THE NEXT BEST THING TO A TIME MACHINE

In the absence of a DeLorean outfitted with a flux capacitor, we rely on macroeconomic factors to make a calculated prognosis on the property market in Victoria.

Leaning on the economic law of Supply and Demand, the scarcity of dwellings is a major driving factor for the upsurge in rental and selling prices in the Victorian property market.

It is clear from Victoria’s population data for the March 2019 quarter, that dwelling supply is still tracking behind population growth.

In the coming year, only 46,581 new dwellings are predicted to be completed. Contrast this to the net population growth of 135,655 people in Victoria this year alone, the housing shortage is continuing to pile up, further compounding the deficits from previous years. The math is quite simple:

• The housing demand in Victoria this year is 53,198. This is derived by dividing 135,655 net population growth by the average family size of 2.55.

• As a result, the shortfall of supply will be in the vicinity of -6,617, as the completion of new dwellings is predicted to be only 46,581.

It turns out we are moving in the opposite direction. Instead of shrinking the housing deficit and accommodating new families from expansion in population, the pipeline of new housing has slowed down due to a sharp fall in new housing approvals in 2019.

According to Urban Development Institute of Australia’s Victorian CEO Danni Hunter, in a recent AFR article: there needs to be around 66,000 to 68,000 new dwellings every year to keep up with Victoria’s record levels of population growth in the coming years.

In the article, Ms Hunter maintains that a drought of new housing will hit the market in the next 18-24 months, as the construction pipeline dwindles from the collapse of approvals in the 2019 financial year.

SMH wrote: the Reserve Bank of Australia (RBA) said risks to banks from the housing market have faded as prices in Sydney and Melbourne recover, but it has warned "rapid" property price growth could re-emerge in several years’ time due to potential supply shortages.

Although the current housing construction levels are strong, a larger housing shortage is imminent, when the cranes come down and construction machinery disappear after work from projects committed years ago are completed.

As housing prices start to rise after a year of sustained slump, and as the effects of scarcity continue to set in, prices are expected to respond. For those of us without a time machine, the economics that influence the outcome in a climate of Scarce Supply and High Demand is the next best thing.