Crisscrossing Demand and Supply: The Myth of a Balanced Market

Posted by Frank Paul

Australia’s big three cities are some of the fastest growing major cities in the developed world. They are immigrant cities that are constantly contending with very complex supply and demand dynamics, meaning that the system is never perfectly balanced as it is constantly crisscrossing between over- and under-supply. These are the normal market dynamics of a growing city.

In Brisbane, for example, approval rates are dropping (and developers will be pulling projects and mothballing them until the tide turns) as this is how the market self-corrects in situations of over-supply. It is constantly correcting (or over-correcting) one way or another, so whatever developers have started to build will be completed but most projects that have not already started will be paused until supply changes. This is normal market dynamics, which play out in slow motion.

Economies generally and property markets especially are like weather systems impacted by dozens of interacting and interrelated variables. These variables push and pull from both sides of the equation, dragging the market between phases of over- and under-supply. When the market is viewed this way as a complex weather system it is then easy to see that it can never be perfectly balanced.

Some of the factors that impact demand are population growth, demographics, lending conditions, interest rates, wage growth, the general economy and affordability.

Some of the factors that impact supply are state and local regulations, land release, developer financing, developer risk appetite and margins and the cost of construction.