The Reserve Bank of Australia recently warned that a flood of new apartments hitting major cities would result in oversupply. In Canberra at least, this oversupply has a silver lining: apartment prices are falling, which spells good news for first-home buyers.
According to Nicola Powell, data scientist for the Domain Group, one way of assuaging the capital’s housing affordability crisis is to offer apartments as an affordable alternative to detached homes.
The ACT is experiencing solid unit building approvals, increasing by 53% to a record high of just over 4,836 approvals throughout 2016, according to the latest data from the Australian Bureau of Statistics.
The federal capital has experienced two consecutive years of record-high unit starts, which increased by 41.4% last year.
“Our city is diversifying and changing as a result of this extensive development, and there are no signs of slowing,” said Powell. “[However] stating there is an apartment glut based solely on building approval data is a fallacy – a bigger picture approach needs to be taken.”
While the data gives an insight into Canberra’s potential stock pipeline, assuming that all approvals would start is incorrect. Numerous factors come into play and developers tend to delay apartment completions due to buyer confidence within specific sub-market localities. Completion lags also mean that this stock is unlikely to have an impact on market behaviour until at least 2018.
“A clear warning sign of current oversupply is that apartment prices have been falling for some time. Low interest rates have supported buyer activity, helping to absorb current supply levels,” said Powell.
The real risk for buyers is a future interest rate rise. If interest rates are hiked aggressively over the next few years, it could negatively impact buyer activity and exacerbate mortgage stress.
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