Debbie Shankar - 23 Aug, 2016

Housing Oversupply a Real Possibility in Australia

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Housing oversupply is a real possibility in Australia, with rising construction levels and a lower than expected growth in population. This outcome, say, economists, may lead to a housing oversupply in the future which may erode the value of homes across Australia.

Our mortgage brokers suggest this news is good for home buyers because dwellings may become more affordable to purchase. However, for sellers and property investors, who already hold housing stock in their portfolio, this could be less favourable, as the capital values of dwellings may depreciate due to a housing oversupply.

Australian Population Growth

According to the latest data released by the Australian Bureau of Statistics (ABS), the Australian population grew by 326,073 persons over 2015. This rate of growth was 133,431 persons less than peak levels recorded in December 2008, and 1,600 persons less than December 2014 levels.

Natural population increase – births – contributed to a 45.7% growth in the Australian population, and Net Overseas Migration (NOM) 54.3% growth. All Australian states and territories recorded positive growth to December 31, 2015. However, Victoria recorded the highest level of growth at 1.9% and the Northern Territory the lowest at 0.3%.

Construction Levels in Australia

Building levels in Australia have reached record levels. According to the ABS, the total amount of construction work carried out in the March 2016 quarter rose by 5.7%, when compared to 2015 data.

The Housing Association of Australia (HIA) estimates that the number of new multi-units built in Australia will continue to increase throughout 2016. But the number of homes built will decline. Predominately those states affected by changes in mining conditions will see a drop in dwelling numbers. Predictions suggest that building trends will shift towards multi-units or property with a smaller footprint over the next 12-months with a record number of units expected to reach completion.

Dwelling Starts by Type – June 2016

Dwelling Starts (per thousand)
Region Houses Multi-Units Total % Change Houses % Change Multi-Units
New South Wales 25.21 34.37 59.58 5% 10%
Victoria 34.48 32.81 67.29 7% 0%
Queensland 22.80 22.99 45.79 3% 7%
South Australia 7.30 2.69 9.32 -4% -5%
Western Australia 18.06 7.05 25.10 -22% -12%
Tasmania 2.28 0.51 2.78 42% 64%
Northern Territory 0.86 0.71 1.57 -2% -28%
Australian Capital Territory 1.20 3.23 4.43 -22% 29%
All of Australia 111.83 104.30 216.12 -2% 4%

Source: Housing Industry Association June 2016 Estimated Results

Population Growth Comparative to Dwelling Completions

CoreLogic RPData suggests that the ratio of dwelling completions to population growth indicates that the majority of states and territories in Australia are currently over-building. This suggestion takes ABS demographic data and the total number of dwelling constructions in 2015 into consideration, which reached an unprecedented high of 190,072 nationwide. Other data used was the average household size for each state as recorded by the ABS. This data is as follows: New South Wales, Victoria, Queensland and the Australian Capital Territory had an average household size of 2.6 persons. South Australia and Tasmania recorded a rate of 2.4 persons, and Western Australia and the Northern Territory had a rate of 2.7 persons.

Based on these figures, CoreLogic estimates that the ratios of the number of homes that need to be constructed to accommodate the growth of population and long-run average of the number of homes actually being built for each state are as follows:

Region Ratio Long-Run Average Housing Supply
New South Wales 2.4 2.0 -0.4
Victoria 1.9 1.6 -0.3
Queensland 1.6 2.1 +0.5
South Australia 1.0 1.2 +0.2
Western Australia 1.0 2.0 +1.0
Tasmania 0.8 0.9 +0.1
Northern Territory 0.4 2.4 +2
Australian Capital Territory 1.3 1.8 +0.5

Source: CoreLogic RPData

Therefore, New South Wales and Victoria currently have an undersupply of homes, with more dwellings needed to accommodate population growth. However, all other Australian states and territories have an over-supply of homes. So, if you’re seeking to buy a property shortly, may sure you review supply statistics for that area so you avoid buying a property in a sector oversupplied with housing.

Are you thinking of buying a home? Then contact eChoice and find the right home loan for YOU today.

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