We’ve been here before…

When assessing key indicators, it’s clear the market has been in a similar position before. By understanding these indicators, and observing their impacts in the past, we can gain a good understanding of what’s to come.

Figure 1: Vacancy rates Dec 1999-June 2022, BIS Oxford Economics

A vacancy rate is a measurement of the amount of unoccupied rental dwellings on the market. A vacancy rate of 3% indicates a balanced market. As seen in figure 1, in November 2002 vacancy rates in Melbourne and Sydney were at 6.6% and 4.5% respectively, indicating a market with a severe oversupply of rental dwellings. We then saw vacancies gradually decline through to 2008.

The rise of vacancies in the 5 years leading up to 2021 were amplified by border closures throughout the COVID-19 paramedic. Since then, we’ve seen vacancies rapidly decline, and with builders shelving projects due to rising interest rates and increased building costs we’re confident the further lack of supply will continue to drive vacancy rates to record lows.

Figure 2: Building commencements NSW & VIC 1999-2022, ABS

Typically, building commencements increase as property prices increase as developers try to maximise the opportunity to make profits. In addition, these are usually less risky times for developers to commence building. In the years leading up to 2008-2009, building commencements were slowing down due to a long period of relatively slow growth, disincentivising developers from starting new projects. It’s likely that many of the larger developers were happy to landbank throughout this time period. After peaking in NSW and Victoria in 2016 and 2018 respectively, building commencements have again begun to slow down. We expect commencements to have continued to decline in more recent months, as rate increases and increased building costs forced developers to shelve their projects.

When there is demand, and a lack of supply, prices rise.

Figure 3: Combined weekly asking rents 2010-2022, SQM Research

We’re already seeing the effects of this with combined asking rents for units and houses across the country increasing by over 29% in the past 3 years, as shown in figure 3. The ABS also recorded rising rent increases in the years leading up 2008.

Figure 4: Unemployment rate 1999-2022, ABS

Although the link to housing prices is not as strong, it is interesting to note that the unemployment rate has rapidly declined in recent years, as it did in 2001-2008. This is a further key indicator of similar underlying economic conditions between these two time periods. To combat our 48-year low unemployment rate, the Albanese government recently announced a 20% increase in our skilled migrant intake. These people will need a place to live, ultimately increasing demand.

What proceeded these economic conditions was a four-year property run-up, see figure 5. So, what do you think is going to happen?

Figure 5: Property price index Dec 02′-Jun 22′, BIS Oxford Economics

We could be on the cusp of another property boom, and with interest rate rises expected to ease early next year, there may not be a better time to buy. As a lack of supply comes onto the market and migration uptake increases, rents will continue to rise, making property investment even more lucrative. This will draw further demand from investors, and ultimately drive property prices up.


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