Is Housing Supply On The Way Down?

October 16th, 2015
The relationship between supply and demand has always had a strong impact on property prices. With building approvals dropping below market expectations and demand for housing on the rise in Sydney and Melbourne, Australia may have already experienced a property peak. While building approvals have risen strongly since 2012 and new construction projects are on the cards for western Sydney, weak August results may signify the end of Australia's residential construction boom.

Building approvals dropped by 6.9 percent in August and 0.7 percent on a trend basis, marking the fifth consecutive month of falling results. While approvals are still 5.1 percent higher for the year, weak results in recent months have missed market expectations. Much of this weakness is due to apartment approvals, which are down 4.7 percent from their peak earlier this year. On a trend basis, building approvals are 2.9 percent below their peak, with some analysts expecting approvals to drop even further over the next few months.

According to the Australian Bureau of Statistics (ABS) report, "Dwelling approvals decreased in August in Tasmania (6.8 per cent), Victoria (4.2 per cent), Western Australia (1.8 per cent), Northern Territory (0.6 per cent) and Queensland (0.2 per cent) but increased in the Australian Capital Territory (8.1 per cent), South Australia (4.5 per cent) and New South Wales (1.4 per cent) in trend terms."

Even if a property peak has been reached, it will take some time to affect conditions on the ground, with some analysts even predicting oversupply over the next few years. According to BIS Shrapnel associate director Kim Hawtrey, "The record breaking home building boom that we've been seeing, we see it peaking in 2015 and some key markets are set to move into oversupply... You wouldn't want to be in Melbourne or Perth or Adelaide because all of those are going to see declines in building activity over the next three years... On the other hand, New South Wales is still going to grow and Queensland, Brisbane, is going to do pretty well too."

Supply levels in New South Wales will depend greatly on the situation in Sydney, with the New South Wales government set to release 7,700 hectares of land south of Campbelltown to allow for the construction of up to 35,000 new homes at Menangle Park, Mount Gilead, and Wilton Junction. Construction will begin in two years, with Planning Minister Rob Stokes saying "These communities will help improve accessibility to the housing market by increasing supply in greater Sydney and putting downward pressure on prices."

Population increases in Sydney and Melbourne will put additional pressure on the property market, with dwelling prices likely to increase even more unless supply is dramatically increased. According to Infrastructure Australia, Sydney’s population is set to reach 6.1 million by 2031, with Melbourne set to reach 6 million. This means an extra 1.2 million people will come to Sydney over that time, or roughly 80,000 people a year. With Melbourne’s current population estimated at 4.5 million, it will need an increase of 100,000 people a year to reach its estimate.

Image source: Romolo Tavani/