Australia | Apr 16 2007
By Chris Shaw
The tightening of the property rental market being experienced in New South Wales in particular has a relatively simple explanation – there just aren’t enough houses being built. The latest data from consultants BIS Shrapnel supports this conclusion, as the group notes national dwelling commencements are still not meeting underlying demand.
The group’s "Building Industry Prospects" April bulletin shows the number of commencements fell 4% Australia-wide in 2005/06 to 150,577, while its forecast is for 2006/07 to show a further 3% drop to 146,400 before steadying in 2007/08.
This compares to underlying demand, which the group estimates will increase to more than 169,000 new dwellings annually over the next five years, thanks in large part to strong overseas migration. It is this migration that is helping push up rents, as the lack of new commencements and the related decrease in affordability gives many people little option but to rent rather than buy.
BIS expects further rental gains given the tightness of the market, which in turn should bring money back into the investment property market. There are early signs of this occurring in Queensland, though the group doesn’t expect a sustained recovery in either the New South Wales or Victorian markets until 2008/09.
Having led the way in recent years the group sees some declines on the horizon in the Western Australian market, as affordability has fallen sharply and is likely to result in a fall in dwelling construction in the next couple of years.
Looking at each state in more detail, the group expects dwelling commencements in New South Wales to drop by 9% in 2006/07 to 29,150, though there should be a solid rebound in 2007/08.
Similarly the group expects commencements to decline by 5% this year in Victoria and by a further 2% in 2007/08, while in South Australia a steady outcome is expected this year followed by a decline of around 8% in 2007/08.
Queensland looks set to record a 3% gain this year and a further 5% increase in 2007/08, while Tasmania should beat this with a 13% lift this year but give back much of that increase the following year.
In contrast, Western Australia is forecast to record a 3% fall this year and an 11% decline next year, while the Northern Territory is expected to show a 19% fall this year but a 9% gain in 2007/08. A similar gain is predicted for the Australian Capital Territory for 2006/07.