Unit prices set to boom in 2024 as demand soars, supply languishes
With housing supply failing to meet demand and the cash rate potentially easing in 2024, greater purchasing power could fuel a price boom in the unit market into next year.
Soaring overseas migration is driving rents and property prices higher at a time when land and unit supply is failing to meet demand.
The most populous states on the east coast are attracting the bulk of new residents but it this population boost that has coincided with a large decline in vacant land settlements, a lack of new housing supply and builders struggling to even keep up with a workload that goes nowhere near addressing the housing shortfall.
The housing supply deficiency has seen unit rents skyrocket.
Melbourne’s South East and inner suburbs, Sydney’s Inner South West, and Parramatta saw the highest net overseas migration levels.
Capital city unit rents recorded a new record high annual growth rate over the year to May (16.5 per cent) before easing slightly over the 12 months to August (14.9 per cent).
Units are steadily making up a larger portion of Australia’s housing stock.
In August, CoreLogic estimated that units made up 25.9 per cent of national housing stock and around 30.4 per cent of capital city housing stock, up from 19.6 per cent and 22.9 per cent at the start of 2010, respectively.
Kaytlin Ezzy, Economist, CoreLogic, said the majority of recent long-term migrant arrivals rent before buying.
“The impact of this additional demand has already been seen in the rental market.
“While worsening rental affordability has seen the pace of unit rental growth ease in recent months, unit rents are likely to remain elevated for some time, especially with net overseas migration expected to remain high through 2023 and 2024,” she said.
The upshot is that unit prices may soar as interest rates level out and demand for affordable accommodation and high yield investment properties lifts.
“In the face of rising demand and record low interest rates, the early 2020s have not been marked by the same uplift in unit construction.
“At the moment, an elevated pipeline of units under construction, high interest rates and low consumer sentiment could temper unit demand and price growth but once the pipeline is worked through, Australia faces a relatively low number of approved projects, which may create a temporary vacuum in new unit supply.
“With the cash rate potentially easing in 2024, greater purchasing demand could fuel a stronger price boom in the unit market at this time.”
New land, old problems
As building activity struggles to meet housing demand, a lack of greenfield development is only exacerbating the supply issues fuelling Australia’s housing crisis.
Highlighting the imbalance between land supply and demand, new research published Wednesday (26 September) by PEXA and Informed Decisions has found that local government authorities (LGAs) in NSW and Queensland would need to build thousands of new units to meet forecast demand in the next five years, with only Victoria currently releasing enough new land to meet dwelling growth over the next five years.
With the release of greenfield land for new housing one of the most important factors for addressing the affordability crisis, their research revealed that settlements on new residential land fell across all three eastern states to 73,901 in the last financial year, a fall of 13.6 per cent.
At the same time, continued demand has resulted in a steep rise in the cost of vacant blocks in all three states, with the median in Greater Sydney closing in on $500,000 for the first time. This meant the total value of settlements across the three states fell slightly less than total volumes – about 7.4 per cent to $36.8 billion.
PEXA Head of Research, Mike Gill, said their report highlights that Australia cannot rely solely on greenfield developments on the urban fringes to meet the housing demands of a growing Australia.
“The clear conclusion we can draw from the latest data is that there is a lot of room for improvement if we are going to meet the demands of a growing population – either by releasing more greenfield land or accepting that we will need to build more apartments in our urban centres.”
Ivan Motley, Founder of Informed Decisions, said infill in the cities was the key to addressing the undersupply of new homes.
“Densification in our established urban areas is a necessary part of the housing mix if we are to meet the demands of Australia’s forecast population growth with the supply of affordable and appropriate housing, infrastructure and services that create well-supported and integrated communities.
“In the post pandemic era, the role our cities play as the epicentre of housing supply and demand is more important than ever,” he said.
Average days from settlement were highest in Victoria, increasing to 385 days in FY23, up from 243 days in FY22. NSW and Queensland were quicker to release land, with buyers waiting an average 275 days and 156 days respectively.
NSW experienced the weakest new land supply, with just 15,828 vacant land settlements recorded in FY23 (down 16.4 per cent), well below forecast dwelling growth.
The greenfield LGAs with the greatest need for more medium to high density housing in the next five years are Brisbane in Queensland (5,035 units required) and Blacktown (1,527), Liverpool (1,135) and Camden (1,614) in NSW. Most greenfield LGAs in Victoria are meeting or close to meeting dwelling forecasts.
Queensland was successful in delivering land to market, with 24,226 vacant land settlements in FY23 (down 16.2 per cent). However, the land released in many key greenfield LGAs, particularly in fast-growing Southeast Queensland, was below forecast dwelling growth.
Perth is also running out of greenfield land and is facing a shortfall of 20,000 homes.
Gold Coast a glaring example of housing shortages
On the Gold Coast, industry is warning that growing worker hubs are stretching the housing market to breaking point.
The Queensland Government has projected a population increase of 381,200 on the Gold Coast by 2046, prompting Queensland-based property development company Eastmountain to lodge a submission, as part of the draft Shaping SEQ 2023 Update consultation process, urging the state government to reconsider a lack of new residential expansion areas on the Gold Coast.
Eastmountain General Manager, Stephen Webster, said expanding the Urban Footprint (expansion area) on the fast-growing, economically significant northern Gold Coast would be a highly logical solution to addressing skyrocketing housing demand and dwindling supply.
“While the draft Shaping SEQ 2023 Update identified an industrial-focused Potential Future Growth Area at Stapylton, no additional land was earmarked for housing on the Gold Coast despite the estimation that 158,100 new homes would be needed for its surging population by 2046,” Mr Webster said.
“The potential future injection of even more workers to a pipeline of thousands across the Yatala Enterprise Area, Steiglitz Northern Marine Precinct and new Coomera Hospital would likely be undermined by not having sufficient well-located residential land to support it.”
