Why the housing supply crunch may be good news for investors

Latest figures showing a plunge of 17.2 per cent in the number of building approvals for dwellings in July – 25.9 per cent down on the year – foreshadowing a likely chronic shortage of housing from 2023 onwards. 

The most worrying fall, recorded by the Australian Bureau of Statistics (ABS) research, is the slump of 43.5 per cent in private sector apartments to their lowest level since January 2012. So, is that an argument to invest now – or later?

It’s more an argument to make sure you buy well, argues the chief executive of Metropole Property Strategists, Michael Yardney. “There’s a lack of supply on the market even now, and especially of A-grade property,” he says. 

“As a result, this is a time to pick the eyes out of the market, especially as it’s not too competitive at the moment, with other buyers holding back because of uncertainty and interest rate rises. So, it would be good to invest now before interest rates stabilise later this year or next, and people come back into the market.”

With building costs rising and approvals down, it’s likely that apartments could be 20 per cent more expensive later, he says, making buying now – as long as that suits your financial circumstances and investment strategy – even more of a wise move.

As another plus for investors, the current tightness of supply and the future prospects of a more acute housing shortage will mean that growth in capital values will be assured, predicts Darren Venter of The Investors Agency. 

“When there are low listings and high demand, you can expect prices to grow,” he says. “So, it can be a good idea to buy in those conditions. It can be more challenging, but it can be more beneficial to do so.

“An easy way to gauge demand is by looking at how quickly properties are selling or at the number of listings that are being bought. Another tactic is to shop on the fringes of these markets, where more stock is available and easier to buy. In time, those markets will also grow as soon as the trend catches up.”

The ABS data on dwelling approvals found all states bar South Australia were down – Western Australia by 36.9 per cent, Victoria by 17.4 per cent, NSW by 16.2 per cent, Tasmania by 14.5 per cent and Queensland by 13.7 per cent. 

In such circumstances, looking for good yields, as well as long-term capital growth, does become more important, suggests Lloyd Edge, property strategist and the managing director of Australian Property Professionals. “Savvy investors will be looking to buy in good existing properties in good areas with a lot of infrastructure going in,” he says. 

“That often means investing in regional markets rather than capital city markets.”

National property analyst Terry Ryder, owner of hotspotting.com.au, agrees. He points to promising regional markets like Tamworth in NSW and regional Queensland areas like Toowoomba, Townsville, Rockhampton and Gladstone. They all have properties that are relatively much cheaper to buy yet, with strong rents, can show very respectable yields. 

“It’s quite favourable now for investors as long as they choose their location well,” he says. “They want places with lots of activity, strong underlying economies and good infrastructure. 

“It’s currently a time of great opportunity.”