven by the basic, underlying fundamentals that consistently determine the direction our property markets take.
Whilst it can be challenging to keep a level head in these breakneck markets, where competition is fierce but affordable interest rate opportunities are just too enticing to ignore, it’s absolutely necessary to always remember the basics.
Just because demand for housing in Australia is outstripping supply, it doesn’t mean a new apartment construction is a potential goldmine. Remember, most people want to be close to the action, but not right in the thick of it all.
Next time you’re assessing an investment location and property, ask yourself how much of a good thing is too much? And remember those supply and demand fundamentals.