If housing is so undersupplied, why are some markets falling in value?

February 12, 2024

The current state of the Australian housing market is often characterised as undersupplied. Supply is at the centre of government policy approaches to housing, and the latest reporting from Housing Australia estimates a supply shortfall of over 100,000 dwellings to the end of 2028.

Despite a purported lack of housing, some dwelling markets are declining in value, which is often explained by an ‘oversupply’ of housing. In Melbourne for example, home values declined -0.9% in the three months to January. This has occurred alongside a rise in total listing numbers, giving prospective buyers more choice, and therefore more leverage to negotiate prices down.

So how are these two ideas reconciled?

Demand for housing in Melbourne is seemingly sluggish and listings are accumulating, while at the same time the political discourse about the critical undersupply of housing is louder than ever.

The answer is in recognising that there is a difference between the market for purchasing housing and the need for somewhere to live. Terms around supply and demand may be conflated across the two conversations, but they can be distinct from each other.

The market for purchasing housing can be characterised as the amount of housing available for sale, and the number of people interested in buying. The desire to buy housing is shaped by things like credit conditions, consumer confidence, income, savings, capital growth prospects, rent return and tax settings. But whether or not housing looks attractive to buy as an asset is different to needing somewhere to live.

Returning to Melbourne as an example, CoreLogic estimates there were 81,203 dwelling sales in the 2023 calendar year, which represents the market demand of those that were willing and able to buy housing. But the amount of ‘supply’, or the number of new listings added to the market in the period was even higher, at over 90,000. In this sense, the market was indeed oversupplied in 2023, which caused purchasing values to come down slightly.

But demand from the perspective of people needing somewhere to live is very different in Melbourne. Population growth in Melbourne is likely to have increased markedly in 2023, with the city historically attracting around 30% of the country’s net overseas migration, according to ABS regional population data. In November last year, rental vacancy rates across Melbourne were less than 1%, compared to a historic five-year average of 2.2%. Rent values in Melbourne increased 10.7% in 2023. Homes Victoria data suggests state-wide, there was a 4.7% increase in new housing applicants resulting from homelessness in the year to June. Each of these factors points to increased housing demand, even if the people who need these homes are not in a position to buy.

In fact, private rental market values can be a pretty good proxy for the more fundamental need for housing, because the private rental market is the most common fall back for people who cannot, or are not willing, to buy housing. This helps to explain why changes in rent values and home purchasing values have differed over the past few years. The change in purchase values fluctuated amid changes in policy settings, while rents moved consistently higher.


Rolling annual change in rents versus purchase values – National, dwellings



So what does it mean when the fundamental demand for housing is strong, but purchasing demand is low? And what can we glean from slowing capital growth, and purchase values falling in some markets, while rent values continue to rise at persistently strong levels?

It probably means that buyer demand will be particularly sensitive to changes in interest rates, or other aspects of demand that make that make it easier to go from renting to owning. For example, a reduction in mortgage rates, or the serviceability assessment buffer, would increase borrowing capacity for lower income households, boosting the number of buyers in the market. Value falls in the Melbourne market will also start to flatten out once prices are low enough to entice buyers.

Remembering that supply and demand of dwellings can mean different things from a market perspective and a social perspective is also important. It helps to avoid conflating a decline in dwelling values as a step toward solving the housing crisis, and acknowledging that some households will never be in the market to buy. In these cases, it is important to have a consistent supply of social housing outside of market fluctuations, to ensure adequate housing for those that just need somewhere to live.


Source: corelogic.com.au

You might be also interested in

Gettyimages 1922023181
Here we go again: Shipping disruptions could pose major risk to interest rate cuts
‘Left of field’ shocks to global supply chains such as the tensions playing out in the Red Sea are the biggest risk to inflation and interest rates, the Reserve Bank
Construction cost growth ‘returns to trend’
A reacceleration in the quarterly pace of growth for national construction costs is suggested to be a return to trend rather than a new surge, according to CoreLogic. The Cordell Construction
Rental market to reach ‘tipping point’ in 2024: Domain
Domain’s Dr Nicola Powell told the Savings Tip Jar podcast the rental market will likely ease some time next year as more renters buy property or move into share houses,
Monthly Housing Chart Pack – January 2024
Here are the must know stats, facts and figures on Australia’s residential property market. Annual growth in home values have seen ups-and-downs while rent values have increased at more than
6 strategies to help you renegotiate your home loan and save money
Home loans are at their most expensive in 11 years, prompting a mad scramble among heavily mortgaged homeowners to either switch lenders or negotiate a better deal with their existing
Richmond: Where you’ll find everything from cheap street food to luxury furniture
Richmond’s Barkly Gardens are popular with locals. Photo: Greg Briggs Bridge Road is back. The news from Richmond has the ailing retail strip shucking off the doldrums and getting a
Home prices set to break new records in 2024, with three cities tipped to outperform all others
Stage three tax cuts, soaring population growth and lagging housing supply could see national property prices rise up to 4% over 2024, and as much as 8% in some capital
Monthly Housing Chart Pack – December 2023
Each month the CoreLogic Research team puts together a Housing Chart Pack, with all the latest stats, facts and figures on the residential property market, such as the combined value
Aussies amp up energy efficiency in homes as cost of living soars
With the cost of living higher than it has been in decades, homeowners and renters are looking for ways to reduce bills and save some money. Those living in homes
V shaped recovery: CoreLogic’s national Home Value Index reaches a new record high in November
Australian dwelling values have regained the losses from the recent downturn and surpassed their previous peak to reach a new record high, CoreLogic’s national daily HVI shows. After reaching a

Get your Free Property Guide.

Here goes your text ... Select any part of your text to access the formatting toolbar.

Get your free Sales Report for If housing is so undersupplied, why are some markets falling in value?

Get your free Sales Report for If housing is so undersupplied, why are some markets falling in value?

Subscribe to hear the latest

Start The Conversation Today.

Call us on:

1300 850 730

Request a Callback:

Send us a Message:

Privacy Policy

Get your Free Property Guide

Get your free Suburb Report for If housing is so undersupplied, why are some markets falling in value?

Privacy Policy

Who we are

Suggested text: Our website address is: https://motionproperty.com.au.


Suggested text: When visitors leave comments on the site we collect the data shown in the comments form, and also the visitor’s IP address and browser user agent string to help spam detection.

An anonymized string created from your email address (also called a hash) may be provided to the Gravatar service to see if you are using it. The Gravatar service privacy policy is available here: https://automattic.com/privacy/. After approval of your comment, your profile picture is visible to the public in the context of your comment.


Suggested text: If you upload images to the website, you should avoid uploading images with embedded location data (EXIF GPS) included. Visitors to the website can download and extract any location data from images on the website.


Suggested text: If you leave a comment on our site you may opt-in to saving your name, email address and website in cookies. These are for your convenience so that you do not have to fill in your details again when you leave another comment. These cookies will last for one year.

If you visit our login page, we will set a temporary cookie to determine if your browser accepts cookies. This cookie contains no personal data and is discarded when you close your browser.

When you log in, we will also set up several cookies to save your login information and your screen display choices. Login cookies last for two days, and screen options cookies last for a year. If you select “Remember Me”, your login will persist for two weeks. If you log out of your account, the login cookies will be removed.

If you edit or publish an article, an additional cookie will be saved in your browser. This cookie includes no personal data and simply indicates the post ID of the article you just edited. It expires after 1 day.

Embedded content from other websites

Suggested text: Articles on this site may include embedded content (e.g. videos, images, articles, etc.). Embedded content from other websites behaves in the exact same way as if the visitor has visited the other website.

These websites may collect data about you, use cookies, embed additional third-party tracking, and monitor your interaction with that embedded content, including tracking your interaction with the embedded content if you have an account and are logged in to that website.

Who we share your data with

Suggested text: If you request a password reset, your IP address will be included in the reset email.

How long we retain your data

Suggested text: If you leave a comment, the comment and its metadata are retained indefinitely. This is so we can recognize and approve any follow-up comments automatically instead of holding them in a moderation queue.

For users that register on our website (if any), we also store the personal information they provide in their user profile. All users can see, edit, or delete their personal information at any time (except they cannot change their username). Website administrators can also see and edit that information.

What rights you have over your data

Suggested text: If you have an account on this site, or have left comments, you can request to receive an exported file of the personal data we hold about you, including any data you have provided to us. You can also request that we erase any personal data we hold about you. This does not include any data we are obliged to keep for administrative, legal, or security purposes.

Where your data is sent

Suggested text: Visitor comments may be checked through an automated spam detection service.

Get your Free PDF copy of Make Money Simple Again