Residential Development Index

Transcription

1 VICTORIA Urban Development Institute of Australia (Victoria) Residential Development Index Half Year Update March 2019 UDIA RDI Research Partners: 1 UDIA Residential Development Index

2 2 UDIA Residential Development Index

3 Table of Contents Executive Summary 4 Building Approval Trends by Region 7 Snapshot of Building Approvals by Region 9 Residential Development Index 11 About the Residential Development Index 12 Current Residential Development Index Rating 13 Drivers of the Residential Development Index 14 Demand and Supply Gap 16 Current Demand and Supply Gap 17 Residential Development by Region 19 Trends in Victoria and Melbourne 20 Inner Melbourne 21 Middle Ring of Melbourne 22 Outer Ring of Melbourne 23 Melbourne s Growth Areas 24 Spotlight: Collapse of Dwelling Approvals in the Central City 26 Historical and National Dwelling Approval Analysis 27 Building Approvals in the Central City 28 Review of Urban Renewal Areas 29 Fishermans Bend 30 Arden Macaulay 31 Southbank 32 CBD - Docklands 33 Economic Impact of the Residential Development Sector 34 Contribution to the Victorian Economy 35 Contribution to Employment 37 Spotlight: Four or More Storey Buildings 38 Methodology and Assumptions 39 Data Sources and Glossary 40 Geographical Study Areas 42 Demand and Supply Gap 44 3 UDIA Residential Development Index

4 Important Notice or Disclaimer The contents of this report are based on secondary research using a variety of sources and research partners including EY, UDIA members and publicly available databases including the Australian Bureau of Statistics. These sources are believed to be reliable. The information obtained from such sources, however, was not independently verified and was relied upon in performing the analysis. Accordingly, no representation or warranty is provided regarding the accuracy or completeness of the information contained in this report. The information contained in this report includes certain forecasts that are based on certain assumptions and qualifications which are outlined in this report. Readers are cautioned that the actual results are often different than as forecasted, because events and circumstances frequently do not occur as expected, and those differences may be material. UDIA (including its research partners) disclaim any responsibility whatsoever in relation to the contents of this report and have no obligations to provide any updates or corrections to the recipient of this report. The key points and conclusions contained in this report represent UDIA views. No reliance for whatsoever purpose should be placed on any of the contents of this report. The readers are cautioned not to take any actions or decisions based on the contents of this report, should they do that it will be at their own risk. 4 UDIA Residential Development Index

5 Executive Summary This report provides an update to the UDIA Residential Development Index The Urban Development Institute of Australia (Victoria) Residential Development Index (UDIA RDI) uses a unique model to assess the health of Victoria s residential development industry and measure its activity on an ongoing basis. The research examines the dynamics impacting the industry, including economic conditions, population growth, development activity, building approvals, regulatory changes and policy implications. These industry activity fundamentals inform the UDIA RDI, which determines whether the industry is operating in a strong, moderate or weak market, relative to recent and long history. This half yearly update relies on actual data from July to December 2018 and forecast data for January to June Together this data is the basis for the forecast UDIA RDI for June UDIA Residential Development Index The Residential Development Index is forecast to decline significantly in June 2019 to which is down from in June This is below the ten year average of Negative drivers contributing to the current forecast include relatively stagnant growth in purchasing power and insufficient supply relative to demand. The supply sub index fell from in June 2018 to 87.9 in June This sub component is now at its lowest level since June Demand and Supply Gap In FY18/19, we are expecting dwelling supply to fall significantly in an environment of ongoing population growth and strong household formation. This is expected to lead to a demand and supply gap of more than 4,500 dwellings. Overall dwelling supply varies considerably by dwelling type and region. Notably, the supply of detached dwellings is growing in Victoria s regional and growth areas, however a significant share of new dwellings involve the demolition of existing detached stock that is replaced with townhouses and units. Ongoing undersupply will lead to future latent demand and is likely to have significant implications for the cost of rent and future property price growth when access to finance begins to improve. Building Approvals For Dwellings Overall, total building approvals for dwellings in Victoria are expected to decline to 60,978 in FY18/19 from 75,844 in FY17/18. This represents a decline of 19.6% in total dwelling approvals within the state. The City of Melbourne, after leading total building approvals for dwellings in FY17/18, is expected to face an unprecedented fall in activity with a potential decline of 92% in FY18/19. 5 UDIA Residential Development Index

6 Executive Summary Likewise, the middle ring of Melbourne is forecast to experience a substantial decline in building approvals for dwellings of 27%. In contrast with this trend, building approvals for dwelling in the outer ring of Melbourne are expected to increase marginally by 4%. The number of building approvals for dwellings in Melbourne s growth areas is forecast to be 21,183 in FY18/19, down 5% from FY17/18. Building approvals for dwellings lag behind lots sales by up to two years in some growth corridors. The current reduction in lot sales is expected to impact building approval and completion data in FY19/20 and beyond. Urban Renewal Areas Designated urban renewal areas provide key opportunities for delivering part of the 70% of new dwellings in established areas as directed by the State Government s planning strategy for Melbourne, Plan Melbourne. Melbourne s established areas need to deliver approximately 42,500 dwellings per year to meet this target. In FY18/19 this figure could fall short by as much as 28,500 dwellings, with established areas delivering as little as 33% of all new stock in FY18/19 due to the considerable drop in activity in the central city and inner ring. The constraint on achieving the targeted share of the dwellings in established areas could persist for several years due to the forecast very weak activity in the central city and inner Melbourne and a significant drop off in activity in established urban renewal precincts including Docklands and Southbank. Economic Contribution In FY18/19 it is expected that the construction of residential dwellings and the associated infrastructure requirements will generate approximately $21 billion in economic activity in Victoria. This is a fall of $4 billion from the previous financial year, and is calculated based on current trends in the residential construction sector which show a 20% decline in the number of building approvals for dwellings, and a 15% reduction in the total value of building approvals between July 2018 and December 2018 compared with the same period the previous year. The residential development sector is forecast to support 189,000 full time, part time and casual jobs across the Victorian economy in FY18/19, down from 222,000 jobs in FY17/18. This is a loss of 33,000 jobs. The timing of the impact will depend on when the projects that are currently being approved are constructed. 6 UDIA Residential Development Index

7 Executive Summary Investor Activity The considerable drop in building approvals for dwellings in the central city and inner ring is largely due to a retreat in investor activity which was driven by a range of disincentives such as the removal of off-the-plan stamp duty concession for investment properties, the tightening of bank lending standards for property investment associated with the Financial Services Royal Commission, and low consumer confidence. In recent years investors have been vital to ensuring the viability of apartment developments and supporting this product for owner-occupiers. As investors retreat from this product, we expect to see flow on effects to the rental market and the declining availability of apartment rental stock. However, underlying demand remains strong and Victoria is experiencing continued population and employment growth. It is anticipated that a new baseline will be reached in terms of the availability of finance, and the market will adjust to these expectations paving the way for the underlying demand to convert to real demand. State and Local Governments need to continue delivering planning and development approvals and essential infrastructure to ensure they are available to meet real demand and to enable the development industry to deliver a robust pipeline of new housing, jobs and economic value for Victoria. Looking Forward Future threats to the sector include a forecast substantial undersupply of dwellings entering the market in FY19/20 and FY20/21, weak purchasing power due to low wage growth, a reduction in the availability of finance for purchasers and the significant retreat of investors from both the greenfield and apartment markets. These threats are combined with an unstable regulatory environment and the market adjusting to the outcome of the Financial Services Royal Commission. 7 UDIA Residential Development Index

8 Building Approval Trends by Region FY18/19 Victoria and Melbourne Total dwelling approvals in the Greater Capital City Statistical Area (GCCSA) are forecast to decrease by 20% in FY18/19 to 60,978. The City of Melbourne, after leading total dwelling approvals in FY17/18, is expected to face unprecedented declines in activity with a potential decline of 92% in FY18/19. Across the GCCSA, apartment approvals are forecast to decline by 52.2% and townhouses by 17.5% in FY18/19. Housing approvals are forecast to decrease by 4.6%. Overall, detached housing supply remains relatively strong, leading dwelling approvals over apartments and townhouses in the GCCSA. Inner Melbourne Total dwelling approvals in inner Melbourne FY18/19 is forecast to decline significantly, by over 65%. All local government areas (LGAs) within the inner ring are expected to experience a decline in dwelling approvals in FY18/19. Maribyrnong will fare the best with a fall of 17%, whilst Stonnington and Yarra are forecast to fall by 83% and Melbourne City by 92%. Approvals in the inner ring are driven by four storey plus projects, which are expected to decline from 11,855 in FY17/18 to 3,410 into FY18/19. The greatest number of dwelling approvals within inner Melbourne is expected to be in Stonnington, followed by Maribyrnong then Melbourne City. Middle Melbourne Total dwelling approvals in Middle Melbourne for FY18/19 are forecast to decline by 27%, with all building types expecting fewer approvals than the previous financial year. Semi-detached townhouse approvals are forecast to fall by 26% compared with FY17/18 data, whilst apartments are forecast to fall by 41%. After a very strong FY17/18, Monash is forecast to decline in total dwelling approvals by 45% in FY18/19, Glen Eira is forecast to fall by 46%, and Kingston by 54%. Boroondara is forecast to experience the opposite - a strong FY18/19 after coming off a weak FY17/18. 8 UDIA Residential Development Index

9 Building Approval Trends by Region FY18/19 Outer Ring of Melbourne Total dwelling approvals for FY18/19 are forecast to increase by 9% compared with FY17/18 data and by 17% compared with FY16/17 data. Townhouses are expected to continue the strong year on year growth, with a forecast increase of 13% compared with FY17/18 results. Houses are expected to no longer be the dominant building type to be approved, being overtaken by townhouses 2,220 to 1,891 in FY18/19. This comes off an expected 7% decline in housing approvals for FY18/19. Greater Dandenong, Manningham and Nillumbik are forecast for an increase in total dwelling approvals in FY18/19 of 40% or more. Melbourne s Growth Areas Total dwelling approvals in FY18/19 are forecast to decrease by 5% on FY17/18 data and by 8% on FY16/17 data. Townhouse products on a percentage basis are forecast to decline the greatest in Growth Areas, down 18% in FY18/19. Apartment approvals are expected to increase by 85%, although only make up 2% of total dwelling approvals in growth areas. Melton and Whittlesea are expected to grow in total dwelling approvals whilst Wyndham, Hume, Casey and Cardinia are expected to decline. Regional Areas Regional total dwelling approvals are forecast to grow by 4% in FY18/19, continuing to show strength with a 22% increase in approvals in FY17/18. Houses are the only building type forecast to increase in total approvals in FY18/19, up by 10%. Apartments are forecast to fall by 69% to 185, whilst townhouses are forecast to fall by 17% to 1,546. Major regional centres are expected to vary in total dwelling approvals in FY18/19 with Ballarat and Greater Geelong up 34.2% and 12.3% respectively, and Mornington Peninsula and Greater Bendigo down 29.1% and 9.4% respectively. 9 UDIA Residential Development Index

10 Snapshot of Building Approvals by Region FY18/19 Victoria Victoria Total Building Approvals FY17/18 FY18/19 Forecast FYoY Growth Houses 39,570 37,751-5% Semi-detached, row or terrace houses, townhouses Total 13,857 11,434-18% Flat units or apartments Total including those attached to a house 22,207 10,674-52% Flats, units or apartments Four Levels + 20,634 9,646-53% TOTAL 75,844 60,978-20% Inner Melbourne Inner Melb Total Dwelling Approvals FY17/18 FY18/19 Forecast FYoY Growth Houses % Semi-detached, row or terrace houses, townhouses Total % Flat units or apartments Total including those attached to a house 12,074 3,604-70% Flats, units or apartments Four Levels + 11,855 3,410-71% TOTAL 13,467 4,734-64% Middle Melbourne Middle Melb Total Dwelling Approvals FY17/18 FY18/19 Forecast FYoY Growth Houses 4,053 3,983-2% Semi-detached, row or terrace houses, townhouses Total 6,591 4,904-26% Flat units or apartments Total including those attached to a house 8,062 4,765-41% Flats, units or apartments Four Levels + 7,020 4,099-42% TOTAL 18,706 13,652-27% 10 UDIA Residential Development Index

11 Snapshot of Building Approvals by Region FY18/19 Outer ring of Melbourne Outer ring Melb Total Dwelling Approvals FY17/18 FY18/19 Forecast FYoY Growth Houses 2,038 1,891-7% Semi-detached, row or terrace houses, townhouses Total 1,971 2,220 13% Flat units or apartments Total including those attached to a house 1,211 1,312 8% Flats, units or apartments Four Levels ,204 8% TOTAL 5,220 5,422 4% Melbourne s Growth Areas Melbourne Total Dwelling Approvals FY17/18 FY18/19 Forecast FYoY Growth Houses 19,585 18,663-5% Semi-detached, row or terrace houses, townhouses Total 2,511 2,060-18% Flat units or apartments Total including those attached to a house % Flats, units or apartments Four Levels % TOTAL 22,345 21,183-5% Regional Areas Regional Total Dwelling Approvals FY17/18 FY18/19 Forecast FYoY Growth Houses 13,399 14,773 10% Semi-detached, row or terrace houses, townhouses Total 1,868 1,546-17% Flat units or apartments Total including those attached to a house % Flats, units or apartments Four Levels % TOTAL 15,875 16,505 4% 11 UDIA Residential Development Index

12 Residential Development Index In this section About the Residential Development Index 12 Current Residential Development Index Rating 13 Drivers of the Residential Development Index UDIA Residential Development Index

13 About the UDIA Residential Development Index The UDIA Residential Development Index (RDI) has been developed using three inputs including demand, capacity to purchase and supply relative to demand. UDIA RDI Inputs: Demand (weighted at 40%) Considers population growth in Victoria. Calculated as annual % growth over 12 months to June 18 as an index. Index = [annual % change + 1] x 100. The index is weighted at 40%. Supply (weighted at 10%) Considers building approvals relative to estimated household demand to indicate relative level of supply. Household demand is calculated as [population growth / the assumed average household size in Victoria at the time RDI is measured]. A loading of 20% is applied to account for the fact that not all building approvals yield net additional supply. This component is weighted at 10% of the overall index due to the higher level of variability in supply that has been observed over time. Purchasing power (weighted at 50%) This component considers employment growth in Victoria and the relative purchasing power by those who are employed by considering wage growth relative to inflation. The sub component of the index is calculated using two factors: Purchasing power (employment) component 50% Demand component 40% Supply component 10% Input 1: Employment. Calculated as annual % growth over 12 months to June 18 as an index. Input 2: Relative Wage Growth. Calculated as the growth of wages over the year, compared to CPI as a ratio. Index = [Wage / CPI] x 100. Both inputs are averaged to create an index, which is weighted at 50%. RDI = Weighted average of 3 components RDI Scores Above 103 = Strong Market = Moderate Market Below 100 = Weak Market 13 UDIA Residential Development Index

14 Current UDIA Residential Development Index Rating Making sense of the UDIA RDI rating CURRENT UDIA RDI RATING = Based on the ten years of analysis between June 2009 and June 2019: Each input is calculated on an annual basis at a point in time subject to the availability of data. It should be noted that employment and dwelling approvals data is available with limited lags whereas estimates of population and employment have approximately a six month lag. 1. The index is forecast to decline significantly in June 2019 to down from in June This is below the 10 year average of Based on historical data an index of 100 or higher indicates a relatively well performing sector with results above 103 indicating strong drivers in the sector. Results below 100 indicate relative weakness or emerging weakness in key drivers. 3. The index was at its lowest point in June 2009 (99.2) when employment growth (purchasing power) and population (demand) were all relatively consistent but supply (dwelling approvals) was notably low. RDI and its Components Demand, PP, Index Demand Index of residential activity Purchasing power Supply Supply 4. Negative drivers contributing to the current forecast include a significant decline in supply and relatively stagnant growth in purchasing power, driven by weak wage growth but balanced with continued employment growth. 5. The primary constraint on the performance of the RDI at present is supply. This component reduced the supply sub index from in June 2018 to 87.9 in June This sub component is now at its lowest level since June INDEX Residential Development Index (RDI) Jun-2009 Jun-2010 Jun-2011 Jun-2012 Jun-2013 Jun-2014 Jun-2015 Jun-2016 Jun-2017 Jun-2018 Jun UDIA Residential Development Index

15 Drivers of the UDIA Residential Development Index There are a number of issues emerging in the Victorian economy that are likely to continue to have an impact on the drivers of the RDI over time. Weak Wage Growth It is expected that relatively weak wage growth will continue to dampen price escalation for established and new properties in the market. Over the year to December 2018 wages increased by 2.7% in Victoria and by 0.8% in the September quarter. This exceeded Consumer Price Index (CPI) growth of 1.8%, however non-discretionary household costs such as health, transport and education all increased above wage growth and will continue to constrain the purchasing power of those considering the purchase of a home. Wages and CPI 5 4 Annual change % Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 Jun-15 Jun-16 Jun-17 Jun-18 Wage Cost Index CPI Source: Australian Bureau of Statistics, UDIA Residential Development Index

16 Drivers of the UDIA Residential Development Index Strong Employment Growth From a positive perspective unemployment rates remain low and this is reflected in recent data released by the Australian Bureau of Statistics (ABS) for December 2018 where Victoria s unemployment rate has remained steady at 5.0%. The State Budget released in May expects employment growth to remain reasonably strong for the foreseeable future with employment growth of around 1.75% to 2.00% in the forecast period to FY21/22. The strength of Victoria s employment market is reflected in the high employment to population ratio which has reached a long-term high of 63% in Victoria relative to a national average of 62.3%. This indicates that the State s labour market is being worked relatively hard and this trend is depicted in the figure below. Wages and Employment Emply ment 000's 4,000 3,500 3,000 2,500 2,000 1,500 1, Jun-2008 Jun-2010 Jun-2012 Jun-2014 Jun-2016 Jun-2018 Employment 000's Employment to Population ratio Ax is Title Continued Population Growth Population growth has continued to grow, although at a slightly reduced rate of 2.2% in the 12 months to June 2018 (aligning with FY17/18). The slowing population growth allows for the drop in forecast supply to have a slightly lesser impact on the UDIA RDI and the supply and demand gap. 16 UDIA Residential Development Index

17 Demand and Supply Gap In this section Current Demand and Supply Gap UDIA Residential Development Index

18 Current Demand and Supply Gap An important component of the UDIA RDI is the relationship between housing demand and supply for Melbourne and the regions. What is the relationship between demand and supply right now? A significant decline in expected building approvals for FY18/19 will drive a substantial shortfall between supply and demand of 4,612. In addition to this, the data indicates there is an undersupply of dwellings available for permanent occupation. On this measure, the forecast undersupply is 11,320 dwellings in FY18/19. How has the demand and supply relationship changed over the past three years? The supply gap of 6,390 in FY16/17 was moderated in FY17/18 with a supply excess of 5,850 dwellings. There has been an undersupply of dwellings available to occupy in the past three years of 13,538 in FY16/17, 2,463 in FY17/18 and 11,320 in FY18/19. The DSG average of the past three years is moderated by the narrowing of the demand and supply gap in FY18/19: DSG all dwellings three year average: -1,714 DSG dwellings available to occupy: -9,107 Abbreviations DSG DBA Yield Demand and Supply Gap Estimated yield of dwellings to building approvals (used to forecast supply) Assumptions The estimates are theoretical in nature and based on a series of assumed parameters including: - An average household size of Actual dwelling approvals to December Actual population growth to June 2018, and forecasted growth in 2019 based on forecasts in the Victorian State budget 18 UDIA Residential Development Index

19 Current Demand and Supply Gap Current estimates of DSG in Victoria Year End FY16/17 FY17/18 FY18/19 YTD Average Supply estimate Dwelling approvals 65,003 75,634 60,978 Assumed DBA yield total Assumed DBA yield dwellings available for occupation Estimated net supply of total dwellings 50,702 58,995 47,563 Estimated supply of dwellings available for occupation 43,552 50,675 40,855 Demand estimate Population growth 148, , ,655 Household size Household growth 57,090 53,138 52,175 DSG all dwellings -6,388 5,856-4,612-1,714 DSG dwellings available to occupy -13,538-2,463-11,320-9,107 Source: ABS building approvals (8731.0), ABS demographic statistics (3101.0) and State Government of Victoria, UDIA Residential Development Index

20 Residential Development by Region In this section 20 Trends in Victoria and Melbourne 20 Inner Ring of Melbourne 21 Middle Ring of Melbourne 22 Outer Ring of Melbourne 23 Melbourne s Growth Areas 24 UDIA Residential Development Index

21 Trends in Victoria and Melbourne Greater Capital City Statistical Area Trends in Regional Victoria Overall, total dwelling approvals in the Greater Capital City Statistical Area (GCCSA) are forecast to decrease by 24.3% FY18/19 to 45,226, falling from 59,738 in FY17/18. Townhouse dwelling approvals are expected to fall in GCCSA by 17.5% to 9,879 in FY18/19 from 11,973 in FY17/18 and 10,269 in FY16/17. In FY17/18 there were 17.5% less apartment dwelling approvals than housing approvals, theses were 21,596 to 26,169 respectively. Housing approvals continue to dominate with a forecast of 24,966 in FY18/19 which is 41.6% higher than the 10,381 apartment approvals. The decline in dwelling approvals across the GCCSA in all residential property types represents a significant turnaround in the residential market for FY18/19 relative to FY17/18 during which the market enjoyed significant growth (particularly in the first half of 2017). Relative to Melbourne, regional Victoria is enjoying a positive outlook for FY18/19. This situation is primarily due to the limited impact of the downturn in investor activity in regional Victoria and the profile of projects typically delivered in regional Victoria. The construction of detached dwellings is expected to reach over 14,000 in regional Victoria in FY18/19 based on current trends. This is being driven by strong levels of lot sales in regional centres in FY16/17 and FY17/18. Townhouse activity in locations including Greater Geelong and Ballarat remains reasonably positive. Dwelling approvals Dwelling Approvals - GCCSA FY16/17 FY17/18 FY18/19* 30,000 25,000 20,000 15,000 10,000 5,000 0 Houses Townhouses Apartments Dwelling approvals 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 Dwelling Approvals - Regional Vic FY16/17 FY17/18 FY18/19* Houses Townhouses Apartments Source: Australian Bureau of Statistics, 2019 Source: Australian Bureau of Statistics, UDIA Residential Development Index

22 Inner Ring of Melbourne Overall performance in Melbourne s inner ring is forecast to sharply decline Total dwelling approvals for the inner ring of Melbourne are forecast to be more than 65% lower than FY17/18. Apartment dwelling approvals of four storey plus buildings are forecast to be 3,410 for FY18/19, down 71% from 11,855 in FY17/18. Approvals for dwellings within three storey buildings are forecast to rise slightly in FY18/19 to 174 from 169 in FY17/18, although these make up a minor part of the broader apartment market in the region. Townhouse approvals are also forecast to decline by 22% to 703 in FY18/19, down from 900 in FY17/18. Hot spots From a locational perspective the City of Stonnington is the only LGA within inner Melbourne forecast to perform well in FY18/19. Total dwelling approvals in Stonnington LGA are forecast to grow by 92% in FY18/19 to 1,662, up from 867 in FY17/18. Already 1,058 dwellings have been approved in the six months to December 2018 concentrated in the South Yarra area. Maribyrnong is still displaying year on year growth in dwelling approvals for the past two years, however the forecast for FY18/19 is a fall in approvals of 17% from FY17/18. Areas showing signs of weakness All other LGA s are forecast to experience a significant fall in dwelling approvals in FY18/19. The City of Melbourne and the City of Yarra are leading the decline. Dwelling approvals for the City of Melbourne are forecast to drop by 92% in FY18/19 to only 613. This is significant, coming off the peak in FY17/18 of 7,350 dwelling approvals. The City of Melbourne is typically driven by higher density approvals in which 98.4% of dwelling approvals in FY17/18 were for four storey plus developments. The City of Yarra is forecast to see total dwelling approvals drop by 82% in FY18/19 to 379 whilst the City of Port Phillip is forecast to decline by 42% Dwelling Approvals Inner Ring FY16/17 FY17/18 FY18/19* (forecast) 14,000 12,000 Total YoY Dwelling Approval Growth - Inner Ring Yarra (C) 1 year growth 2 years growth Dwelling approvals 10,000 8,000 6,000 4,000 Stonnington (C) Port Phillip (C) Melbourne (C) 2,000 0 Flats units or apartments - In a four or more storey block Flats units or apartments - In a three storey block Semi-detached, row or terrace houses, townhouses - Total Maribyrnong (C) -150%-100% -50% 0% 50% 100% 150% Year on Year growth in total dwelling approvals Source: Australian Bureau of Statistics, UDIA Residential Development Index

23 Middle Ring of Melbourne Melbourne s middle ring is forecast to decline but not as sharply as the inner ring. Total dwelling approvals for the middle ring of Melbourne are forecast to be 13,652 within FY18/19, down from the result of 18,706 in FY17/18. Houses are forecast to be the only type of property to remain stable in FY18/19, forecast to see 3,983 approvals down from only 4,053 in the previous 12 month period. Apartment dwelling approvals are forecast to decline significantly to 4,765 in FY18/19 from 8,062 in FY17/18 and 6,727 in FY16/17. Semi-detached townhouse development is also forecast to decline in FY18/19 to 4,904, down from 6,591 in FY17/18 and 5,734 in FY16/17. Hot spots Boroondara is forecast to experience a strong increase in total dwelling approvals in FY18/19 of 1,574, up from 965 in FY17/18. Apartment approvals of four storey buildings and above have already surpassed the total FY17/18 figures in the six months to December House approvals are forecast to remain steady to previous years, whilst townhouses approvals are forecast to decline in FY18/19. Hobsons bay is forecast to experience slight growth in total dwelling approvals in FY18/19, led by an increase in four storey plus projects. A 14% increase in dwelling approvals is expected for the LGA. Areas showing signs of weakness The majority of LGA s within the middle ring are forecast to show a significant decline in dwelling approvals for FY18/19. LGA s forecast to drop by over 40% include; Kingston, Monash, Glen Eira, Whitehorse and Moreland. The City of Monash is forecast to decline the greatest when total dwelling approvals are considered with approvals falling by 1,404 dwellings in FY18/19 to 1,704. The City of Glen Eira is expected to decline by 1,118 dwellings in FY18/19. Dwelling approvals for houses and townhouses in the City of Monash are expected to be similar in FY18/19 as they were in the previous financial year. Apartment approvals, specifically those in the four storeys plus category may fall by over 50%. Dwelling Approvals - Middle Ring FY16/17 FY17/18 FY18/19* (forecast) Total YoY Dwelling Approval Growth - Middle Ring 1 year growth 2 years growth 9,000 Dwelling approvals 8,000 7,000 6,000 5,000 4,000 3,000 2,000 Moonee Valley (C) Monash (C) Kingston (C) Hobsons Bay (C) Glen Eira (C) 1,000 Boroondara (C) 0 Houses Semi-detached, row or terrace houses, townhouses - Total Flats units or apartments - Total including those attached to a house -100% -50% 0% 50% 100% Year on Year growth in total dwelling approvals Source: Australian Bureau of Statistics, UDIA Residential Development Index

24 Outer Ring of Melbourne Melbourne s outer ring will see building approvals for apartments and townhouses grow. Total dwelling approvals for Melbourne s outer ring are forecast to increase marginally in FY18/19 to 5,422 from 5,220 in FY17/18. This represents a 4% increase in approvals. Apartment approvals, particularly those within a four level or more project, are forecast to grow by 8.5% in FY18/19, moderating the expected decline of 7.2% in housing approvals. Townhouse approvals are forecast to increase by 13% in FY18/19 to 2,220. This represents consistent townhouse approval growth by approximately 150 additional dwellings per year since FY16/17. Hot spots Dwelling approval growth on a percentage basis is forecast to be strongest in Nillumbik Shire, up by 142% in FY18/19, however this LGA only makes up a fraction of approvals for the outer ring. Greater Dandenong is forecast to grow by 40% in FY18/19, with an additional 398 dwellings expected to be approved in comparison to FY17/18. Manningham is also expected to show strong dwelling approval growth in FY18/19, increasing from 1,440 to 2,165 in the twelve month period. Growth in both LGAs is driven by higher density dwelling approvals. Areas showing signs of weakness Maroondah City Council and the City of Knox are forecast to experience significant reductions in total dwelling approvals into FY18/19, falling by 67% and 13% respectively. Housing approvals within Maroondah are expected to remain stable between FY17/18 and FY18/19, however apartment and townhouse approvals are forecast to drop significantly. However in the City of Knox apartment approvals are expected to increase in FY18/19, whilst housing approvals will bring down the total dwelling approvals for the area in comparison to FY17/18. Dwelling Approvals - Outer Ring FY16/17 FY17/18 FY18/19* (forecast) Total YoY Dwelling Approval Growth - Outer Ring 1 year growth 2 years growth Dwelling approvals 2,500 2,000 1,500 1, Nillumbik (S) Maroondah (C) Manningham (C) Knox (C) Greater Dandenong (C) 0 Houses Semi-detached, row or terrace houses, townhouses - Total Flats units or apartments - Total including those attached to a house Frankston (C) -100%-50% 0% 50% 100% 150% 200% Year on Year growth in total dwelling approvals Source: Australian Bureau of Statistics, UDIA Residential Development Index

25 Melbourne s Growth Areas Detached houses continue to dominate approvals for Melbourne s growth areas. The volume of housing approvals in Melbourne growth area LGAs is forecast to be 21,183 in FY18/19, slightly down from the 22,345 in FY17/18 and above FY16/17 result of 19,612. A decline in approvals for houses of 5% is forecast for FY18/19, and a drop of 18% in townhouse approvals. Houses as a building type will continue to dominate, accounting for 88% of dwelling approvals for FY18/19. Dwelling approvals for apartments are expected to grow by 85% to 460 in FY18/19, which would be above the FY16/17 peak of 417. Hot spots There are limited LGA s expected to post positive dwelling approval results in FY18/19. Melton is forecast to grow by 8% in FY18/19 to a total of 2,939 dwelling approvals. This would reflect a 27% growth in dwelling approvals over a two year period. Whittlesea is also forecast to grow by 6% in FY18/19, to 2,594 dwelling approvals. In the six months to December 2018, 1,474 dwellings have been approved for the area. Areas showing signs of weakness In contrast with the steady levels of dwelling approvals in FY17/18, approvals are forecast to decline in Wyndham, Hume, Casey and Cardinia in FY18/19. Total dwelling approvals in Cardinia Shire are forecast to fall by 19.5% to 1,731 and in the City of Casey by 17.8% to 4,446 in FY18/19. Cardinia Shire is forecast to experience a strong decline in housing approvals while townhouse approvals are expected to rise. Conversely, in the City of Casey, approvals for houses are forecast to remain consistent while approvals for townhouses are forecast to decline. Dwelling approvals 20,000 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 Dwelling Approvals - Houses Growth Areas FY16/17 FY17/18 FY18/19* (forecast) Semi-detached, row or terrace houses, townhouses - Total Source: Australian Bureau of Statistics, 2019 Flats units or apartments - Total including those attached to a house Total YoY Dwelling Approval Growth - Growth Areas 1 year growth 2 years growth Wyndham (C) Whittlesea (C) Melton (C) Hume (C) Casey (C) Cardinia (S) -30% -20% -10% 0% 10% 20% 30% Year on Year growth in total dwelling approvals 25 UDIA Residential Development Index

26 Melbourne s Growth Areas Sales performance Melbourne s Growth Areas Gross Lot Sales The trends indicate a significant decline in lot sales at both the suburb level and LGA level. UDIA members have provided updated details of lot sales in Victoria s growth areas. Year to date gross lot sales have fallen significantly across all LGAs excluding Cardinia Shire, which appears on track to achieve similar total sales to the FY17/18 period. The City of Hume and the City of Greater Geelong have experienced the strongest falls to December The Cities of Melton, Wyndham and Whittlesea have also experienced a significant decline in gross lot sales. Overall, gross lot sales within Melbourne growth areas are on track to achieve similar results to FY13/14. There is a delay of up to 18 months between the sale of a lot and the settlement of that lot which enables building approval for a dwelling. This is why the data for lot sales and building approvals in any given time period may not align. $ / sqm 1, Victorian Growth Areas - $ / sqm of Land - Lot Price 2008/ / / / / / / / / / /19 YTD Cardinia Casey Hume Mitchell Whittlesea Melton Wyndham Greater Geelong Gross Lot Sales 10,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 Target Growth Suburbs - Gross Lot Sales 2008/ / / / / / / / / / /19 YTD Armstrong Creek Tarneit Rockbank Wollert Mickleham Clyde North Pakenham Gross Lot Sales 25,000 20,000 15,000 10,000 5,000 0 Victorian Growth Areas - Gross Lot Sales 2008/ / / / / / / / / / /19 YTD Source: UDIA Source, 2019 Greater Geelong Wyndham Melton Whittlesea Mitchell Hume Casey Cardinia 26 UDIA Residential Development Index

27 Spotlight: Collapse of Dwelling Approvals in the Central City In this section Historical and National Dwelling Approval Analysis 27 Building Approvals in the Central City UDIA Residential Development Index

28 Historical and National Dwelling Approval Analysis Comparison between Melbourne and Sydney The majority of the nation is experiencing a negative shift in the state of the residential development market - particularly apartment construction - over the last 12 months. This can be attributed to a range of policy and regulatory initiatives that have tightened lending practices and restricted foreign investment. The data for the first half of FY18/19 reveals that Melbourne is experiencing a stronger slow down than Sydney. Recent data suggest that: Over the six month period of July 2018 to December 2018, dwelling approvals have declined by 79% in Sydney LGA and 92% in Melbourne LGA. Melbourne LGA is expected to have activity of approximately 318 new dwellings relative to 465 in Sydney LGA. This is a significant decline from the same period in the first half of FY17/18 where Melbourne had more than 4,000 dwelling approvals relative to approximately 2,200 in Sydney LGA. Melbourne & Sydney - Four Storey Plus Dwelling Approvals Dwelling approvals 4,000 3,500 3,000 2,500 2,000 1,500 1, Sydney Suburb Melbourne Suburb Melbourne & Sydney - Four Storey Plus Dwelling Approvals Jul Dec Building Approvals 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1, Jul-17 to Dec-17 Sydney LGA Melbourne LGA Jul-18 to Dec-18 Source: Australian Bureau of Statistics, UDIA Residential Development Index

29 Building Approvals in the Central City Review of activity in Melbourne and the central city relative to the previous six years We note that commentary in recent years has focused on concerns that Melbourne s middle ring is not doing enough to accommodate population growth and provide housing. There has been concern by some planners that the CBD and surrounds is taking the bulk of growth in established Melbourne. Recent trends, however, indicate a stark turnaround. Plan Melbourne includes a target of 70% of dwelling growth to be directed to Melbourne s established suburbs. However, the drop off in building approval activity in the central city will make the target challenging to achieve in FY18/19, and even more so in FY19/20 and future years. Recent data suggests that: The decline in the Melbourne CBD, Docklands, and Southbank (the central city) is forecast to be the most dramatic in more than six years. The central city typically accounts for 23% of medium to high density supply across Melbourne (average FY14/15 to FY17/18) however this area has only accounted for 3% of the same approvals in the FY18/19 to date. This downturn, combined with moderate activity in the inner, middle and outer rings of Melbourne, indicates established areas could supply as few as 33% of all new dwelling stock in FY18/19 and future years, depending on the timing of delivery of larger projects under construction. To reach the target of Melbourne s established areas accommodating 70% of dwelling supply, approximately 42,500 dwellings must be delivered each year. In FY18/19 this figure could fall short by as many as 28,500 dwellings. Melbourne & Central City - Four Storey Plus Dwelling Approvals Dwelling approvals 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1, Carlton Docklands Melbourne North Melbourne Southbank FY12/13 'Other' DA FY13/14 'Other DA' FY14/15 'Other DA' FY15/16 'Other' DA FY16/17 'Other' DA FY17/18 'Other DA' FY18/19 YTD 'Other' DA Source: Australian Bureau of Statistics, UDIA Residential Development Index

30 Review of Urban Renewal Areas In this section Fishermans Bend 30 Arden Macaulay 31 Southbank 32 CBD - Docklands UDIA Residential Development Index

31 Fishermans Bend Fishermans Bend Development Pipeline Project Status Planning Assessment Approved Registration & Sales Under Construction Projects / Yield Planning Assessment 22 Approved 8 Registration and Sales 3 Under Construction 2 Total Approximate Dwellings in Pipeline 13,703 + Source: Urban, 2019 Fishermans Bend Development Pipeline Concentration Area Fishermans Bend Dwelling Targets and Expected Activity Fishermans Bend urban renewal area is expected to play a significant role in accommodating Melbourne s future growth with a target of 40,000 dwellings and 80,000 residents. The Fishermans Bend Framework sets out the strategic plan for the area until Using this as a guide and assuming the project is to be delivered within this timeframe, the annual dwelling supply required is approximately 1,300 dwellings per year between 2020 and To date there are only two projects under construction and three projects that have progressed to registration and sales. We note there are a number of projects that have planning approval but have not progressed to sales and registration or commencement. It is important for the State Government to ensure that this precinct is in a position to deliver a significant pipeline of new dwelling supply given other precincts, including Docklands, are reaching finalisation. 31 UDIA Residential Development Index

32 Arden Macaulay Arden Macaulay Development Pipeline Project Status Projects / Yield Planning Assessment 4 Approved 5 Registration and Sales 2 Under Construction 1 Total Approximate Dwellings in Pipeline Arden Macaulay Dwelling Targets and Expected Activity The Arden Macaulay precinct is designed to accommodate 25,000 residents by 2051 which comprises roughly 10,000 in Macaulay and 15,000 in Arden. Total Approximate Commercial NLA in Pipeline Source: Urban, ,356sqm + Whilst the precinct will be an important employment hub, it also has a key role to play in accommodating Melbourne s future residents. Arden Macaulay Development Pipeline Concentration Area Planning Assessment Approved Registration & Sales Under Construction To date, only one project is under construction with a supply of around 300 apartments. Another two projects are in the registration and sales process. To achieve a population of 25,000 residents by 2051 a total of approximately 450 new dwellings will need to be delivered annually. There are currently approximately 600 dwellings in the pipeline that have not started construction. 32 UDIA Residential Development Index

33 Southbank Southbank Development Pipeline Project Status Projects / Yield Planning Assessment 3 Approved 18 Registration and Sales 4 Under Construction 9 Total Approximate Dwellings in Pipeline Source: Urban, 2019 Southbank Development Pipeline Southbank Dwelling Targets and Expected Activity Southbank is arguably Melbourne s first large scale urban renewal precinct outside of the CBD area and has played an important role as an urban renewal precinct adjacent to the CBD. In 2010, the City of Melbourne produced a 30 year vision for Southbank, which highlighted that by 2040 a total of 57,000 dwellings could potentially be accommodated in the Southbank area. Planning Assessment Approved Registration & Sales Under Construction There are currently a total of 13,500 dwellings either under delivery or with planning approval, however a number of projects with planning approval are at risk of the permits expiring in the near future. Without an extension of these permits, the pipeline of new dwelling supply will be constrained further. The role of Southbank and its competitiveness as an urban renewal precinct will depend on activity in Fishermans Bend, as well as the general trajectory of Melbourne s apartment market, which will be heavily influenced by investor activity. 33 UDIA Residential Development Index

34 CBD - Docklands CBD - Docklands Development Pipeline (Commercial & Residential) CBD and Docklands Current and Expected Activity Project Status Planning Assessment Approved Registration & Sales Under Construction Projects / Yield Planning Assessment 9 Approved 31 Registration and Sales 6 Under Construction 24 Total Approximate Dwellings in Pipeline Total Approximate Commercial NLA in Pipeline Source: Urban, 2019 CBD and Docklands Current and Expected Activity 70,0795sqm + The CBD and Docklands are currently providing the bulk of existing residential construction in high density apartments in Melbourne. There are currently ten residential apartment projects under construction and another project under registration and sales. A further 13 residential projects have planning approval, however many of these have been approved for some time and have not commenced the sales process or construction. Some of these projects have planning permits that will soon expire which will significantly reduce the future pipeline. When the current list of projects under construction are completed, the level of activity in the CBD and Docklands could experience an unprecedented decline. It will be important for the State Government to monitor the potentially significant change in supply in the CBD over the coming 12 months. 34 UDIA Residential Development Index

35 Economic Impact of the Residential Development Sector In this section Contribution to the Victorian Economy 35 Contribution to Employment 37 Spotlight: Four or More Storey Buildings UDIA Residential Development Index

36 Contribution to the Victorian Economy Contribution of the residential development sector to the Victorian economy Based on the economic value add measure, the new residential construction sector (inclusive of the sector for four or more storey buildings) had a total contribution to the Victorian economy of just under $25 billion in FY17/18. This is equivalent to almost 6% of the Victorian economy and implies that roughly one in every $17 of activity is driven by the sector. Current trends in the residential construction sector show a 20% slow down in the number of residential dwelling approvals, and a 15% reduction in the total value of approvals between July 2018 and December 2018 compared with the same period the previous year. This slow down is largely attributable to a 48% fall in the approval of four or more storey residential buildings. Based on this trend, it is expected that this contribution will fall to $21 billion in FY18/19. Table 1: Expenditure ($m, real), total residential construction FY16/17 FY17/18 FY18/19 (forecast) Expenditure ($m)* $20,370 $24,658 $21,009 Table 2: Economic value add ($m, real), total residential FY16/17 FY17/18 FY18/19 (forecast) Direct value add ($m) $5,887 $7,126 $6,072 Indirect value add ($m) $18,149 $21,970 $18,719 Total value add ($m)** $24,036 $29,096 $24,790 How this contribution to the Victorian economy is calculated ABS dwelling approval data (value estimates) was used to calculate the estimated economic activity and employment generation. Dwelling approval data was used to estimate the contribution of the sector in FY18/19. Economic contribution is a measure comprising all market related expenditure generated by a specified industry or an activity. Economic contribution studies do not consider the substitution impacts to other industries (i.e. what might happen to expenditures if the specific industry or activity were lost). As such economic contribution is a gross measure rather than a net measure. To estimate economic contribution an input/output approach was used to calculate the direct and indirect (wider) economic impacts. REMPLAN was engaged to develop input/output multipliers that reflect the specific characteristics of the Victorian economy. Three common indicators of an industry or economic size or value are: Gross industry output Market value of goods and services produced, often measured by turnover/revenue. Gross output is also referred to as gross economic contribution or gross expenditure Value added (Gross State/Regional Product) Market value of goods and services produced, after deducting the cost of goods and services used. Jobs Number of jobs generated by an industry or attraction. Note: * Expenditure has been updated to reflect prices as of 1 January 2019 ** Total values may not be the sum of direct and indirect values due to rounding 36 UDIA Residential Development Index

37 Contribution to Employment Employment generated by the residential construction sector FY16/17 FY17/18 FY18/19 (forecast) Direct jobs creation 40,739 49,315 42,017 Indirect jobs creation 142, , ,061 Total jobs 183, , ,078 Key Points The residential development sector sustained almost 222,000 jobs in Victoria in FY17/18. This figure includes jobs sustained directly in the sector as well as in support industries such as property and business services, financial services, transport and distribution, manufacturing and other sectors. In FY18/19 this is forecast to decline to 189,000 jobs based on current trends in the value of building approvals. This is a loss of 33,000 jobs. The exact timing of impact will depend on when the projects that are currently being approved are constructed. How the contribution to employment is calculated Based on the expenditure estimates and the contribution this expenditure makes to the economy, it is possible to estimate the number of jobs sustained by the construction of new dwellings. Employment multipliers developed by REMPLAN estimate the average number of jobs sustained for every million dollars of expenditure. Job creation numbers reflect the current structure of the economy and predicts the number of full time, part time and casual jobs created. Direct jobs are those created in the residential construction industry in either residential building construction (for dwelling approvals) or heavy and civil engineering construction (additional infrastructure spend). Indirect job creation occurs across the economy in different industries that are supported by new residential construction. Industries supported by new residential construction include: other construction; manufacturing; professional, scientific and technical services, transport, postal and warehousing; and retail and wholesale trade. 37 UDIA Residential Development Index

38 Spotlight: Four or More Storey Buildings Contribution to the Victorian economy of four or more storey buildings Based on the economic value add measure, the new residential construction sector for four or more storey buildings had a total contribution to the Victorian economy of almost $7 billion in FY17/18. This is roughly 27% of the total contribution of the residential construction sector. Current trends in the construction market for four or more storey buildings show a 48% decline in the number of approvals and a 53% reduction in the total value of approvals between July 2018 and December 2018 compared with the same period the previous year. Based on this trend, it is expected this contribution will fall to $3.5 billion over FY18/19. Table 3: Expenditure ($m), four storey plus buildings FY16/17 FY17/18 FY18/19 (forecast) Expenditure ($m) $5,213 $6,720 $3,465 FY16/17 FY17/18 FY18/19 (forecast) Direct value add ($m) $1,507 $1,942 $1,001 Indirect value add ($m) $4,645 $5,987 $3,087 Total value add ($m) $6,151 $7,925 $4,089 FY16/17 FY17/18 FY18/19 (forecast) Direct jobs creation 10,426 13,440 6,930 Indirect jobs creation 36,492 47,039 24,254 Total jobs 46,918 60,479 31,184 Key Points In the construction of four storey plus buildings made a contribution to the Victorian economy of almost $7 billion. This contribution is expected to fall to over $3.5 billion in FY18/19, based on a slow down in dwelling approval rates. Over 60,000 jobs were sustained in Victoria by the construction of new four story plus residential dwellings directly and indirectly across all sectors in FY17/18. This figure is expected to fall to 31,000 jobs in FY18/ UDIA Residential Development Index

39 Methodology and Assumptions In this section Data Sources and Glossary 40 Geographical Study Areas 42 Demand and Supply Gap UDIA Residential Development Index

40 Data Sources and Glossary Abbreviations ABS EY BA LGA UDIA VIF DSG RDI DBA yield Census DTF DELWP State Budget Australian Bureau of Statistics Ernst & Young Building Approvals Local Government Area Urban Development Institute of Australia Victoria in Future Demand and Supply Gap Residential Development Index Estimated yield of dwellings to building approvals (used to forecast supply) Census of population and housing Department of Treasury and Finance (Victoria) Department of Environment, Land, Water, and Planning (Victoria) Budget Papers released by DTF Data and Information Sources In completing components of this report we have utilised existing sources of data including the following: Australian Bureau of Statistics. DTF Budget Papers including forecasts of population and employment. 40 UDIA Residential Development Index

41 Data Sources and Glossary Study Areas and Usage of Data The following assumptions were made regarding building approvals: Each geographical catchment has been referenced against defined LGAs. The Melbourne geographical catchments include (also shown on the following page s map): Inner Ring // This term throughout the Report refers to Melbourne s inner ring LGAs (<10km from CBD). LGAs within inner ring Melbourne include; Melbourne, Port Phillip, Yarra, Maribyrnong and Stonnington. Middle Ring // This term throughout the Report refers to Melbourne s middle ring LGA s (10-20 kms from CBD). LGAs analysed within middle ring Melbourne include; Moreland, Darebin, Banyule, Boroondara, Glen Eira, Manningham, Whitehorse, Monash, Bayside, Kingston, Moonee Valley, Brimbank and Hobsons Bay. Outer Ring // This term throughout the Report refers to Melbourne s established outer ring LGA s (>20kms from CBD). LGAs analysed within outer ring Melbourne include; Nillumbik, Maroondah, Knox, Greater Dandenong and Frankston. Growth Areas // This term throughout the Report refers to the defined Melbourne growth areas. LGA s analysed within Melbourne growth areas include; Hume, Whittlesea, Mitchell, Casey, Cardinia, Melton and Wyndham. Regional Victoria // This term throughout the Report refers to parts of Victoria excluding metropolitan Melbourne. Greater Capital City Statistical Area // Metropolitan Melbourne local government areas. 41 UDIA Residential Development Index

42 Geographical Study Areas Geographical Study areas utilised throughout the Report Macedon Ranges Inner Ring Middle Ring Outer Ring Growth Area Melton Wyndham Hume Whittlesea Moreland Brimbank Banyule Moonee Darebin Valley Manningham Maribyrnong Yarra Melbourne Boroondara Hobsons Whitehorse Stonnington Bay Port Phillip Monash Bayside Greater Geelong Kingston Greater Dangenong Frankston Mornington Peninsula 42 UDIA Residential Development Index

43 Nilumbik Yarra Ranges Maroondah Knox Casey Cardinia Baw Baw French Island Bass Coast 43 UDIA Residential Development Index

44 Demand an Supply Gap Summary of Approach As discussed in the previous iterations of the RDI, there are no regularly updated estimates of net dwelling supply released annually in Victoria. In addition, population forecasts and expected household formation (demand) should be assessed to confirm current trends on an ongoing basis. Estimates of a demand and supply gap (DSG) are made based on a series of assumptions. The following steps are undertaken in calculating a current and future DSG in Victoria: Update to underlying demand Estimate household demand between 2016 and 2019 using demand drivers including population growth and estimated household sizes. Supply Calculate the historical growth in supply of dwellings using census data on actual supply of dwellings including the supply of dwellings available for occupation. Compare the historical supply of dwellings (including occupied and unoccupied dwellings) with building approvals to allow for the calculation of an average ratio of supply to building approvals (DBA yield) Utilise the historical DBA yield over the assessment period to forecast current and future levels of supply based on current trends in building approvals. Demand and Supply Gap Compare the estimated supply of dwellings (including dwellings available for occupation) with forecasts of demand based on household formation. The variation between Demand and Supply = the DSG (undersupply or oversupply). 44 UDIA Residential Development Index

45 Demand an Supply Gap Summary of Methodology Demand Calculate current and forecast household formation as a measure of demand. Household formation driven by assumed population growth / changes to household sizes Supply Utilise current building approvals as a measure of supply. Calculate supply estimate whereby supply = Building Approvals * DBA yield for occupied and total dwellings Demand supply gap Demand Supply Gap calculated based on estimated variation for assessment period 45 UDIA Residential Development Index

46 46 UDIA Residential Development Index

47 47 UDIA Residential Development Index

48 URBAN DEVELOPMENT INSTITUTE OF AUSTRALIA (VIC) udiavic.com.au info@udiavic.com.au VICTORIA Level 4, 437 St Kilda Road, Melbourne VIC 3004 pocketrocketdesigns.com Disclaimer: The material contained within this report has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice. Please refer to your advisors for specific advice. UDIA RDI Research Partners: