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When building approvals rise, does rental supply follow?

By Staff Reporter
07 May 2024 | 10 minute read
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The Real Estate Institute of Victoria (REIV) has dug into the data to paint a picture of how building approvals affect the availability of rentals.

Examining a five-year period of the Australian Bureau of Statistics data that covers building approvals across Victoria and the correlations they have with the number of rental bonds being held, the REIV found a clear supply link in certain areas meaning that while new builds do bring supply to the tenant market, the correlation is far from simple.

“Figures show that half of the 24 municipalities that saw an increase on their building approvals over the five years between January 2019 and January 2024 also experienced an increase on their rental bonds held,” the institute reported.

“This suggests an increased uptake of renters within these municipalities. Of those 12, a relatively even statewide split occurred with seven in metropolitan Melbourne and the remaining five in regional Victoria.”

In the municipality of Melbourne for example – which includes the city’s central business district and inner-city suburbs like Carlton and Kensington – a five-year jump in annual building approvals correlated to a 28.9 per cent increase in rental bonds within Melbourne in the same period, suggesting that a significant increase of properties became available on the rental market during that time.

Looking beyond Melbourne’s centre, popular metropolitan hubs that experienced a high level of approvals were also revealed to be areas where rentals were on the rise.

The metropolitan municipalities of Casey, Melton, Wyndham and Whittlesea, along with the regional city of Geelong, had some of the the highest level of approvals and also showed substantial rental bond growth, ranging from 7.2 per cent in Geelong to 55.1 per cent in Melton.

But while a clear correlation can be found in some areas, REIV noted that with other factors at play, approvals do not always lead to rentals, or if they do, the increase is not necessarily certain.

For example, out of the 10 municipalities with the highest percentage increase in their building approvals, there was a sizeable variation between the increases and decreases of rental bonds that were registered within their boundaries. Four municipalities showed increases in rental bonds while six demonstrated a decline. Where rental bonds were up, there was no clear tie between them, with two situated in inner Melbourne, one in outer Melbourne, and the last in regional Victoria.

“This shows that while there is not always a demographic correlation between the prevalence of building approvals being granted and the subsequent rental bonds on hand, the market retains buoyancy and variety with room for buyers, sellers, owner-occupiers, and renters,” REIV noted.

In other words, while some building approvals might generate housing stock for renters, others seem to serve the owner-occupier market almost exclusively.

However, there was one clear link among the areas where approvals increased but rental bonds declined. In the municipalities of Buloke, Ararat, Towong, Yarriambiack, Moira and Port Philip, four out of five are located in the sparsely populated north and north-west regional areas of the state. These are proving to be robust growth areas for Victoria, even if it’s clear that building skews towards owner-occupiers for the short term. In the longer term, all buildings are likely to have positive rental impacts, as owner-occupiers’ plans change and homes built as a residence now can easily come onto the rental market as lifestyle, job location and family needs change.

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