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Certain property markets will stay strong

There has been a lot of speculation in recent weeks that the Sydney and Melbourne property markets have had their day in the sun.

There has been a lot of speculation in recent weeks that the Sydney and Melbourne property markets have had their day in the sun.

Many market commentators believe these markets are now officially ‘cooling'. And while preliminary data from CoreLogic shows property value growth in these two capital cities is starting to soften, the fact remains that prices continue to rise.

Over the 12 months to April 2016, Sydney values climbed by 7.4%, while Melbourne's property values soared 9.8%.

The housing market, like any other market, is fundamentally driven by supply and demand – and recent research would suggest demand remains incredibly strong.

According to data from the Australian Bureau of Statistics, Australia's population grew by more than 317,000 in the 12 months to June 2015 and these people need somewhere to live.

It was estimated that Australia needed to build at least 170,000 homes in 2015 in order to keep pace with demand.

And while data from the Australian Bureau of Statistics shows 189,000 residential dwellings were completed in 2015, this was the first time in a very long time that supply has actually come close to meeting demand.

That being said, the data clearly shows that supply was just as strong as demand in 2015. However, while there was a lot of supply coming onto the market last year, we have to question whether or not the supply type was right.

Research conducted by the Australian Population Research Institute found a significant portion of the properties being constructed are small, high rise apartments that appeal to a limited market.

In Australia, we are wedded to the idea of the family home being several bedrooms, a couple of bathrooms, and a big backyard all on its own block of land.

For supply to keep pace with demand, what we need to see is a significant number of houses being built.

Unfortunately, this doesn't seem to be the type of construction that is happening in strong supply. Instead, as the data suggests, we are seeing a lot of apartments under construction across the various capital cities. And while some are happy to live in these newly built, state-of-the-art apartments, others are not.

Simply put, the supply we are getting is not the supply we need.

And, whilst ever the supply type isn't right, it is likely we will continue to see prices rising across some of the more desirable property markets and property types – such as houses. 

Posted in: Property market

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