The Reserve Bank of Australia (RBA) recently reported that a total of 16,000 apartments will be completed in inner Melbourne over the next two years, creating fears of a glut of high rise stock.
As at the end of June 2016 there were 66,671 dwellings under construction in Victoria, including some 46,676 attached dwellings, with the completions just beginning to flow in (apartment commencements in the state actually peaked all the way back in Q3 2015).
The contrarian in me takes the view that when everyone has become certain of something, maybe it’s time to look at a few alternative angles.
Build & they might come
I must admit, Melbourne is not my favourite of the capital cities, so it’s a bit of a mystery to me!
Obviously, this dynamic must be driven by strong employment growth.
Compare this to some of the historic annual increases in Victoria’s population, such as the year to March 1994 (+7,754), or the year to December 1997 (+33,252).
Absolute population growth in FY2016, wasn’t just a bit faster than the long run average, it was on another planet at well over double the long run average.
If numbers of this magnitude are sustained, while a temporary oversupply of certain property types and in certain locations is of course possible – largely new high rise apartments – in aggregate, even with an industry operating at close to capacity the notion of an ‘oversupply’ becomes all but obsolete.
Don’t get me wrong, I’m not saying new, high rise apartments are a good investment.
They aren’t, and never have been.
But looking at the astonishing growth in international students in this month’s figures, it’s at least worth considering whether Tim Gurner’s argument that parts of suburban Melbourne are becoming undersupplied (widely treated with derision) may have a grain of truth in it.
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