Australia faces oversupply of housing… except in Sydney

A new report has predicted that in 2017 Australia will have an oversupply of housing for the first time in over a decade - with the notable exception of Sydney, Domain revealed.

Following a building boom in most capital cities, it’s expected that next year Australia will have around 24,000 more homes than what are needed, according to the Building Industry Prospects report from BIS Shrapnel.

However, BIS Shrapnel managing director Robert Mellor warned that Sydney home buyers shouldn’t get too excited just yet. “We are moving into a period where by June 2017, every capital city will have some oversupply other than Sydney,” he said.

Despite an oversupply in other states - Victoria is expected to have 21,881 too many homes - NSW will face a shortage of 40,000 homes. Even this number is an improvement on 2016, which saw a shortage of over 53,000 homes.

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Mellor said he doesn’t expect Sydney to overcome its housing shortage even by 2020, unless dwelling construction holds at current record levels.

He described the Sydney property market as a “first home buyer nightmare” where people are being forced into “every nook and cranny they can afford” by the high cost of housing.

Domain Group chief economist Andrew Wilson added that, “Sydney has had a relative high amount of stock built in the past two or three years compared to before. But this is largely small apartments for which there is a limited market.”

Other capital cities, including Melbourne and Brisbane have also focused efforts on the apartment market, creating what Wilson called “an oversupply in the CBD market.”

The effects are felt less in Melbourne, where the median house price sits at $718,000. Mozo’s home loan calculator shows that at this price and with the mystery bank deal home loan rate of 3.89%, home buyers could own their own home in 25 years by making monthly repayments of around $3,750.

The same can’t be said for Sydney, however, where the median house price now hits just over $1.2 million, which would raise repayments on the same home loan to around $5,300 a month.

“There’s no safety valve at all in Sydney, but there is in Melbourne,” Wilson said. “As a consequence, younger couples are faced with buying infill but data shows that [land sites are so expensive] it’s very difficult to put affordable units on them.”

However, he did identify some areas of Sydney, such as Parramatta, as showing signs of “short-term creaking” where oversupply of housing has started very quickly.

The property market is expected to remain relatively flat during 2017, although prices in Melbourne are forecast to drop before those in Sydney, as a result of the oversupply.

Are you looking for your dream home? Check out our home loan comparison table to make it happen. Or if you’re looking for a little help tackling the tricky property market, head over and speak to our resident property expert and home loan negotiator, Steve.

Home loan comparisons on Mozo - last updated 13 August 2022

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