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Years of Undersupply Behind Sydney Property Boom

housing marketPete Wargent feels that long years of undersupply has to be blamed for the booming prices in the Sydney housing market. In an article for the website Property Update, he delves into both the sides of the equation.

Years of undersupply

Wargent notes that years of undersupply, supplemented by low interest rates, have fuelled up prices. Once prices increased, people joined in big numbers to cash in (fearing even further hike)- is it not what the herd mentality does to us, argues Wargent.

He presents an alternate view, too, suggesting that builders are in a perennial need for price hikes to justify the kind of labour they put in. When prices had hit plateau, they had lost motivation and this only intensified the dwelling crunch.

Well thought out that, Mr. Wargent!

Now that dwelling prices are on an up and interest rates are likely to hover around where they are, it may not be too much to expect a powerful response from the ‘supply’ side.

Data justified by demand side

To analyse supply, Wargent addresses the pain points of the ‘demand’ side. NSW is growing at nearly 102,000 people per year. Sydney is shooting in population by around 63,700 annually.

If we invest our faith in data which shows number of people per household sticking close to 2.6, we will get two clear impressions. 1) NSW will need 40,000 extra dwellings per year and Sydney will require 25,000 new dwellings anually.

Housing approvals

While housing approval figures are certainly something to cheer about and rise in number of apartments is good news, too, we are not too sure about how the lapse between approvals and construction may pan out for the Australian housing market.

You can read the original article here.

In my opinion, the frenzied wave hitting the long-in-slumber construction industry can act like a double-edged sword. I know how pleasant can it get but at the same time, the situation might lead to oversupply- what with the construction and the labour industry finding their feet at the same time.

Already, we are seeing a wide arc of housing construction underway and housing approval figures only suggest that we are in for a bigger haul. Such a situation, coming to pass in a relatively quick time, may shift the supply-demand dynamics somewhat unpredictably.

How huge do you think the ‘approval’-‘construction’ gap is likely to be?