Yesterday’s dwelling construction data, released by the ABS, revealed that a flood of new apartment stock is about to hit Melbourne.
While actual unit completions in Victoria (read Melbourne) jumped by 31.8% over the March quarter and by 35.4% over the year:
Dwelling unit commencements surged by an incredible 42% over the quarter and by 57% over the year, signalling that a tidal wave of new apartment stock will soon hit the city:
There’s more apartments on the horizon, too, with unit and apartment approvals in Victoria hitting a record 10,336 in the three months to May 2015, with total dwelling approvals also at an all-time high 18,846:
The surge in apartment stock, which comes on top of years of already strong construction, has raised concerns that Melbourne’s apartment market may be a bubble waiting to burst; although the industry is not overly concerned, predicting a “correction not a calamity”. From The AFR:
The city is already heading for a glut of apartments, which researcher BIS Shrapnel says will number 15,000 by June next year…
But is the state headed for a nasty fall? The pundits say no. Continued high immigration levels and low interest rates, along with a slowing in production will see prices dip, but not take a tumble.
“You’re looking at a 12 per cent to 13 per cent fall in real terms over three years,” says BIS Shrapnel associate director Kim Hawtrey. “That’s state-wide. Falls in inner Melbourne apartments will almost certainly be sharper than that. But it’s a correction, not a calamity”…
There are already some signs of a downturn. In the March quarter, the proportion of Melbourne units selling for less than their purchase price stood at 10.4 per cent, higher than the capital city average of 8.1 per cent, CoreLogic RP Data says.
Figures last month showing a surge in deaths and a slowdown in births and immigration has placed a cloud over official growth forecasts and suggests housing market forecasts may be too optimistic.
Below is a chart plotting Victoria’s overall dwelling construction against population growth:
And here’s another plotting the rate of approvals – houses, units and total – per 1,000 residents:
Both are at unprecedented levels, and it is hard to see how things will end in a mere whimper, especially with population growth likely to fall from here.
More broadly, the true nature of the Victorian ponzi economy is on display. The state’s entire economic model is based on importing hordes of people and then building homes for them and selling them services (e.g. cappuccinos). Such a model is like a dog chasing its tail, and will fall apart as soon as the music stops – i.e. immigration and dwelling construction falls.
Meanwhile, existing residents are facing ever-declining living standards as the flood of people continually pushes up against infrastructure capacity constraints, creating bottlenecks and worsening congestion.
This is no way to run an economy.
