There's an enormous number of homes under construction in NSW and Victoria at a time when prices are already falling

William West / AFP / Getty Images

Now here’s a chart that will be cheered by some and bemoaned by others, depending upon your perspective.

Created using data released by the Australian Bureau of Statistics (ABS), it shows the total number of homes that were under construction in New South Wales and Victoria as at the end of June this year.

The short answer is a lot.

According to the ABS, there were a record 87,882 homes under construction in New South Wales at the end of June, the highest level on record.

A record 21,371 houses were being built in the state, and 66,511 other residential dwellings, including the likes of units, townhouses and granny flats. The latter was just off the record high of 68,310 set in the final quarter of 2017.

In Victoria, 73,449 homes were being built, fractionally below the record of 73,511 set at the end of the March quarter this year.

A record 50,085 other residential dwellings were under construction while 23,364 houses were being built, the second highest level on record.

The reason why we selected these states is not only because they’re home to the largest and fastest growing populations in Australia, but also because they’re home to the state capital cities that have seen home prices fall the most so far in 2018.

Given their sheer size, the vast majority of dwellings under construction in these states likely reflects building activity in Sydney and Melbourne.

According to data from CoreLogic, Melbourne’s median price has fallen 4.4% since the end of 2017, and by 4.1% in Sydney.

And that’s before a record, or near-record, amount of new supply hits these markets, with another 19,149 homes approved but yet to begin construction in New South Wales, and 6,692 in Victoria.

While still-low mortgage rates, robust labour market conditions and strong population growth are clearly positives for prices, boding well for mopping up newly-completed housing supply, given tougher lending standards towards interest-only and high debt and loan-to-income borrowers, George Tharnou and Carlos Cacho, economists at UBS, say the combination of strong supply and tighter lending standards will undoubtedly create downside risks for property values.

“As this stock completes and more supply hits the market, there is a risk that buyers will not be able to get as much credit as initially expected, seeing settlements fail, pressuring prices beyond our forecasts for 5-10% falls,” they says.

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