New housing stock is needed urgently
While yesterday’s release of the latest Australian Bureau of Statistics building approvals figures show dwelling approvals increased 5.4% in July in New South Wales in seasonally adjusted terms, the trend estimate for the total number of dwelling units in the state has shown falls for seven months, declining 2.5% in July.
The trend estimate for the number of private sector houses in New South Wales fell 0.7% in July and has now fallen for five months.
The latest figures illustrate the unsustainable nature of the residential market unless action is taken to address the critical undersupply.
It’s no secret that the housing market is facing a challenging time. Economic uncertainty at a global level has filtered down to the local market and is having a slowing effect.
This slowdown is not only limited to transactional activity, but also to development activity. But the fact remains that, in terms of population growth, the need for an increase in residential development has never been greater.
Around a third of Australians live in New South Wales and in 2010 the state recorded population growth of 1.2% according to the ABS, largely in line with the national average.
Natural population increase and net overseas migration continue to place pressure on the new housing market, which is failing to keep pace. Government intervention is necessary, and the timing has never been more important.
It’s all well and good for government to offer first home buyers stamp duty incentives for off-the-plan purchases on lower priced stock, yet there is comparatively little new stock being developed that the benefits of the incentive program are not being maximised.
The NSW government claims it is committed to supporting young people with their first home purchase, yet the associated costs of developing new residential supply remain a significant barrier to developers.
Government must work with councils to identify and implement a more cost-effective and efficient approval process to get development applications – many of which are still sitting idle –across the line.
Despite the announcement of measures designed to ramp up the level of greenfield development, until excess red tape and issues related to the provision of infrastructure are addressed the shortage of supply will continue to stifle the market.
Declining building approvals is putting upward pressure on rents at a time when vacancy rates are already very low, meaning tenants are being left with very few options.
This trend is also impacting the number of first homebuyers capable of entering the market, as consolidating that all important deposit is a challenge in itself.
In particular there seems to be a severe lack of stock under $600,000 in most Sydney suburbs, which is directly impacting the ability of first homebuyers to gain a foothold in the market.
As the gap between approvals and population growth continues to widen, so too will rents.
Leanne Pilkington is general manager of Laing + Simmons
