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  • Writer's picturePeter Esho

The Critical Supply Crisis: The Major Factor Driving Property Prices

This week, the RBA acknowledged that China’s growth is slower than anticipated, an important factor in their domestic policy considerations. While I often discuss demand factors via RBA and interest rate policies, this week, I’ll focus on supply issues. The supply of housing, a problem since the pandemic, continues to deteriorate, affecting property prices and rents significantly.

Supply Chain Issues and Developer Struggles

From my vantage point in the industry, it’s evident that the actual supply pipeline, not just paper approvals, looks grim for the next 2-3 years. Major developers in Melbourne are facing numerous supplier bankruptcies, worsening the supply situation. Although some projects are still on track to meet milestones, the overall condition of the building industry is precarious. Without policy intervention, this could lead to a complete collapse of the construction sector, exacerbating social unrest.

Rising Rents and Social Implications

The current rental market is already under strain, with rising rents making it increasingly difficult for young people to afford housing. This trend is likely to continue as migration impacts are yet to fully settle in. While rising rents benefit property investors, they pose a significant social issue, as they hinder young professionals from living comfortably. Ensuring Australia remains an attractive place to live and invest is crucial, and ignoring the supply crisis threatens this balance.

Policy Inaction and Future Projections

Despite the urgency, there seems to be little action on the policy front to address these supply issues. If current trends continue, property prices and rents will skyrocket due to the inability to meet housing demand. Even drastic measures like closing borders wouldn’t suffice to manage the supply-demand imbalance over the next 5-10 years. Developers are struggling to complete projects without prices soaring, indicating a need for immediate and effective policy responses.

Peter Esho is an economist and Founder of Esho Capital, with 20 years of investment experience. 


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