Recently there’s been much conjecture as to an impending housing bubble in Australia. Some industry analysts suggest we’re on the verge of a dwelling oversupply, which when combined with our vastly changing lending landscape, could cause overly inflated housing values in some cities to nosedive.
Of course this outcome is heavily reliant on the scales actually tipping from more demand than accommodation availability, to more vacant buildings than willing bodies to fill them.
The anticipated stock saturation has been blamed largely on the high-rise apartment construction boom across Melbourne and Sydney (and to a lesser extent Brisbane), with developers cashing in on low interest rates in a rising property market.
Interestingly, the same scary bedtime stories were whispered into investors’ ears back in the early beginnings of this century, when the property boom at that time saw our first real commercial high-density development spike, in response to rising market values.
Yet here we are, more than a decade on, and in retrospect it could be argued that the ‘oversupply’ of that time was absorbed without too much ado or significantly ailing values.
What’s more, a new report suggests that without any major changes to today’s market activity, rather than facing a property bubble based on too much housing, our undersupply issues are going to get worse before they get better.
Australia’s cities bursting at the seams
According to the Committee for Economic Development of Australia (CEDA), Housing Australia report, we can anticipate at least another 40 years of demand pressures and supply constraints in our inner city markets particularly.
“Often the debate around housing affordability is centered on a few topics such as foreign investment, negative gearing and interest rates,” said CEDA research and policy committee chairman, Professor Rodney Maddock.
“While these might be some of the factors, the issue is far more complex and without changes now could have longer run consequences.”
Shift in economic fortunes
One of the reasons our major cities are bursting at the proverbial seams is that our economy has shifted gears of late. Where not long ago we were heavily reliant on the resources sector to pull us along post GFC, we’ve become increasingly reliant on services and housing to do much of the fiscal heavy lifting.
“The shift to a service economy has contributed to a larger population living in our cities and coupled with overall population growth through migration, has impacted housing demand, especially in Sydney and Melbourne,” noted Professor Maddock.
“With most people choosing to live in our major cities, it is likely the trend of more people living in apartments and more long-term renters will become permanent, and we need to accommodate this better with increased protection for renters.”
Learning from ‘mother’s mistakes’
Interestingly, the report also seeks to address the imbalances created by periods of over-development, due to enthusiastic developers wanting to cash in on rising property markets.
CEDA uses UK housing development policy to extrapolate where Australia can learn from their successes and mistakes. Such as a more drip feed release approach to new high density development, rather than a mass market saturation all at once.
“CEDA’s report looks at the UK as an example where developers bid high to obtain land for development and it is then in the interests of developers to build slowly to take advantage of rising market prices,” said Maddock.
Ultimately, he affirms what many are already loudly hinting at – the Great Australia Dream of Home Ownership is at risk of dying out with future generations. But it will all invariably hinge on how well price pressures are managed at this point.
“Despite the outlook of continued growth, there are options for government to ease pressure and ensure long-term negative consequences are reduced.”