Assumed apartment abundance could turn to undersupply, but Brisbane a worry: BAML

A record number of new apartments set to hit the market this year in capital cities was unlikely to trigger a property price collapse, Bank of America-Merill Lynch economists say.

The already moderating property market will instead lead to fewer housing starts which will mean there was a prospect of an undersupply by 2020.

"The stage is being set for the next property cycle," BAML economists Tony Morriss and Alexandra Veroude suggested in a recent research note.

"Forget oversupply," they write, urging their clients to look beyond this year's headlines.

There are "risks of undersupply brewing" with building approvals having peaked in 2015.

The current assumed abundance of new housing will flip to scarcity by 2020, the BAML economists advised according to a report in The Australian Financial Review.

"With population growth expected to keep underlying housing demand robust, we see underlying demand outpacing supply in Australia's largest housing markets, New South Wales, Victoria and Queensland, from 2020," they wrote.

"Laws of supply and demand suggest that house price pressures would be expected to build from this time."

"Our analysis supports our view that any oversupply now, with Brisbane of greatest concern, should not create large imbalances over an extended period and present as a risk to financial stability."

"To date, settlement defaults remain low and, given our analysis, we do not expect settlement defaults to rise significantly - particularly in an environment where the economic outlook is strengthening and the labour market is tightening," they wrote.