The Victorian division of the Urban Development Institute of Australia (UDIA) today launched the latest iteration of the Residential Development Index (RDI) for Victoria. The RDI shows the urban development industry is operating at an index of 100.5, demonstrating the housing market has become steadily weaker since June 2018.
“The RDI shows that based on recent building approvals, the expected dwelling supply that will be delivered in Melbourne in coming years will be significantly less than we need. This is of great concern in an environment of continued population growth and strong household formation. The low amount of new housing supply forecasted is expected to lead to a demand and supply gap of more than 4,500 dwellings,” said UDIA chief executive, Danni Hunter.
“Victoria is experiencing a significant drop-off in building approvals for dwellings. From the 2017 financial year there has been a decline of 19.6% in total dwelling approvals within Victoria,” said Ms Hunter.
The City of Melbourne is expected to face an unprecedented fall in activity, potentially declining 92% in building approvals in this financial year. Similarly,Melbourne’s middle ring is forecast to experience a substantial decline in building approvals for dwellings of 27%.
“The State Government’s planning strategy for Melbourne, Plan Melbourne, directs that 70% of new dwellings be built in established areas. To achieve this target, Melbourne’s established areas would need to deliver 42,500 dwellings per year until 2051.”
“Unfortunately, efforts to meet this target in this financial year could fall short by as many as 28,500 dwellings, with established areas delivering as little as 33% of all new stock – mainly due to the lack of development approvals and activity in the inner and middle rings of Melbourne.”
Last financial year, the residential development industry contributed approximately $25 billion to economic activity in Victoria. This year, this number is forecast to fall by $4 billion. The key drivers of this fall are a 19.6% decline in
overall building approvals fordwellings, and a 15% reduction in the total value of building approvals compared to the same period the previous year.
“It is now more important than ever to recognize the crucial role the development sector plays in Victoria’s economy. This industry sustained 222,000 full time, part time and casual Victorian jobs last financial year, and this number is forecast to fall this year by a very concerning 33,000.”
“We have significant concern around the retreating investor market, the impact specifically to Melbourne’s apartment market and the flow on negative effects on the rental market. Investors are vital in ensuring the viability of apartment developments and supplying this product for owner-occupiers. As investors retreat from apartments, we expect to see flow on effects to the rental market- chiefly, the declining availability of apartment rental stock.”
UDIA made strong recommendations in the 2019 prebudget submission that the Andrews Government employ the policy levers immediately available to them to ease the pressure on the investor market.
“We are not seeing underlying demand subside, nor are we seeing population growth substantially diminish.The market will adjust to a new baseline and underlying demand will soon convert to real demand.”
“The development industry and Victoria need more than ever for the government to deliver planning and development approvals and essential infrastructure. We need to be able to meet real demand, and the way to do this is enabling the development industry to deliver a robust pipeline of new housing, jobs and economic value for Victoria.”
- The Residential Development Index is forecast to decline significantly in June 2019 to 100.5 which is down from 102.7 in June 2018. This is below the ten-year average of 101.8.
- Overall, total building approvals for dwellings in Victoria are expected to decline to 60,978 in FY18/19 from 75,844 in FY17/18. This represents a decline of 19.6% in total dwelling approvals within the state.
- The residential development sector is forecast to support 189,000 full time, part time and casual jobs across the Victorian economy in FY18/19, down from 222,000 jobs in FY17/18. This is a loss of 33,000 jobs.
- Ongoing undersupply will lead to future latent demand and is likely to have significantly implications for the cost of rent and future property price growth when access to finance begins to improve.
- In FY18/19 it is expected that the construction of residential dwellings and the associated infrastructure requirements will generate approximately $21 billion in economic activity in Victoria. This is a fall of $4 billion from the previous financial year.
ABOUT: URBAN DEVELOPMENT INSTITUTE OF AUSTRALIA
The Urban Development Institute of Australia (UDIA) is a nationally recognised body that advocates for Australia’s
urban development industry. In Victoria, UDIA informs and engages government and industry members, enabling
better policy and better business decisions. With a primary focus on the residential property sector, UDIA protects
and promotes over 320 member companies across Victoria including developers and a range of other professionals
involved in producing, financing and marketing residential property.