Biggest issue in real estate is not shortage - it's the opposite
Recent reports from economic forecaster BIS Shrapnel have brought some strong counter arguments to a couple of real estate’s biggest furphies.
It has disputed claims that “the boom is over” and it has presented views which contradict the general party line from the property industry that there’s a chronic housing shortage.
The “boom is over” stories were prompted primarily by figures for May from RP Data, which indicated some price decline – the third time in the past eight months that the same source has prompted claims of impending downturn, only to be submerged by later figures showing further growth.
What odds that the June figures will show resurgence, thereby rendering those earlier predictions redundant?
As Louis Christopher of SQM Research commented recently, people and organisations making outlandish claims for publicity reasons generally rely on “the community’s collective amnesia” to cover their tracks.
BIS Shrapnel said it believed the “boom is over” claims to be rather premature for Sydney, with the apartment market in particularly to remain strong.
The forecaster’s latest report, looking at price growth up to 2017, sees price growth eventually tapering off in some cities, with an oversupply of dwellings a major contributor.
That’s a useful observation, in the light of constant claims from the building and development sector about a “chronic housing shortage crisis”.
Claims from political entities like the Housing Industry Association and the Urban Development Institute of Australia about a serious shortage, never supported by any definitive data, are always followed in the next breath by a wish list of actions demanded from government, all of them highly beneficial to builders and developers.
It’s easy to believe that some organisation concoct convenient “research” to support an argument that governments need to make life cosy for developers – release lots of land, speed up approvals, reduce infrastructure charges and eliminate unwelcome taxes – all motivated, you understand, by a desire to provide cheap homes to needy people.
As I’ve often remarked, the biggest noise in real estate is the voice of vested interest.
Recently the UDIA in NSW was shallow enough to urge government not to provide assistance to first home buyers because it would unleash unsustainable demand that the industry couldn’t meet because of the chronic shortage.
The UDIA wants us to believe its members are standing on the sidelines, desperate to provide new homes to a clamouring public, but rendered impotent because developers don’t own any land on which to build, because none is available. It’s laughable but that’s the line they keep running.
The evidence is that the biggest issue in real estate is not shortage, but the opposite.
Many of our inner-city markets have oversupplies of apartments, led by Melbourne where the situation is serious and destined to get worse. There are legitimate concerns about Brisbane, Canberra, Perth and Darwin.
Sydney doesn’t have an apartment oversupply yet, but within two to three years it’s likely to have a big one.
Most of the boom markets which sprung up around resources related towns and regional cities are now in marked decline, caused by over-building by developers. In that category are Gladstone, Mackay, Emerald, the Bowen Basin coal towns, several Surat Basin towns, the Hunter region of NSW and several mining towns in Western Australia.
The Gold Coast has just emerged from five terrible years caused by oversupply and now, just as growth returns, is working hard on generating the next big apartment glut.
The BIS Shrapnel report which forecasts price movements in major city markets over the next three years, sees Melbourne prices eventually going backwards, largely because of the oversupply I mentioned earlier.
It sees similar problems in other major cities, although not so much for Sydney and Brisbane.