I Demand You Read This

There’s one thing that’s been notably absent from property market commentary recently: demand. Now, you wouldn’t find it hard to dig up an article or two (per day that is) on property supply. Its economic counterpart, however, is often nowhere to be found.

There’s little doubt that the post-GFC environment of low interest rates and state governments eager to stimulate the economy through construction led to increased building activity. In some locations, that building activity overshot underlying demand, leading to an oversupply.

Commentary, though, offers little nuance. In a previous blog post, I commented on the folly of making widespread judgements on supply and demand. The balancing act needs to be viewed on a micro level – I’m talking a specific property in a suburb, not just the suburb itself. As an example, we don’t see supply and demand analysis that pools together iPhones, Nokias, Samsungs etc. Why? Demand for these products, although correlated, is not uniform, which is why neighbouring suburbs can have varying vacancy rates. The same applies for individual projects in a suburb.

A heap of that oversupply talk has been directed at the Melbourne CBD and its surrounds. Now, while it’s true that building activity in inner Melbourne is at record levels (supply), so also is the city’s population and economic growth (demand). Little wonder that the vacancy rate of inner Melbourne at March 2017 stood at 1.4% (3% is balanced) – in line with Sydney city at the same date. A testament to demand, the number of dwellings listed for rent in Melbourne CBD decreased by 263 between January and March 2017.

Let’s turn our attention to Footscray in Melbourne’s inner west. The suburb’s 8,000 dwellings in 2017 are projected to swell to 14,000 by 2022: high supply when viewed in isolation. What about demand? Over the same period the population of Footscray is projected to increase by 14,000 (a near doubling of current levels). Given an average household size of 2.3, the net result for Footscray is a supply and demand balance. Similar to the CBD, the vacancy rate at March 2017 stood at a critically low 1%.

I’ll leave you with this: Looking at supply and ignoring demand is kinda like watching Penn without Teller. It just doesn’t make sense.

9th Apr
The best performing investors are ones who are dead
2nd Apr
Homeownership will become a pipedream for many Australians after this cycle.
26th Mar
Lottery millionaire, a nightmare come true.
There are no results to display. Please try a different keyword or reset the filters to see everything.

Subscribe for free property investment advice, resources & education

This field is for validation purposes and should be left unchanged.