Construction Slowdown Continues to Constrain Victorian Property Market
The construction of new dwellings across Victoria has dropped by 3 percent compared to 12 months ago and is expected to continue decreasing in the following years.
New housing in Victoria is set to reach its lowest level in seven years, posing a challenge to the Victorian government’s target of 800,000 new homes over a decade.
Urban Property reported a 3 percent decline in the construction of new dwellings across Victoria, with 67,400 houses currently being built, based on data from the Australian Bureau of Statistics.
This decrease is attributed to the decline in high-density apartment developments, with current apartment construction being 21 percent lower than its peak in 2019.
Housing Industry Association (HIA) senior economist Tom Devitt stated that the state is projected to construct fewer than 60,000 new homes this year, falling short of the 80,000 annual target set by the state government over a 10-year period. Devitt emphasized the importance of constructing multi-units to meet the new housing construction goals.
Due to rising financing costs, constrained borrowing capacity, and a 25 percent increase in construction prices over the last three years, the supply of new housing in Victoria is likely to continue decreasing in the coming years.
Approved dwellings in the state are currently 17 percent lower than the 10-year average, further indicating a decline in housing stock.
HIA Managing Director Jocelyn Martin urged the federal government to address the shortage of skilled labor and apprentices in the residential building industry to prevent further impacts on housing supply.
Martin’s call comes after the release of the HIA Trades Report, which highlighted the diversion of skilled trades to infrastructure projects, mining, and other non-residential projects.
She recommended addressing the issue through financial incentives or adjustments to the skilled trade visa system. This includes retaining current subsidies in the Priority Wage Subsidy and improving immigration policies to allow the construction industry to access skilled labor from overseas.
“The government’s efforts to promote Australian manufacturing under the Future Australia Made program are commendable but will face obstacles without an ample supply of skilled labor,” Martin added.
As Victoria’s population continues to grow, housing finance commitments in February 2024 totaled $82.1 billion, which is 10 percent higher than the 10-year average, according to Urban Property.
Investors represent 31 percent of these commitments in Victoria, a 7 percent increase from three years ago.
Despite challenges, Urban Property Australia anticipates an increase in investor shares in housing loans.
Median house prices in Melbourne have increased by 2.1 percent to $928,500, while median unit prices have risen by 0.3 percent to $634,500 in the March 2024 quarter, based on data from the Real Estate Institute of Victoria (REIV). However, both prices are still lower than those recorded a year ago.
Meanwhile, median house prices in regional Victoria decreased by 0.7 percent to $605,000, while median unit prices remained stable at $418,000, although lower than levels from 12 months ago.
Given the housing undersupply, cost of living pressures, and affordability challenges, Urban Property projects a subdued outlook on housing prices.
On the other hand, Melbourne’s vacancy rates have decreased to 2.1 percent, below the 10-year average of 3 percent, while residential rents have increased by 13.4 percent over the year across all city precincts.
Looking ahead, Urban Property anticipates consistently low vacancy rates and rising residential rents in the coming years.