The cost of apartments and townhouses in Australia is falling.
According to the Australian Bureau of Statistics (ABS), prices for attached dwellings — defined as flats, units and apartments plus semi-detached, row and terrace houses — fell by 0.8% in the first three months of 2016, marking the first time that prices had fallen since the June quarter 2012.
For clarity, the national figure is the weighted average of all Australian capital cities, and without any seasonal adjustments. Given the sheer size of the Sydney and Melbourne property markets, the price movements in these cities is influential on the overall national figure.
The chart below shows the quarterly and annual change in attached dwelling prices across Australia’s capital cities.
Price declines in the Sydney and Melbourne markets clearly contributed to the quarterly decline, registering falls of 0.6% and 1.3% respectively.
There were also declines recorded in Adelaide, Perth and Canberra. Partially offsetting those falls, prices rose in Brisbane, Hobart and Darwin.
The price gains for Hobart were particularly strong, jumping 2.3% for the quarter.
Although most capitals recorded decline over the quarter, that trend was reversed looking at price movements compared to the same quarter a year earlier.
Prices nationally increased by 4.9%, largely due to prices gains of 8.2% and 3.9% in Sydney and Melbourne. Mirroring the cities quarterly performance, prices in Hobart rose by 5% from 12 months earlier.
Elsewhere prices rose in Brisbane (2.1%) and Adelaide (0.6%) but fell in Perth (-3.6%) and Darwin (3.6%), reflecting the divergence economic performance between mining and non-mining capitals over the same period.
Prices in Canberra fell fractionally, slipping 0.4%.
The recent weakness in attached housing prices will surprise few in Australia, particularly along the eastern seaboard, given the amount of construction activity currently underway in Sydney, Melbourne and Brisbane.
According to calculations by Corelogic, Australia looks set to build 231,129 new apartments over the next 24 months.
Put another way, that equates to nearly 10,000 additional dwellings being added to Australia’s existing housing stock each and every month, even excluding the increase in unattached housing supply over the same period.
Understandably, some have expressed concern that such a rapid increase in supply, following such strong price increases, risks creating a glut of high-density housing in Australia’s largest cities, potentially paving the way for a steep slump in prices.
Whether that will eventuate will largely depend on the health of Australia’s labour market, along with other factors such as immigration flows, levels of foreign investment, the number of approvals that actually reach the construction phase and potential changes to the tax treatment of housing in Australia.
However, prices are already falling at present, even before this expected increase in supply hits the market.
Something for all unit owners, and potential buyers, to consider.