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Competition between Sydney and Melbourne’s housing sector heats up

Melbourne and Sydney are notorious rivals; who can claim the title as Australia’s best city, who has the best entertainment and where you can find the best sporting events going.

Over the last few years both property markets boomed, and more recently both slowed down. But now a big discrepancy is emerging in the supply and demand ratios for our 2 biggest capitals

According to an article in The Sydney Morning Herald, the housing supply imbalance between Sydney and Melbourne is substantial. While the Harbour city struggles to keep up with sufficient new home construction to house its bulging population, industry experts are predicting an impending oversupply in Melbourne as a glut of new apartment stock gets set to come on line in the next few months.

According to latest figures from the Australian Bureau of Statistics, Sydney’s population was sitting at 4,575,532 as at June 30 2010, with NSW’s overall head count recorded at 7,272,200 in December. In contrast, Victoria was home to 5,585,600 residents and Melbourne’s population was 4,077,036.

However over the last twenty years, building levels in NSW have been trending downwards, even as the local population has continued to climb.  Between 1990 and 2000, a total of 455,276 new dwellings were constructed in New South Wales, compared to just 348,803 built over the decade between 2000 and 2010.

And although the number of households grew by 159,388 in NSW between 2006 and 2010, during the same period only 141,618 new homes were built; a shortfall of almost 20,000 new dwellings.

On the other side of the coin, construction of new residences in Victoria has continued to grow rapidly. Between 1990 and 2000, 304,541 new dwellings popped up in the garden state, but between 2000 and 2010, this increased markedly to a total of 421,501 new homes.

Data indicates an excess of almost 65,000 new residences built in the past five years alone for Victoria, with construction of 211,381 dwellings outstripping the number of new households formed at 146,980. Last year a record 50,700 new homes were built in the state, whereas almost half that number were constructed in NSW – just 27,655 – and this growing divide is set to continue.

New dwelling approvals for Sydney were recorded at 20,756 between July 2010 and June 2011, with only 7,534 of these for new houses specifically. In comparison, Melbourne saw new dwelling approvals for 22,161 houses and an additional 44,102 dwellings in total for the same period.

The ABS projects household growth in Sydney of 27,012 for the year ending June 2011, with Melbourne outpacing their northern neighbor with forecast household growth of 29,114.

Clearly the current level of new dwelling construction in Sydney is insufficient to keep up with household growth, whereas Melbourne is in a much better position to cater for the accommodation needs of growing household numbers.

So what does this mean for the two city’s respective property markets?

Well if past trends are anything to go by, it’s likely we’ll see an increased tightening of both owner occupier and rental stock in the harbour city as the supply demand imbalance continues to worsen. In turn, this could see the city’s already serious affordability constraints become even more of an issue in years to come as upward pressure is applied to house prices and rentals.

On the other hand, Melbourne will become increasingly attractive to homebuyers and tenants alike as they are provided with more accommodation options and moderated competition, which will in turn assist in keeping house and rent prices growing at a more sustainable pace.

Diversity in housing stock will also increase Melbourne’s appeal, with ongoing new home construction in outer urban corridors providing affordable housing options, as well as inner urban medium and high density stock such as townhouses and apartments.

In the meantime, many industry analysts are forecasting a sharp rise in Sydney house prices and rentals, as the dwelling undersupply the city is already facing worsens over the coming years. This prediction is well on its way to playing out, with median rental prices in Sydney already nearly 33 per cent more expensive than those in Melbourne.

While this might be bad news for Sydney home buyers, local investors could be laughing all the way to the bank in the future…just as long as Sydney-siders don’t get too sick of paying exorbitant housing costs and migrate to Melbourne en masse!



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Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and his opinions are regularly featured in the media. Visit Metropole.com.au


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