Wood Property

New apartment supply under pressure

Need help with your apartment?

As we know, one of the main influences on the future value of existing and new apartments, is the relative movement in supply and demand. Demand is relatively opaque and influenced by many factors. Some logical like population growth, and some less rational. Supply however, is much more predictable and each quarter property research houses provide forecasts on the number of apartments they think will be constructed in each city.

We have tracked the forecast number of apartments to be constructed in Melbourne each year since 2017 and compared it with the actual number of apartments delivered. Every year since 2017 the market has under-delivered the forecast number by about 20%. The apartment supply forecast is based on a risk adjusted weighting of projects in various stages including, under construction, planning approved, in planning and mooted. Considering construction takes anywhere from about 20 months to 3 years, the last 2 years of covid should not have affected the number of apartments completed in 2020 and 2021 save for construction delays pushing out delivery dates.

The significance of this is that the current forecast for apartment completions in 2023 and 2024 is 7,100 and 5,600 respectively (source: Charter Keck Cramer – State of the Market H2-2021). If we apply the 20% “over forecast” factor to these numbers, the actual apartment delivery numbers over the next 2 years would be about 5,600 and 4,500 per year. Compare this to the 90,000 apartments completed in the 6 years to 2021 (15,166 p.a. avg). Predicted demand by the Victorian Government in Plan Melbourne is for 16,000 new apartments per year to meet forecast population growth.

So while demand for apartments has slowed somewhat due to covid, it is likely to rebound quickly as population growth returns to normal.  Supply however will continue to be held back due to the shortage of materials and the rise in construction costs. The AFR this week highlighted the growing risk to construction companies as they come under construction cost pressures on fixed price contracts with Probuild and Condev already falling victim. This will further retard the supply pipeline.

Share your thoughts or questions

Your email address will not be published. Required fields are marked *

Need help with your apartment?

Apartments Made Easy

Written by a 4th generation real estate agent Apartments Made Easy gives you the tools and tells you all you need to know about how to buy, sell, own, lease, and manage your apartment successfully.

Recent Posts

Need help with your apartment?