Apartment boom no threat to Sydney property prices
Fears an apartment glut will spark a decline in Sydney property prices are overblown, according to a senior Reserve Bank official.
After a long period of under-supply, it was true that growth in the building of new Australian homes had been outpacing population growth, according to the central bank's assistant governor of economics, Luci Ellis.
The Reserve Bank assistant governor of economics, Dr Luci Ellis. Photo: Ben Rushton
But unlike Brisbane and parts of Melbourne – where new apartment supply had been highly concentrated in particular pockets – Sydney's apartment boom had been more evenly spread across the city, lessening the potential for price falls.
"It's a truism that the more supply you have, the weaker prices are going to be relative to what would have happened if supply had been lower," Dr Ellis told a lunch of the Women In Economics Network and the Australian Business Economists in Sydney on Wednesday.
"But, at this stage, we're not seeing that ... that supply, in and of itself, is going to create a big fall in prices and certainly not in Sydney."
Brisbane was the real risk, Dr Ellis said, pointing to the high geographic clustering of the new developments set to hit the market this year.
"This year is crunch time" for Brisbane, she said.
But Sydney apartment prices were unlikely to suffer the same fate.
"Over the years, we've pointed more to Melbourne and to Brisbane as where that's more likely to cause trouble in terms of concentrated increases in supply resulting in lower prices and therefore potentially distress", Dr Ellis said.
"Whereas, in Sydney, it's sort of all over the city, so it's much more evenly spread and so less likely to create a really concentrated local price effect."
And while new building was running ahead of population demand, that was unlikely to last.
"More recently we've now got to a point of peak building approvals. Building approvals have stepped down to a new level. The backlog of work in residential property is now starting to decline, even in NSW and Victoria, but particularly in Queensland."
"So in some sense, this is a phase that will eventually end and we won't be building more than the population requires."
On the demand side, Dr Ellis said Melbourne's surprisingly strong population growth gave strong cause for belief that prices would not fall there.
"Similarly, population growth remains fairly strong in Sydney, so it's not clear to me that we end up with a serious problem here."
Home price figures released by the Bureau of Statistics on Tuesday showed Australian home prices rose 10.3 per cent last financial year and 13.8 per cent in Sydney and Melbourne. But Sydney prices gained just 2.3 per cent in the final quarter as price gains lose momentum.
According to Ellis: "Housing and apartment markets have slowed a bit in both Sydney and Melbourne - more so in Sydney than Melbourne - but prices are still rising at a relatively rapid clip nonetheless."
According to a CommSec analysis of the Bureau's data, the median price of houses transacted in Sydney in the June quarter was $1.02 million, $110,000 more than a year ago.
Melbourne houses averaged $713,000, up $87,000.