ANZ: Construction bust to trigger housing shortages

ANZ forecasts that Melbourne and Sydney are facing housing shortages as dwelling construction plummets amid ongoing strong population growth:

ANZ analysis said that there is little sign so far that higher prices for established homes are driving a pick-up in construction…

According to senior economist Felicity Emmett, the decline in approvals suggests that construction will continue falling and will not pick up until mid-2020.

“That fall will feed through to housing supply, and vacancy rates are set to decline over 2020 and 2021,” she wrote in a research note on Wednesday.

“Across the two major capital cities, the shortage of housing looks likely to be more marked in Melbourne than Sydney”…

“Given the increased share of apartments in the housing mix, and the longer lead times associated with apartments, the lags are likely to be longer than past cycles might suggest,” it said.

“This could mean that housing cycles become more pronounced over time, with higher highs and lower lows (for both construction and prices).”

ANZ is correct that a structural housing shortage is coming, but its forecast of a construction rebound mid next year is way too optimistic.

Dwelling approvals and commencements have collapsed, meaning that construction will likely fall into 2021:

Growing concerns over apartment quality, alongside growing developer bankruptcies, will also prevent construction from rebounding. Thus, we are looking at a protracted construction downturn.

Even if buyers do miraculously return to off-the-plan properties, it will take at least 18 months for a construction rebound given the long lead times between apartment approvals and completions.

Leith van Onselen

Comments are hidden for Membership Subscribers only.