Melbourne facing apartment under-supply by 2018

Melbourne’s population is growing faster than expected, meaning there may not be enough apartments to cater to demand, according to global advisory firm BIS Oxford Economics (BIS).

Their findings are based on recent Census figures which show that Victoria had 109,000 more people than the firm had previously expected.

“If you translate that into households, it’s close to 35,000 extra households in Melbourne,” BIS Managing Director Robert Mellor told The Australian Financial Review on Wednesday.  

This surge in population growth means the city may be facing an under-supply of apartments by 2018.

“We thought it would get to a 20,000 excess [of apartments] in Victoria by 2018. We’re now saying in 2018 the market has still got an under-supply of about 2000 dwellings. We’re talking a 20,000 turnaround,” Mr Mellor said.

BIS predicts that new apartment commencements in Victoria are in the process of shrinking from a 2015 peak of approximately 19,800 to just over 7,200 in 2021.

Property investment in Melbourne

Mr Mellor said the continuing restrictions on new supply would push rents higher. He also added that Sydney and Brisbane would also suffer a decline in new housing starts, however, Victoria was the east-coast capital most likely to suffer an undersupply of apartments.

“This forecast is in line with our expectations,” said Ironfish National Apartments Manager, William Mitchell.

“Melbourne’s vacancy rate is currently sitting at an incredibly tight 1.7% which has resulted in rental growth of 5.4% over the past 12 months. To exacerbate this situation, Melbourne is facing a greatly reduced supply pipeline as a result of new planning restrictions, tightened lending conditions for developers and greater taxes for foreign purchasers. If this scenario continues to play out, it is expected the Melbourne market will become more unaffordable.

“With Melbourne’s population anticipated to surpass Sydney’s by as early as the mid-2030s, many investors, particularly from Sydney, are seeing Melbourne as a relatively affordable market and seizing on this opportunity – as in time, acquiring property in Melbourne will be out of reach for many Australians.”

For further insights into where to invest in Melbourne and market performance , please download our quarterly market update.

If you are considering buying investment property in Melbourne, and would like further details on current investment opportunities, please contact your local Strategist.

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