Demand for 115,000 Dwellings Lost By 2023


Demand for 115,000 dwellings is set to evaporate over the next three years, putting significant downward pressure on inner-city apartment markets.

Statistics from the department of immigration suggests that 310,000 people have left Australia, and a further 300,000 are predicted to leave—while high unemployment and a pause in skilled migration threaten otherwise resilient house price markets.

These indicators, along with declines of as much as 20 per cent for rental prices in inner parts of Melbourne and Sydney, will cause house prices to fall roughly in line with rents, according to research by property consultancy Macroplan.

“We expect to see a range of price declines of between 5 per cent and 20 per cent,” Macroplan executive chairman Brian Haratsis said.

“Perth will show a moderate impact (5 to 8 per cent), apartments in inner-Sydney suburbs like Darlinghurst will fall 12 to 14 per cent and apartments in Southbank in Melbourne will [decline] 18 to 22 per cent.”

Macroplan forecasts that Melbourne will lose 38,000 dwellings and Sydney 39,000 during the next 18 months.

Importantly, the demand will be “lost” and not simply kicked down the road when the market turns positive, due to policy caps on migration.

“The government would have to release [migration program] caps and increase migration by the same again, which they will not do because unemployment will be too high,” Haratsis said.

“It is an interesting formula.”

As the pandemic elicits a wide variation in house price forecasting—from headline-grabbing bearishness to naive bullishness—Haratsis says there may be cause for concern in inner-city Melbourne and Sydney.

“The one market to look out for is the inner-city apartment market.

“Since 2015 approximately 25 per cent of off-the-plan sales were valued at 20 per cent less than the purchase price. They have only been affordable to own because of the rent they are delivering.”

The fulcrum, Haratsis points out, will be the banks—when the stimulus falls away, rents stop and re-valuations begin to occur.

“Banks don’t want to see a run, or set off a contagion effect, which could break confidence in the housing market and set a momentum for declining prices.”

AMP chief economist Shane Oliver said that immigration has been an especially important factor in housing demand.

“The engine of Australia’s economic growth has increasingly been our increasing population, fuelled by immigration.

“There is a risk that prices will fall further if Melbourne remains locked down and Sydney follows.”

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