Housing Shortage Will Remain a Huge Factor Driving up Property Prices in 2014

Melbourne and Sydney will continue to see housing shortages this year
Photo: The Homepage

It is likely that the housing shortage will continue to support property price growth in 2014, especially in major markets such as Sydney and Melbourne where housing stock levels were lower overall in 2013.

Lower Housing Stock Exacerbates Housing Shortage

December figures released by SQM suggested a monthly housing stock decrease of 26.4 per cent in Sydney and 14.3 per cent in Melbourne compared with November. 

Although the property market typically quietens around the festive season, housing stock fell over the course of the year by 19.6 per cent and 2.4 per cent respectively for these two cities, thus pointing to worsening stock levels.

Housing Shortage Means Vendors Can Demand Higher Prices

Like commodity markets, housing markets are significantly influenced by supply and demand factors.  Ongoing shortfall in housing supply will help the vendors’ case to demand higher prices. 

As the shortage of housing in Sydney is considered to be more pronounced than in Melbourne, annual prices have risen much more in the Sydney market, at 13.29 per cent according to the RP Data Home Price Indices, compared with 10.23 per cent for the Melbourne market. 

Many predict that this trend will continue in 2014.

Housing growth in Melbourne varies across different suburbs
Photo: Melburnian

Melbourne Market Uneven With Housing Shortage in Some Areas and Oversupply in Others

As highlighted in Peter Sarmas’s article about the property market’s performance in 2014, the Melbourne market is uneven and growth varies across suburbs. 

There are many areas, particularly in the outer suburbs, where supply outstrips demand, leading to lower property prices in those areas.

The question becomes, is there actually a shortage of housing in Melbourne? 

“As prices continue to rise…l many will have little choice but to make compromises in order to buy their first home.”

As pointed out by Catherine Cashmore, the ‘shortage’ is not necessarily only to do with the number of houses available across the board, but also the number of houses that are both suitable and affordable for potential buyers.

Looking at it from this perspective, the answer is a clear yes. 

Judging by the low number of first home buyers, there is a definite lack of affordable housing options.

If there is a general reduction in Melbourne housing stock levels, but an oversupply occurring in some areas, then there are evidently other areas that are experiencing huge shortages, heavy bidding and substantial price growth.

First Time Buyers More Open to Other Dwelling Types and More Focused on Price

However, as prices continue to rise in popular locations and affordability becomes even more of an issue for first home buyers, many will have little choice but to make compromises in order to buy their first home.

In fact, the results from Digital Finance Analytics surveys on attitudes of first time buyers provide empirical support for this argument, with first home buyers in Melbourne shifting away from purchasing houses in favour of units, and prioritising price over schools and transport in their buying criteria. Average commute times have also risen according to the survey.