Last week I wrote about my concerns with what appears to be a emerging over supply of units in Brisbane. What's the big risk for the Brisbane market.
BIS Shrapnel has made similar observations this week suggesting we are building the wrong thing. Too many units and not enough detached housing. With the potential for a 10% fall in prices.
Melbourne, Brisbane each face glut of 15,000 apartments within two years, BIS Shrapnel predicts
Australia will run into a glut of apartments in just two years led by Melbourne and Brisbane - but other cities including Adelaide are also building more than they need, research house BIS Shrapnel predicts.
By June next year, the country is likely to have more than 74,000 apartment completions, which is 5000 more apartments than it needs. In Melbourne, which faces a surplus of 15,000 apartments, prices are likely to fall 10 per cent over the next three years, BIS Shrapnel says.
The predictions, which show an aggregate stock overhang even as Sydney continues to be underserved on higher-density dwellings, lay bare the uneven nature of Australia's house-building economy. By June next year, the NSW capital will still have a deficiency of nearly 30,000 apartments.
Having led the growth of high-rise dwellings on a scale not yet seen, Melbourne's construction industry needed to change tack to avoid being hit by the glut, said BIS Shrapnel associate director Kim Hawtrey.
"Now is the time to start sounding the alarm," Dr Hawtrey said.
"We're probably building too many apartments and not enough detached houses and we may find we have an unbalanced result in a couple of years' time. We need to increasingly re-orientate the housing recovery to build more detached houses and fewer attached dwellings."
The figures that predict 74,159 attached-dwelling completions in the year to June 2016 include townhouses and semi-detached dwellings as well as apartment buildings of four storeys' height and above. But the glut "essentially" would be in high-rise, as this was a component of the market most driven by local and offshore investors, Dr Hawtrey said.
Brisbane's voracious appetite for apartment construction has resulted in a stock surplus that dates back at least to 2006, but that glut is about to triple from 5000 from last financial year to 15,000 by next year, BIS Shrapnel says.
Adelaide's oversupply of apartments, which has been constant at 6000 for the past three years, is likely to grow by a third to 8000 by June next year.
The glut of high-rise dwellings contrasts with a continuing shortage of detached dwellings. Even with completions of detached houses ramping up, the country will face a shortfall of 56,207, BIS Shrapnel predicts. NSW will have a deficit of 25,000 detached houses on top of its apartment shortfall, but Queensland will also have a detached house deficit of more than 20,000 dwellings. SA will have a deficit of about 1500 detached houses.
WA will also have a deficit by next year of about 6000 houses - down from the current 20,000, reflecting the state's strong production pipeline - and apartment shortfall of 4000, less than half the current figure near 9000, BIS Shrapnel says.
The oversupply of apartments was likely to coincide with a rise in interest rates that was likely to cause the Reserve Bank of Australia's cash rate to rise by about 1 percentage point from the current record-low 2.25 per cent, BIS Shrapnel managing director Rob Mellor said. This would also raise the borrowing costs developers face at a time of weakening demand, he said.
"In percentage terms these are significant increases," Mr Mellor said.
(SOURCE: Austrlian Financial Review)