Latest / The Follio Property Podcast / Is Melbourne Is About to Explode? Critical Undersupply Revealed | October Market Update

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Is Melbourne Is About to Explode? Critical Undersupply Revealed | October Market Update · The Follio Property Podcast

• 0:09
  Lachlan, you were wrong again. Thanks, Rhys. By 0.1%. 0.1%. Melbourne had an absolute cracker. 0.9% growth in October. And we forecasted north of 1% or north of 1%. Yeah. So we're close to the money again, but it's...
• 0:28
  It's the strongest month of growth in Melbourne since COVID. Which is crazy. It's what we want to see, right? We've been talking about it. I think people are losing a little bit of faith in the Melbourne market with what you see on the media quite regularly with all the crime that's happening there. The state government's got no money. Everyone's trying to put a negative news story around Melbourne. And understand, when a market's coming out of the depth of a cycle, which Melbourne is, right, we know it's on a property clock, we've got it 6.30pm.
• 0:57
  It isn't a perfect market in terms of data, sentiment, media. And that was Perth 2019. But that's the time where we think it's a really good opportunity to take advantage because you're not having to pay a premium like you are having to in Adelaide, Brisbane and other markets.
• 1:12
  Yep. And 1.6% growth for the quarter as well. So definitely the last three months, it's really started to gain some momentum off some small increments of growth, like you mentioned there earlier, happens at the start of a cycle. Medium house price at $818,000, so still more affordable than most of the other major capital cities as well. So a lot of value presenting there. But the big one for me, and we've spoken about this on previous updates, every month since February, we've seen month on month growth.
• 1:39
  And we've just nudged about 4% growth for the year, on track to get that 6% to 6.5% growth, which is a very stable market. If you look at all capital cities around Australia, year on year since 1975, they've ran between 6% and 7%. So, albeit Melbourne hasn't shot the lights out like a Perth, for instance, but it's
• 2:02
  everything's got its relativity. So if it can get to that 6.5%, that is a very standard year. And what we'll see take place in 2026, 2027 is likely an outperformance of that. But that's what we want to see in terms of a market that is stabilised and now rebounding.
• 2:18
  Yep. Auction clearance rates are a really good indicator to see how the market's moving. On a weekly basis, yep. On a weekly basis. And for the month of October, we averaged around that 69% mark, which is in line with the previous month. Just for some context for the listeners or the viewers, that's up nearly 10% from the same time last year. So really showing some confidence back in the market.
• 2:39
  Yeah, it's a very much demand is outweighing supply when you're at 70%. At 60%, it's a stagnant market, what we saw 12 months ago. So, you know, trending out what's going to happen over the next 12 months, we will start to see that clearance rate get closer to 80%.
• 2:55
  Yep. And we've mentioned this before, but it is important to note at the start of a cycle, there is sub markets within and some markets where we have an invested interest in are going to do 10% growth this year where there's still some lagging behind. But it shows the wider market is actually now starting to catch up. The broader market. And that is natural, right? But note, with a massive caveat here,
• 3:19
  there will be markets that are underperforming, that are going backwards. And that's why locality in terms of buying your AAA-rated suburbs and asset quality is so important in a market that's coming out of a stagnation period. Yep. Let's touch on some supply there, Lachlan, as well. So we're seeing the market tighten a little bit, but let's just talk through building completions versus the population growth ratio.
• 3:46
  Yeah, so we refer to this, this is our IP in PropStack. It's looking at the ratio between building completions and population growth, giving us a look into how supplied or undersupplied a market is at any point in time. At 100%, we have built the exact amount of properties we needed for that demand that's come into the market for that period of time. So this is quarterly data. So to give you context, if we get 20,000 people,
• 4:15
  If we're required to build 20,000 properties for the amount of population growth that come in for the last quarter, and we build 20,000 properties, that will represent 100% capacity. What it doesn't count for is the surplus of property for the period that was either undersupplied or oversupplied. So as you can see here from Melbourne, Melbourne has been significantly undersupplied in terms of dwelling completions.
• 4:38
  from pretty well 2020 since COVID hit. So we've got a huge surplus, so a lot of catch up to do. And the fact that the market, besides the modest spike you can see there in 2021, has been undersupplied for essentially the last five years. We want to see this. We need to see this increase well above 100% for the next two to three years, which we're not. So this market has gone from undersupplied to critically undersupplied, and that's only going to get worse.
• 5:05
  And looking at the approvals as well, it's the lowest figure we've seen in over a decade as well. So that's further fueling the undersupply and potential price growth over the next couple of years in Melbourne. It is. So completions gives us a look at what's happening today.
• 5:21
  and we're undersupplied today. We know that from the listing data as well. Approval shows us what's happening tomorrow. And when I say tomorrow, what's happening, that's a forecast into the next 18 months. And this trend here from 2021, you can almost draw a line straight across that. It's been a downwards trend. And to sit here in October 2025,
• 5:39
  To sit here in November 2025 and have the lowest amount of approvals the market's seen in the last six years is concerning from an undersupplied point of view. But as an investor in the market, they're the things I want to see to see increasing rents and increasing prices.
• 5:53
  Correct. Let's pull up props like Lachlan and talk through the runway in a market. You hear us constantly talking about the affordability index and how long there is in a runway from a macro perspective. It'd be important to kind of go through with our viewers now and talk through Melbourne and see how far it does have on a runway. Yeah.
• 6:13
  So at 5.4% for interest rate, when we look at Melbourne here, specifically zooming into Melbourne, for houses represents a 35.9% runway left in the market for houses. If there was an interest rate cut, which is...
• 6:29
  potentially unlikely now, this would improve. There's also for units, as you can see here, almost 70% runway in the market for units based on the parameters that we track here. So what does that look like? It means there's a ceiling for units for $1.05 million in Melbourne and for houses, as you can see, a ceiling of $1.16 million.
• 6:50
  So looking at the interest rate variable there, if that was to increase or decrease, we're going to see a shift in the runway. But showing that the market's still, you know, in comparison to other capital cities is the third most amount of runway in comparison to the other capital cities. Okay, let's talk through, you were off by 0.1% this month. What's your predictions for the Melbourne market for November and, you know, potentially the rest of the year?
• 7:15
  I think for November, we'll see that full 1%. It's 0.9. I think we'll reach the goal of a full percent growth in Melbourne for November, representing the best growth we've seen since COVID. But December, it could be one of those months where it's, you know, market goes to sleep for a period of time, which to be fair for those listening, will be the best time I believe to buy in the Melbourne market because there won't be a lot of stock around. A lot of agents will go away, take their holidays early, so it will represent some opportunity. Excellent. Great month for Melbourne. Look forward to joining you next month.