HomeBuilder scheme could add to oversupply, slow price recovery

The government’s $25,000 HomeBuilder grants could exacerbate housing oversupply around Australia and cause a slower recovery in prices from COVID-19. See what’s expected for your state.

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The federal government’s $25,000 HomeBuilder grants could slow Australia’s real estate price recovery after COVID-19.

Development industry researchers at M3 Property have warned that, despite benefits for the economy, the federal stimulus could exacerbate an oversupply of homes.

But a slow recovery is still expected to commence nationwide before the end of next year.

M3 Property national research director Jennifer Williams warned that with forecast population growth expected to fall by 300,000 by the end of 2023, there would be a gap in the demand expected to fill an existing 58,963-home surplus across mainland Australia.

“HomeBuilder has a positive effect on the economy and economic growth, but it does have the negative impact of increased vacancies and increased oversupply,” Ms Williams said.

Ms Williams said the lack of migration would make the oversupply of new homes, along with reduced investor activity, one of the key metrics in how each state fared.

Too many homes results in higher vacancy rates, stagnant rental rises and can turn investors away from some areas.

“International migration is the key thing most states are losing,” Ms Williams said.

“You have also got students not coming in from overseas, and a lot of parents would buy a home for their kids to reside in while they study.”

The firm has predicted a modest correction from zero growth to a 10 per cent price drop, varying by state, before South Australia leads the national market recovery from the latter half of 2021.

The M3 Property figures do not factor in any potential second wave of COVID-19, and do not cover Tasmania, the Northern Territory or Australian Capital Territory.

SOUTH AUSTRALIA

A property market dominated by owner occupiers should help Adelaide traverse COVID-19 with minimal disruption.

Already ahead of most states, South Australia is expected to see a recovery begin six months ahead of the rest of the nation with a modest oversupply of 1317 homes.

M3 Property has predicted the state might see prices remain flat, though they could also drop as much as 5 per cent.

A similar trend had been observed in the years following the global financial crisis in 2008, with the state’s home prices never really responding.

“South Australia is doing quite well, due to the owner occupier market,” Ms Williams said.

“They have a higher level of owner occupiers, who are less likely to be impacted by market changes than investors, as they (owner occupiers) will buy and sell in the same environment.”

VICTORIA

An undersupply of new homes could speed Melbourne’s real estate recovery after disruptions caused by COVID-19.

M3 Property has predicted a 5-10 per cent reduction in home values in Victoria, despite a 7391 undersupply in homes across the state after significant migration in recent years.

The state is expected to have a weak market for 12-18 months, but with demand outstripping supply as soon as June next year with prices to recover later in the year.

“That will leave the market better positioned than a lot of other markets,” Ms Williams said.

“So it’s a better result in terms of supply, but it will still be impacted by the same things as other states with confidence and willingness to take risk falling.

“We’re still expecting its dwelling price to go into the negative territory, but it’s likely to recover quicker.”

The dip into negative territory was likely to be caused by the state’s high concentration of investors, she said.

QUEENSLAND

Brisbane may have one of the more modest property price corrections in the nation.

While Queensland was positioned for one of the more modest corrections in the country, just a 3-5 per cent drop according to the M3 Property figures, it does have a 14,263 oversupply that would drive a weak market for the next 12-18 months.

While prices would begin a slow recovery from the end of next year, even a short term reduction in interstate migration would mean it maintained its oversupply until June 2023.

“It might be Queensland is impacted a little more, as they are used to people retiring up there and buying homes,” Ms Williams said.

NEW SOUTH WALES

A more than 20,000 oversupply of homes in NSW will have significant impacts on its real estate market’s recovery from COVID-19.

New South Wales currently has the nation’s highest oversupply of new homes, at 28,934, according to the M3 Property data, hinting it would take until June 2023 before supply and demand balance out.

But the state was in a position for home prices begin to recover before the end of 2021 after a correction of between 6 per cent and 9 per cent, Ms Williams said.

“NSW aren’t losing as many people to Victoria and Queensland as they would have,” she said.

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Originally published as HomeBuilder scheme could add to oversupply, slow price recovery