Sydney apartment construction hubs need close monitoring by investors: Pete Wargent

Sydney apartment construction hubs need close monitoring by investors: Pete Wargent
Sydney apartment construction hubs need close monitoring by investors: Pete Wargent
It has long been apparent that since 2005 Sydney has not constructing enough dwelling stock to keep pace with the city's burgeoning population growth, which would inevitably lead to a surge in prices.



Only from 2014 has this finally begun to be addressed, by construction ramping up to a pace somewhat more appropriate for the massive and ongoing surge in headcount.
 
 
However, it should be emphasised that data released last week showed the population growth of New South Wales is still tracking at 106,400 per annum, which in absolute terms is the greatest population growth in the country. 
 
By the time the Q4 2014 data has washed through, it seems likely that Greater Sydney's population increased by close to ~90,000 persons in 2014.

Housing finance soaring

Contrary to what you might think, my analysis of the latest Housing Finance data showed that the number of owner occupiers buying into the Sydney market presently remains well below the levels seen in the preceding boom period (and in population-adjusted terms today's figures would be comparatively lower still).
 


However, what is certainly the case is that since the middle of 2013 the prices that Sydney homebuyers have been prepared to pay have been rising very sharply.



Meanwhile, investors became wise to the supply shortage and began piling into the market in record numbers. The volume of investor loans is now breaking new highs by the month.



Stock levels remain muffled

Despite rising prices, data compiled by SQM Research has shown that the level of stock on market remains below where it was a year ago, and far beneath the stock on market levels of the only equivalently sized Antipodean city.


We are now at last beginning to see the first impacts of new developments coming online, with a further ~25,000 apartment approvals for Sydney in the past 12 months, and dwelling completions also just beginning to hit their straps.



At the present time vacancy rates in Sydney remain significantly lower than where they were in 2004 at the end of the preceding boom period.

 
However, vacancy rates are finally being nudged higher around a few key construction hubs, which will put upwards pressure on apartment vacancy rates and an equivalent downwards pressure on unit rents.
 
These include certain suburbs in the inner west (Erskineville), the inner south (Mascot, Green Square), north Sydney (Chatswood, North Sydney), and The Surrounds of Olympic Park (Homebush Bay, Rhodes), to name a few.

For all that, we do need some perspective here.

Nationally, building approvals have smashed an all-time record high at more than 200,000 on a rolling annual basis. Of these, Greater Sydney has approved 25,440 units and 13,337 houses in the past 12 months. 
 
That's a jolly good start. Yet even if every single one of those 38,777 approvals makes it through to completion - which they won't - then in aggregate even this will barely make a dent in Sydney's inherent supply shortage.
 
Sure, there are doubtless dozens of vacant apartments up for rent way out at Australia Avenue. But what impact will this have on what is happening in the more popular established suburbs? Probably somewhere close to zilch, because of the diminished level of substitutability.

It has been estimated that Sydney needs some 130,000 new dwellings. I'm not so sure about that, but I do know that it will take more than a few strong months of building approvals to redress an imbalance which was nearly a decade in the making.

Dwelling prices rising

Unsurprisingly, CoreLogic-RP Data records Sydney home values as rising strongly. Its "Daily Home Value Index" has historically tended to record a mid-year dip which invariably leads to misplaced excitement, so we might expect to see prices on this chart dwindle across the next month or two.


This weekend was the busiest auction weekend ever in Sydney with more than 1,100 properties scheduled to go under the hammer ahead of the traditional Easter break.
 
All the way back in August 2013 Australian Property Monitors (now under the Domain banner) reported that the auction market had shifted seamlessly from "red hot" to "white hot".
 
This weekend's preliminary result busted all previous records with a massive 87.5 percent clearance rate reported. Domain circumvented the auction heat/pigment conundrum by simply declaring the market as the hottest it has ever seen. The Sydney Morning Herald reported:
 
"The Domain Group senior economist, Dr Andrew Wilson, says he's "absolutely astonished". "This could not have been rationally predicted – the highest clearance rate on the biggest auction day ever. This is the hottest of hot auction markets ever."
 
The good Doctor Wilson has courted a little controversy with the introduction of his divisive "Countdown to Sydney $1,000,000 median house price" counter Pictured below). Based upon current market trends, Dr. Wilson sees this as being 442 days away, though after this weekend's auction frenzy the $1 million median house price may hover into view sooner still.
 

 

Pete Wargent

Pete Wargent

Pete Wargent is the co-founder of BuyersBuyers.com.au, offering affordable homebuying assistance to all Australians, and a best-selling author and blogger.

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Sydney

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