Record numbers of new units under construction

Tweed units are booming

A RECORD-HIGH number of units currently under construction nationwide, is affecting the capital growth performance of units in certain capital cities and it is anticipated that capital growth will continue to slow.

According to the CoreLogic Home Value Index, over the 12 months to August 2016, combined capital city house values have increased by 7.2 per compared to a 5.5 per cent rise in unit values.

The rate of annual growth for units has been only slightly lower than that of houses across the combined capital cities, while across individual cities the trends vary significantly. Hobart and Darwin are the only two capital cities in which the change in unit values over the past year has been greater than the change in house values.

In Melbourne, Brisbane, Adelaide and Canberra, the change in unit values over the past year has been less than half that of houses. With Melbourne and Brisbane experiencing historic high levels of new unit construction and substantial increases in unit stock expected over the coming years, it is reasonable to anticipate that the gap between the annual change in house and unit value will persist and potentially grow larger.

The most recent data from the Australian Bureau of Statistics (ABS) showed that nationally there were 152,449 units under construction at the end of the March 2016 with an additional 41,548 units approved for construction to July 2016, many of which would have already commenced construction.

The report from CoreLogic reads, “The demand for inner-city housing, particularly units, has increased significantly over recent years the heightened level of unit construction has the potential to create problems for the housing market.

“While an increase in housing supply is important, much of the new unit stock to-date has been targeted at an investor market.

“From an investors perspective units offer higher yields and lower prices than houses however, in many cities recent capital growth has under performed and the rental market is the weakest it has been in more than two decades.

“With additional unit stock under construction, there is the potential as this stock enters the market the rental market will become even more depressed.

“Over the coming years we anticipate that the performance of houses and units could diverge even further.

“While units offer a much more affordable purchase price than houses, as the supply of units relative to houses increases, we would expect demand for detached houses to hold-up much better than demand for units.

“Especially considering much of the new unit stock has to-date been one or two bedrooms, of a similar internal size and design and very much targeted at a similar market segment.

“For those people who are looking to purchase a unit at a time when supply levels are moving through record highs, projects which are differentiated from the broader market, based on their location, design, owner mix or quality of the developer may provide some safe haven from the weaker unit market conditions.”