The Eastern coastline of Australia will be struggling to meet demand over the coming years if construction and offerings don’t pick up soon. Property advisory group Charter Keck Cramer has forecast that slumping numbers of new apartments under construction could force an undersupply as early as 2022. The difference in demand and supply is largely down to population growth and slowing construction activity. This is despite prices strongly rebounding (Melbourne lifted 1.2% in January, while Sydney went up 1.1%).
The recovery of the property market has had little effect in drawing new developments to the table, according to Charter Keck Cramer, as the pipeline of new apartments continues to trend down. You can see this most clearly in the number of residential cranes in the skylines of cities along the eastern shoreline: only 511 were counted in the last RLB Crane Index count, down from 535 six months earlier.
Brisbane, Sydney and Melbourne will need a large number of apartments to begin selling to meet the current forecast demand.
Sydney, which has been tipped by analysts to be set for a new boom, will require approximately 41,000 additional dwellings per year to accommodate its current level of population growth. Over 2019, only 5,700 apartments were launched in new projects across metropolitan Sydney. Construction commenced on 13,000 apartments (an almost 50% decrease from the 24,700 commencements recorded in 2018), while only 25,500 apartments were completed. This represents a 17% decrease from the record 30,900 apartments completed in 2018.
Melbourne will need even more apartments to meet demand: roughly 50,000 new dwellings have to come onto the market a year. Only 6,300 new apartments were launched, while construction began on 12,400 apartments and 15,300 apartments were completed.
Brisbane, which is likely to be the first east coast city to experience an undersupply of apartments, having turned down earlier, requires approximately 23,000 additional dwellings per year to accommodate its growth. In 2019 construction commenced on 2,100 apartments—a decrease of 3,000 on the 5,100 commencements recorded in 2018 and was the lowest number of commencements since 2010. Apartment completions in Brisbane have fallen by almost half over the following two years, and in 2020 are on track to record the lowest level of completions since 2013.
For the discerning investor, recognizing this coming undersupply is important. Potential investors may feel more compelled to get into markets that will become increasingly competitive due to the higher returns they stand to make. Of course, first home buyers may find themselves being priced out of the inner-city and metropolitan areas if demand and prices grow as expected. We may see buyers moving to more ‘rural’ metropolitan areas in order to be able to buy.