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Melbourne facing apartment risk

19 September 2014 Staff Reporter

A “sub-prime building” situation is developing in Melbourne’s apartment market with prices and rents likely to fall in the next few years as a glut of new stock is completed, economic forecaster BIS Shrapnel says.

BIS Shrapnel associate director Kim Hawtrey told delegates at their recent forecasting event in Melbourne that he worries if apartments keep being built in the same location, of the same type, for too much longer, we will see a case of “sub-prime building”.

The word “sub-prime” came to prominence and notoriety during the global financial crisis, referring to US lenders who over-lent to borrowers who could not repay – mortgage defaults skyrocketed and house prices tumbled, according to the Australian Financial Review.

“Sub-prime building means we are over-building in areas or in demographic cohorts that lack the numbers to occupy those dwellings – where there is not the underlying demand,” Dr Hawtrey said.


“This is a danger we keep on highlighting.”

Melbourne apartment approvals were just under 23,000 this past financial year, 75 per cent above the long-run ­average of 13,000 a year, according to the Australian Bureau of Statistics.

Nearly half of those were in the central business district and inner-city markets such as South Yarra and Southbank.

BIS Shrapnel has forecaste Melbourne will be oversupplied with apartments later this financial year, with the situation deepening in the 2016 financial year.

This would be despite a forecast ­downturn in high-rise apartment approvals and commencements over the next two financial years.

“We believe the current level of high-rise apartments is unsustainable, even as the planning minister keeps approving them,” said BIS Shrapnel managing director Robert Mellor. “The ultimate outcome will be price corrections. In some areas rents will decline.”

Melbourne facing apartment risk
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