Overhang?

Construction boom

Sydney went through a record period for dwelling starts between 2014 and 2016, especially for new apartments. 

Measuring dwelling supply against demand is far from an exact science, as it depends upon population estimates and constantly shifting trends in household formation.

For example, it transpires that population growth in New South Wales was higher than previously estimated in recent years, as you might have guessed if you live in heaving Sydney. 

With commencements remaining high through much of 2018 there's going to be an apartment overhang for Sydney to work off, with many similar projects hitting the market contemporaneously. 

So you have suburbs like Carlingford, Epping, Ryde, Homebush, and Miranda with a lot of very similar apartments looking for tenants. 

Though with the state's estimated annual population growth accelerating to around +124,000 in 2018, there's no evidence of a structural oversupply of dwellings; rather it's a temporary glut to be worked off. 

By the beginning of this year the ratio of population growth to dwelling starts for New South Wales was roughly back in line with the 30-year average at just under 2 (new apartment projects tend to house fewer people per dwelling than we saw in historical cycles too). 

In Victoria it's an altogether different story. 

As the mining boom faded FIFO workers relocated interstate and many chose to head to Melbourne, so not only was the Victorian capital attracting immigrants from overseas it was pulling in economic migrants from interstate too. 

Lob in the natural population increase and the Victorian population went through its most striking boom since the Gold Rush, which has overwhelmed the lift in construction. 

With a credit squeeze and duty surcharges for foreign buyers quelling dwelling supply in 2019 and population growth across the state running at close to +140,000, Melbourne looks set to get very tight.

I looked at the trends for vacancy rates by city across recent years here.

Melbourne has a clear seasonal pulse, but has been steadily tightening for the past five years despite a period of record construction.