SQM Research‘s released its latest news and views on vacancy rates and asking rents in Australia here – always well worth a read! – with capital city vacancy rates nationally ticking down from 2.4 per cent to 2.3 per cent in August.
SQM found that vacancy rates have increased strongly in Darwin (+2.0 per cent to 3.5 per cent) and Perth (+1.1 per cent to 3.7 per cent) over the past year.
However, SQM also found that vacancy rates ticked down slightly across most capital cities in August
Given the strength of the dwelling supply response one would be forgiven for thinking that vacancy rates might have increased in Sydney and Melbourne over the past year.
Yet this has not played out in either case, with city-wide vacancy rates declining to just 1.7 per cent in Sydney and 2.2 per cent in the Melbourne property market respectively (from 2.6 per cent one year ago in the case of Melbourne).
SQM’s data showed that while rents in the largest capitals had increased ahead of the headline rate of inflation over the past year, asking rents for houses in Darwin have crashed by -21.3 per cent, while asking rents for houses in Perth were also down by -8.1 per cent.
Asking rents for houses were up strongly in Hobart (+6.7 per cent) as the market tightens, with vacancy rates in the Tasmanian capital now at just 1.1 per cent.
Despite very strong levels of approvals and construction, vacancy rates have actually decreased in Sydney and Melbourne over the past year.
One of the clues might be found in the ABS Population by Age & Sex data which I analysed recently here.
And that is that population growth has become increasingly focused on the inner and middle ring suburbs of the largest capital cities, both cause and effect of the nature of the supply response through this cycle, as well as emerging employment trends.
For example, see the headline 2009-2014 data for Greater Melbourne…
…and, to a somewhat lesser extent, Greater Brisbane.
There is, however, still a high volume of apartment approvals in the pipeline in all three of largest capitals.
As the above charts show over the long run the population growth to absorb the new supply has been evident, while much of the new high rise stock isn’t that appealing to homebuyers in any case.
Meanwhile, driven by a Sydney economic boom the New South Wales economy has added a thumping +118,800 jobs over the past 12 months.
It should therefore be little surprise that interstate migration away from the Premier State had recently declined to its lowest level on record.
Overall, not much sign of rising vacancy rates in the two largest capitals in this release, but SQM’s Louis Christopher does see vacancies rising over the year ahead.
And I agree, with the strength of the dwelling construction cycle underway this must surely be the case.
On a related note, dwelling construction surprisingly detracted from GDP growth in the second quarter, which would appear to be an anomalous result given the veritable forest of cranes on the city skylines.
While I’m not in the business of issuing flash forecasts for GDP – a fool’s errand if ever there was one – it wouldn’t be a surprise to me to see dwelling construction and a positive reversal in net exports (and possibly, inventories) leading to a +0.5 per cent result for Q3, before quarterly growth of +0.7 per cent returning for the next few quarters thereafter.
That said, whether or not household consumption and public/government investment can continue to produce the positive contributions that they did in Q2 is another question.