Inner Melbourne faces unit glut
Pete Wargent
17 Aug 2020

Melbourne's oversupply risks

When assessing the risk of over-building, a common and reasonably sensible approach is to compare the number of properties in the pipeline to the established housing stock for a suburb or sub-region, to get a feel for the potential uplift in the dwelling stock.

Running the figures for Melbourne we observe that there's been significant sprawl to the west of the city, as new estates have been created for the bulging population growth of recent times.

Western suburbs such as Tarneit 25km from the CBD are expected to grow significantly over the years ahead.

There are also a number of apartment construction hotspots, which becomes immediately apparent upon travelling around the city, especially in inner-city Melbourne itself.  

In the normal course of events this might lead you to the conclusion that the greatest overbuilding risk was out on the fringe estates of Melbourne.

However, 2020 has been anything but normal.

Border closures have seen immigration into Victoria screech to a halt, both from overseas and interstate, while tourism has been halted and thousands of international students have been unable to return to Australia to continue their studies this year.  

Meanwhile a raft of state and Federal government measures has encouraged first homebuyers into the market, which will likely help to absorb many of the new build homes out in the suburbs.

Outward demand shift

Moreover, there's been a noticeable outwards shift in demand, as the spread of COVID-19 in Melbourne has seen a desire from renters and buyers alike to move away from the densest areas. 

As such the greatest oversupply risk by far is in fact emerging in the inner city.

Indeed, instead looking at the absolute number of properties in the pipeline shows that this combination of factors could lead to a chronic oversupply of units in inner Melbourne.  

The absorption of stock

Following a period intense lobbying plans are afoot to trial bringing international students back into Australia as a matter of priority, beginning with flights into Adelaide in September 2020.

And when immigration is allowed again it's entirely possible that the backlog could lead to a rapid surge in the permanent intake.

Falling apartment rents could also begin to fill up the inner-city rental vacancies in the meantime.

Overall, however, landlords and prospective buyers should be aware of the severely heightened oversupply risk for units in Melbourne's CBD, the South Bank, Docklands, and potentially even in other inner suburbs, such as St Kilda.