Is the oversupply of Canberra apartments a threat or a myth?

Oversupply is no myth. Apartment prices are falling in Canberra a likely result of copious stock.

It is perhaps seen as scaremongering to homeowners but it is welcome news for first homebuyers. Housing affordability is a key issue faced by many capital cities; Canberra is no exception.

One way to offset this is by increasing supply or by offering a more affordable alternative to a detached home. Surely apartments fit the bill? Developers in Canberra seem to think so.

The territory is experiencing solid unit building approvals, rocketing 53 per cent to a record high of just over 4836 approved throughout 2016 according to the latest ABS data.

Canberra has experienced two consecutive years of record high unit starts. Unit starts jumped an astounding 41.4 per cent the year prior and have been escalating since around 2010.

The city is already experiencing a hive of construction activity that will be exacerbated when all development approvals come to fruition.

Our city is diversifying and changing as a result of this extensive development, and there are no signs of slowing.

Stating there is an apartment glut based solely on building approval data is a fallacy – a bigger picture approach needs to be taken.

The data gives an insight into the potential stock pipeline, however assuming all approvals will start is incorrect. Other factors come in to play, developers tend to delay apartment completions based upon buyer confidence within the specific sub-market locality.

Apartment approval rates may be at record high levels but a completion lag also means this stock is unlikely to have an impact on market behaviour until at least 2018.

A clear warning sign of current oversupply is that apartment prices have been falling for some time. Low interest rates have supported buyer activity, helping to absorb current supply levels.

Anecdotal evidence also suggests an apartment glut as prices tumble and some developers are still offering incentives to attract buyers. There is a silver lining – falling prices make the Australian dream of property ownership a more likely reality.

The real risk presents when interest rates rise: if they are hiked aggressively over the next few years the flow-on effect to buyer activity could be catastrophic. This would clearly have a pronounced effect on price.

Despite falling prices, I still believe offering affordable housing choices for first-time buyers is a must. It is crucial housing affordability is kept as a priority.

Nicola Powell is a property expert for Allhomes. Twitter: @DocNicolaPowell