Increased supply eases pressure on Victorian house prices

The latest report by the federal government’s National Housing Supply Council provides one indication of the current state of the Victorian residential property market. 

Over the last two years the council’s estimated gap between underlying supply and demand has reduced from a revised 18,000 in 2009 to just 10,000 in 2011. 

This shows that supply and demand are very close to being in balance in Victoria and is one reason why pressure on house prices has eased. 

While the market is also affected by a range of other factors – the rate of economic growth, unemployment, interest rates and levels of consumer confidence – if there is a shortage of stock, this also results in pressure on prices.

The strong price growth between 2005 and 2010 was, in part, due to high levels of population growth and a shortage of supply.

The report now shows that the gap between the underlying demand and supply has eased, primarily because the number of new homes being constructed has increased. Dwelling completion data from the ABS shows that in the two years to the 2011 December quarter, 30% homes were built than in the preceding two years.

On current projections, it does not appear that Victoria will face a critical undersupply of housing stock in the medium term.

The council’s report also highlighted the lack of affordable housing, particularly in the rental market. Rents continue to increase at a time when there is very little growth in overall house prices.

The latest projections from the council need to be considered by the state government as it plans for new land releases and the city’s growth over the next decade.