MARKET REVIEW

Constrained supply an increasing factor in property market

A return to growth for Australian real estate may have been foreseeable, given three interest rate cuts, greater federal political stability and the easing of lending restrictions. However, the sheer pace of the current recovery, especially in the Sydney and Melbourne property markets, has caught many by surprise.

In October, Melbourne’s average dwelling price rose 2.3% according to CoreLogic figures, while Sydney’s rose 1.7%. All up, property prices have now risen 5.5% over the past three months in Melbourne and 5.0% in Sydney. That means this is now the strongest post-slump rebound in memory, easily surpassing the 1.2% quarterly rebound that followed the 1994 market low.

While the ‘demand-pull’ factors we’ve already mentioned are playing their part in lifting prices, what’s often underestimated is the role ‘supply-push’ factors are playing in driving these new market conditions. In short, there are simply not enough properties for sale.

The traditional Spring surge in listings did not gain momentum in 2019. CoreLogic data showing stock levels 12% lower nationally than a year ago – the lowest point since the Global Financial Crisis. This lack of stock is particularly acute in Sydney, where 20% fewer homes were listed for sale compared to a year ago.

Residential construction is needed to fill this gap but right now, but it simply isn’t happening quickly enough. The latest RLB Crane Index shows the number of cranes operating in Melbourne actually declined over the September quarter – the first fall in three years. Sydney gained just one crane associated with residential development over the same time period.

As the populations of both Sydney and Melbourne continue to grow, it’s likely that the gap between demand and supply may be here to stay for some time. As long as that happens, the lending environment for residential development will also remain extremely positive.