Melbourne needs 63,000 new homes per year until 2051
Ongoing reports of an oversupply of new apartments hitting inner city Melbourne are grossly exaggerated and fail to look at the bigger picture.
Victoria has a growing population, and from a policy perspective, needs to be planning for this population growth right now. The main challenge that the residential development industry is facing is getting regulators to think long-term, otherwise restrictions will be too tight now and they’ll end up playing catch-u in years to come.
The State Government’s latest population forecast, Victoria in Future 2016, shows that Melbourne’s population is likely to double within 15 years, with growth of almost 1 million in Melbourne’s inner and middle suburbs during that period.
By 2051, an extra 2.2 million homes will be required to house the state’s population – this works out at almost 63,000 new dwellings per year for the next 35 years.
It’s true that the current rate of apartment development could potentially result in an oversupply – if the population wasn’t growing at such an exponential rate. But there are no signs of the state’s population growth slowing, and apartment living is going to be the first choice for many of those people.
An increasing number of households are opting to live in contemporary apartments for their affordability as well as their access and connectivity to services and jobs. It’s inevitable that as Melbourne’s population grows and the apartment market matures, there will be sustained demand for apartments.
Many of those predicting an oversupply are basing their arguments purely on the unprecedented levels of building approvals, as opposed to their actual or likely completion dates. According to Charter Keck Cramer’s State of the Market report (period ending June 2016), there is currently a lower-than-average overhang in projects that are under construction or recently completed; rental vacancy rates have reduced since the beginning of this year; and sales have continued to grow.
Additionally, as the property industry constantly adjusts to balance supply and demand, there has been a slowdown of commencements.
Despite predictions for a rapidly growing population in Melbourne, the property industry has been subject to a number of regressive policy decisions recently which may affect its ability to cater for Melbourne’s future communities.
Changes in regulation imposed by the Australian Prudential Regulation Authority, changes to banks’ lending policies, increased taxes on foreign investments, the introduction of planning controls in the central city and proposed design measures governing apartment development all have an impact on the industry.
The combined effect of these regulations on the economy is bound to be negative; expect a slowdown in housing supply leading to job losses, decreased investment and lower tax revenue. As Victoria is still recovering from the mining industry slowdown, it should be looking to buoy other areas of the economy rather than constrain them.
Victoria’s current and future communities are relying on continued urban development, yet it is being unnecessarily restricted. If the authorities don’t start looking at the bigger picture, we could soon end up with a housing crisis completely opposite to that which the headlines are suggesting; an undersupply.
Melbourne also stands to lose its position as the world’s most liveable city if it fails to provide sufficient housing options to the growing population. Look at the other top-ranked cities – Hong Kong, New York, London and Paris – where a large proportion of the population want and depend on apartment living.
Ultimately, those spreading fear about an apartment oversupply and subsequent price crash need to examine a range of detailed factors affecting the issue and then re-asses their position before they push the market further in the wrong direction.
Author: Master Capital Group