Apartment construction crash means rising rents


CBA economist Harry Ottley published the following chart showing how rental growth is highly correlated to the ratio of population growth to new apartment construction:

Housing supply and rents

The news on this front is disastrous for renters, with approvals for the construction of new apartments plunging to their lowest level since February 2012:

Apartment approvals

Annual high-rise apartment approvals were running 59% below their peak in February, whereas low-rise apartments were 86% below their peak:

High-rise apartment approvals

The above charts signal that apartment construction will continue to fall in the period ahead, in part due to the surge in construction costs since the pandemic began:

Construction costs

At the same time, Australia’s population growth has surged and is anticipated to remain at historical highs over the foreseeable future.

Australian population change

Strong population demand and falling supply can mean only one thing for Australian renters: more misery.

Rental vacancy rates will remain historically tight:

Rental vacancy rate

And rental inflation will remain strong, causing more financial pain for tenants and forcing more Australians into shared housing or homelessness.

Capital city rents

It is an inequality disaster in the making.

About the author
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.