The myth of oversupply
15 February 2018
Nick Georgalis, Managing Director of Canberra’s biggest high-rise apartment developer, Geocon, explains why persistent claims that there are too many apartments in Canberra are simply not true.
Canberra is becoming a more sophisticated, cosmopolitan and connected city, and that is reflected in the changing skyline.
But barely a week goes by without someone complaining that there are too many apartments being built. None of this hysteria is based on fact, or what is really going on in the market. So, I’m going to explain why it’s a complete myth.
As Canberra’s largest apartment developer, it’s something I know a bit about. And before you think, “well, he’s a developer, he would say that”, there is plenty of independent evidence that illustrates there is no oversupply of apartments.
Fact No. 1 Developers like me cannot start building until we secure funding. The Australian Prudential Regulation Authority – APRA – regulates financial institutions in Australia to manage the risk of losses. Before banks can get a licence to operate, APRA requires them to stipulate the conditions under which they will lend to developers. Typically, this means that around 70% of the value of a development must be funded by purchasers, before the bank can agree to fund the development. In such a highly regulated environment, there is no such thing as funding speculative developments. So, fact No. 1 is most of the apartments you can see emerging on the skyline are already sold.
Fact No. 2 The basic laws of economics dictate property supply and demand. Canberra is in a demand cycle, created by the increasing population and tight housing supply. Rental vacancies in Canberra are running at less than 1% compared with around 3% nationally. The keen demand for rental properties is keeping rents high. Property prices, including units, are also strong. If there was an oversupply that simply would not be the case. So, Fact No. 2 is if there was an oversupply of units prices would be dropping instead of increasing, as they have done over the past five years, and rents would be dirt cheap instead of expensive.
Fact No. 3 The presumption that every buyer would prefer a detached dwelling if they had the choice is demonstrably wrong. While apartment living is not for everyone, it is increasingly a first choice, because of the value, amenity and lifestyle it offers. Research shows people value location in their property choices. For increasing numbers of people, living close to town centres, facilities and public transport is preferable to a detached dwelling out in the burbs.
Fact No. 4 The figures don’t lie. About 2000 apartments are sold off-plan in the ACT each year and Geocon alone accounts for about a third of these. For the past four years our sales have increased 50 per cent, year on year. If there was an oversupply, we simply wouldn’t be selling that sort of number. Canberra’s population has increased by 5000 a year in recent years and is forecast to jump 25,000 over the next three years. ACT Treasury figures report that in the past 12 months housing finance for owner occupiers increased by more than 26%, and new investor finance was up more than 10%. Job vacancies were up 23.6% and employment growth was 3.9%. Canberra is booming and there isn’t enough housing supply right now to accommodate the forecast population increase.
At the end of the day, people want choice. In Canberra they are fortunate enough to have a wide range of detached dwellings, townhouses or units to choose from.
As our population increases, our town centres and CBD are the perfect places to increase density, without encroaching on traditional suburban life or turning adjacent bushland into new housing estates, which in my view is a far worse planning outcome.
Higher density makes public transport work, and creates vibrant communities for work and social interaction. So, the changing skyline in town centres is not illustrative of rampant speculation on the part of developers, it is sensible planning at work, helping to meet increasing demand and delivering homes of the future for our growing population.