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Sydney boom disguises looming problem

02 April 2015 Staff Reporter

The strong growth in Sydney prices has overshadowed the fact an oversupply is developing, one expert warns.

The strong growth in Sydney prices has overshadowed the fact an oversupply is developing, one expert warns.

Residex founder John Edwards said the number of homes being built exceeds the amount of new stock needed.

Mr Edwards pointed to statistics that show NSW gained 66,400 new residents in the past 12 months, excluding natural increases.

That suggests 23,700 new dwellings are needed if one assumes each home will house 2.8 people, Mr Edwards said.

However, work has started on 52,000 new homes during that time.

“How many people per new dwelling would absorb the new stock coming onto the market,” Mr Edwards asked. “A low 1.27 people per dwelling.

“So even if my estimate of 2.8 people per dwelling is out significantly, it is clear we are potentially producing too many properties.”

Mr Edwards said the surge in Sydney prices was not due to an undersupply of new homes, but an undersupply of existing homes being brought to the market.

“The reason for that is existing homeowners are cautious, given current economic forecasts,” he said. “They also recognise that they have to replace their place of residence and the chance of finding an equally well-located property for an acceptable price is difficult.”

Mr Edwards said these homeowners are also using the significant equity they have in their expensive homes to buy cheaper investment properties.

“They are buying the stock that our first home owners potentially can afford, being existing and new units,” he said.

Mr Edwards said the homes that are being built are generally expensive units that most buyers don’t want.

“Housing corrections are caused by excessive price growth, which we are witnessing, and a subsequent oversupply – which we are, in my view, moving to," he said.

“All state politicians who are betting on housing construction to restore their economies to growth are, in all likelihood, simply trading a short-term benefit for a longer-term, and very difficult, economic outcome.”

Sydney boom disguises looming problem
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