Supply vs Demand: The Australian housing mismatch

WH AR ERE RE E L SA VE OO V V ALE KIN Y I D: G T NVE O I ST NV OR ES S T

Supply vs Demand

Leading data scientist and actuary, Lianna Pan, highlights the current opportunities for property investors.

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Disclaimer: Information contained herein is gathered from sources we deem to be reliable however warrant no guarantee as to the accuracy of third party data. It is not intended as legal, financial or investment advice and should not be construed or relied on as such. Before making any commitment of a legal or financial nature you should seek advice from a qualified and registered legal practitioner or financial or investment adviser. All rights reserved.

March 2021

Welcome Thank you for reading this report.

Freedom Property Investors is not a property company. We are a community of investors accessing the hidden market of positive cash-flow properties located in high growth locations across Australia.

Led by Scott Kuru and Lianna Pan, two of Australia’s most successful property investors, we aim to provide our members with investment properties that outperform market averages for both capital growth and rental yield.

Lianna Pan is one of only 3,000 qualified Actuaries in the country, and together we have perfected a detailed methodology

covering all fundamental aspects affecting the residential property market. Spending tens of thousands of dollars on our research, we also employ a full-time research team with access to property specific data not easily accessible to the everyday investor.

Utilising a wide team of hundreds of experts around Australia, we work toward a common goal of helping create financial freedom for our members through property.

We hope you enjoy this report and we look forward to helping you leverage our data insights to achieve your financial freedom.

Lianna Pan

Scott Kuru

Founder & Director of Research

Founder & CEO

The Australian housing mismatch

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Suppy vs Demand

In times like the present, where both demand and supply of housing are sky-rocketing, it makes sense to be buying or holding an investment property where demand exceeds supply.

Even better, savvy investors can take advantage of locations where developers are not in sync with market demand, and use that knowledge to buy property where demand is growing but future supply is limited. The key is to avoid locations where future supply exceeds demand which is determined by one method and one method only: Data.

For experienced investors, tracking the trends in both supply and demand can identify opportunities and risks which is crucial in analysing any investment opportunity.

Take the latest data on building approvals for houses as an example. The home building industry showed no signs of slowing down on its rocket-like trajectory.

According to the ABS, 13,638 new houses were approved in December 2020, which is a 66% increase from the previous low-point six months earlier in June 2020.

Building Approvals (Private Sector Houses)

10,000

5,000

D ec 02 -

D ec 19 -

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17 -D ec

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5-

N u mber of approvals

15,000

Source: Australian Bureau of Statistics (ABS), December 2020

Supply vs Demand

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This sharp increase in home building is better understood when taking into consideration the dramatic increase in demand, as indicated by the new loan commitments to home buyers.

In the latest data from the ABS, the value of new loan commitments (to home buyers) has also been climbing rapidly, with lending values to owner-occupiers up 63% since previous point in May 2020.

While it is clear that owner-occupiers are driving the majority of the demand for new housing, investor lending is also starting to increase, with the value of new lending to investors up 49% from May 2020.

This explosion in demand presents opportunities for property investors, however there are some risks where there are high levels of building activity and understanding this is the key to making wise and fruitful investment decisions.

This explosion in demand presents opportunities for property investors, however there are some risks where there are high levels of building activity...

Value of New Loan Commitments (ex. refinancing) w O ner cO cupier

Investor

20

$ billions

15

10

5

Source: Australian Bureau of Statistics (ABS), December 2020

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Supply vs Demand

D ec 02 -

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Developers do not always adapt quickly enough to the market and changes in demand, so it is advantageous to understand the construction pipeline and identify regions of under-supply and avoid regions of oversupply.

the vacancy rate by postcode, and the postcodes in red have vacancy rates between 6% and 17%.

A healthy rental market has a vacancy rate of between 3% and 4%, so areas with a rate of 6% (or more) suggest a region that is currently over-supplied.

A good example of this is in Melbourne CBD and the region to the south east. The heatmap below shows

Source: SQM research, vacancy rate by postcode, inner-city Melbourne, Dec 2020

However, looking at the future supply of dwellings, the building approval from the ABS provides an insight into the construction pipeline.

The adjacent map shows the number of new dwellings from all the building approvals in 2020, and we can see that there are building approvals being granted in regions that are currently oversupplied.

Future development in these regions will only exacerbate the vacancy rates, with continued downwards pressure on prices and rents, and should be avoided until the market equalises.

Source: ABS, sum of building approvals for housing

by SA2, inner-city Melbourne, 2020

Supply vs Demand

07

Source: SQM research, vacancy rate by postcode, south-east Brisbane, December 2020.

Source: ABS, sum of building approvals for housing by SA2, south-east Brisbane, 2020.

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Supply vs Demand

In many regions, we are seeing the mismatch between supply and demand becoming more evident with the added scarcity of the right type of housing.

Conversely, there are regions where the opposite is occurring which offer opportunity for investors. For example, in south-east of Brisbane, the majority of this region has a vacancy rate of less than 2%, and in many areas the vacancy rate is close to 0%.

Looking at the construction pipeline in this region, there are minimal dwellings being built across the city.

With a critical shortage of housing (evident by the very low vacancy rate), and an undersupply of new dwellings in the construction pipeline, we can accurately predict upwards pressure on both dwelling prices and rents in the future.

This bodes well for anyone owning property in this region, or have the ability to buy the right property in this region. Most importantly the research is available down to postcode and even street level when we analyse the property market for our members.

In many regions throughout the country we are seeing the mismatch between supply and demand become more evident especially with the added scarcity of the right type of housing.

As a result, vacancy rates are increasing in these areas largely due to lack of proper planning and forecasting.

As an example, areas which are typically occupied by larger families, may see an influx of large high rise apartment buildings which will flood that market with the ‘wrong’ type of housing.

At Freedom Property Investors, we use a proven research methodology and examine underlying data and trends, including supply and demand, dwelling types/inclusions and suburb development to help our members invest in the right locations, at the right time.

To find out more about property market insights and projections, contact our friendly team today.

Together, we will review your current position and future goals and discuss with you what your options look like.

Contact our friendly team today:

Get in touch

Supply vs Demand

09

1300 766 791 contactus@freedompropertyinvestors.com.au

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