How is Brisbane’s unit market faring?

“The narrative of oversupply and underperformance in Brisbane units has dominated conversations around south-east Queensland property for almost five years,” Ms Owen wrote.

“At January 2020, Brisbane unit values remain 11.5 per cent below their 2010 peak to be at similar levels to 2007. But the latest data on property values, construction and population growth suggest that the story is changing.”

Ms Owen said it is worth noting that oversupply is “very much a unit-centric story”, with houses across Brisbane posting strong capital growth in recent years, “except for a brief, cyclical downturn over part of 2019”.

“In the previous trough-to-trough cycle that lasted between 2012 and 2019, annual house value growth outperformed unit growth by an average of 290 basis points. This is larger than usual discrepancies and is above the series average difference of 130 basis points,” Ms Owen said.

“In other words, the past cycle saw units significantly ‘underperform’ relative to housing stock in Brisbane. The rolling annual growth figure shows that unit values have largely declined since July 2016.

“2016 was a time when units were being built across Brisbane at an unprecedented level. ABS completion data suggests 21,342 units were completed, against a historic average of 11,585 per year. In the December 2016 quarter, the number of unit completions even eclipsed the number of houses delivered across the state.”

Furthermore, Ms Owen noted both CoreLogic and ABS data shows there’s been a convergence between the number of dwellings required and supplied since the beginning of 2018.

“With approvals data suggesting a decline in construction, and steady estimates of population growth, Queensland dwellings may fall into undersupply in the year ahead. Rental yields are also well above the capital city average at 5.3 per cent gross, meaning there could also soon be a turning point in investor demand.

“However, one unknown in this analysis would be projects that have stalled due to falling unit values in the past few years. If these re-commence, added supply could once again weigh down growth.

“The turnaround in the supply-demand dynamic is already being seen in unit values. Since bottoming out in June 2019, CoreLogic indices show the Brisbane unit market has recovered 2.2 per cent. This fits in with a more broad-based recovery, as reductions in the cash rate have reduced the cost of servicing debt, and increased incentive to purchase property,” Ms Owen concluded.