Apartment oversupply "cannot happen quick enough"

A predicted oversupply of apartments in Melbourne is much needed to relieve the city’s tightening rental market, an expert says.

Melbourne’s vacancy rate over August went “against recent trends” and tightened over the month, while rents increased, data released by SQM Research managing director Louis Christopher on Tuesday shows.

“In Melbourne we hear so much about a looming oversupply of apartments, and if that’s the case, it cannot come soon enough,” Mr Christopher said.

The effect of more highrises on Melbourne’s skyline may soon be felt by tenants. Photo: Vladimir Vasilevitski

Some parts of the city known for high levels of apartment construction, such as Docklands and Southbank, have already seen vacancy rates begin to loosen — providing a better environment for tenants.

The comments come as some developers continue to maintain Melbourne’s oversupply is a media beat-up, with Asian Pacific Group chief executive Will Deague even stating the city had an “undersupply of apartments” in June.

But other industry commentators have flagged their own concerns. BIS Shrapnel recently forecast Melbourne would be face a substantial oversupply in the next few years, with 22,200 more homes than necessaryin Victoria by 2018. 


BIS Shrapnel has warned of an “huge apartment hangover” due to oversupply in the Melbourne’s apartment markets. Photo: Erin Jonasson

Docklands, Doncaster, St Kilda, South Yarra and Southbank were among those areas listed as facing a significant oversupply. 

There will be a “huge apartment hangover” with high levels of vacancies just around the corner for Melbourne and Brisbane, BIS Shrapnel associate director Kim Hawtrey said when announcing the data.

Already there were signs renters looking for apartments rather than houses in the inner city had the upper hand, said Sam Nokes, head of property management at Jellis Craig’s Armadale and Richmond offices.

It is estimated there will be 22,200 more homes than necessary in Victoria by 2018.

It is estimated there will be 22,200 more homes than necessary in Victoria by 2018. Photo: Erin Jonasson

“Let’s say you’ve got a house in a good spot and it’s well priced — you’re going have tough competition as a renter,” Mr Nokes said. “The first open for inspection, you’ll need to be there because it will let from the first open.”

But he said the situation was entirely different in over-supplied apartments pockets of the inner city.

“It’s very easy [to rent there] — you walk in the door and say, ‘I want two bedrooms, I want to face this direction, they tell you the price and you can move in tomorrow.”

There was a similar difference in house rental prices and apartments rents, Mr Nokes said, with landlords who own houses able to raise rents each year, while apartment landlords could not.

The median weekly advertised rent for houses was recorded at $418 for houses and $340 for apartments, up 3.4 per cent and 4.5 per cent respectively over the year, SQM Research found.

Melbourne’s vacancy rate, at 1.9 per cent, was just 0.2 per cent higher than the notoriously tight Sydney rental market.

There was “no doubt” more apartments would affect the rental market, Real Estate Institute of Victoria chief executive Geoff White said.

“From a tenant’s point of view, there’s likely to be a bit more to choose from and investors will need to be a bit more competitive with the rent they want to ask,” Mr White said.

“The impact is a supply and demand issue and it is going to have a stabilising effect on rents.”

But Tenants Union of Victoria policy officer Yaelle Caspi doubted increased supply would have widespread effect on affordability of Melbourne’s rental market.

“In Victoria almost 40 per cent of tenants are paying over a third of their income in rent,” Ms Caspi said.

“An increase in supply alone cannot improve rental affordability. We need a diversity of housing types and dedicated investment in affordable and social housing.”

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