Think Melbourne apartments

The demand for apartments is set to be bigger than even I predicted.

Two years ago, commentators were extremely negative about the Melbourne apartment market, unable to see its strong depth and sustainability. For four years, from 2002 to 2006, there was an oversupply, sales rates slowed, investors became cautious and developers cut production. 

But values did not fall dramatically, and two years ago I forecast there would be a big turnaround. But even I was too conservative regarding the extent to which the Melbourne apartment market would rebound.

And it has rebounded for the following reasons.

Melbourne is booming, adding over 50,000 residents a year, creating demand for up to 27,000 dwellings each year of which up to 35% will be non-detached, either town houses or apartments. About half of these will be required within the inner urban area and the underlying land value strongly suggests apartments.

The forecast therefore is that Melbourne will need at least 4000 new apartments each year for the next 10 years, but the planning and construction process will not produce this volume. Melbourne therefore is at the start of a long period during which the demand for apartments will outstrip supply.

Over the past 30 years, housing demand has rebalanced geographically from 90% suburban fringe, 10% inner urban in the 1980s to 70% suburban fringe, 30% urban/inner fringe.

The demand for inner urban housing is therefore growing at a faster rate than ever before, especially near the CBD.

Apartments are the obvious solution to the significant demographic change.

Stock is now drying up quickly, with Melbourne’s central city register recording 1900 sales of new apartments in 2006/07, up from 800 sales in 2003/04.

Given the changes to superannuation and general economic confidence plus the spending power of retirees, there will be a growing appetite for property and an increasing number of purchasers are on a collision with a dwindling lack of supply.

So my future predictions for Melbourne apartments?

Given the changes to superannuation and general economic confidence, plus the spending power of retirees, there will be a growing appetite for property and an increasing number of purchasers will come up against a shrinking supply.

As conventional housing prides itself on being beyond the limit of most purchasers, apartments will take over as the next strong focus for capital growth.

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