I have it on good authority that the saying that resonates throughout Victoria’s Spring St Parliament is that so long as the city is building, everything will be all right.
Of course this is hardly the pinnacle of economic thought but it is true, for a time.
But as we know, when eventually the game of capital investment stops, you usually discover a whole lot of capital mis-allocation. Either you’ve overbuilt so much that an oversupply squashes prices or some external shock hits demand. Then you have to face to up the fact that all you have is construction firms to keep folks employed and no reason to use them.
MB has been banging away at this for a couple of years as Melbourne has continued to build 35% plus of Australia’s dwelling stock:
But it seems suddenly the MSM is onto it, triggered by yesterday’s announcement that the monumental Australia 108 development has been approved. From The Age:
Planning Minister Matthew Guy has been dubbed ”Mr Skyscraper” after approving 20 high-rise developments for inner Melbourne and rejecting just one since taking on the portfolio about two years ago.
Mr Guy announced on Monday that he had approved plans for the tallest tower in the southern hemisphere – Australia 108 – which will stand at 388 metres and be 90 metres higher than Eureka Tower.
His decision to approve the Fender Katsalidis-designed apartment project on Southbank Boulevard will upset critics of the plan, including Melbourne lord mayor Robert Doyle, who argued it would cast a shadow over the Shrine of Remembrance.
The latest permit caps 19 other approvals Mr Guy has issued for tower projects in the Melbourne CBD and inner suburbs that range from 19 to 71 storeys high, since the Coalition won the 2010 election. He has also rezoned swaths of land at Fishermans Bend, Footscray and North Melbourne for high-rise development.
The AFR has more worrying statistics:
There are growing fears that apartment prices in Melbourne’s central business district could tumble amid a rise in off-the-plan sales and project approvals.
Victorian Planning Minister Matthew Guy has approved more than 17,000 apartments in 30 projects within the City of Melbourne since taking office in 2010.
…Property pundits warn that the latest string of high-density approvals will push the city into oversupply and that lack of demand will reduce apartment values and rental returns.
…SQM Research figures for February showed Melbourne had the highest rental vacancy rate of all the capital cities at 2.7 per cent, compared to 0.9 per cent in Perth.
Propell National Valuers Victorian state manager Matthew Singleton said Melbourne’s asking rents had fallen 1.4 per cent in the past year because of subdued demand and oversupply of units.
Questioned about the potential for apartment oversupply, Mr Guy said the government was approving developments in appropriate locations for development and that the construction activity generated by project approvals would stimulate the economy.
Yes, until it doesn’t. And what then?