A new report by Morgan Stanley has forecast that a potential slowdown in apartment construction could see unemployment rise to 6.5%. The report predicted a “sharp slowdown” for apartment developments, along with a further deterioration of the rental market.
According to the report, the apartment market is headed toward an oversupply of 100,000 units. This oversupply, the report said, would largely be seen in Brisbane, Melbourne and Perth, though Sydney could also be at risk due to a boom in apartment building. Morgan Stanley said the slowdown in demand was due to reduced investor appetite and tighter credit restrictions, which could put a sudden halt to new building projects. The investment bank also forecast rental vacancy rates to rise to 4.5%.
The report warned a “negative feedback loop” could occur, with developers facing insolvency as valuations fall and purchasers walk away from their contracts. Morgan Stanley said this could cause a “shock to employment”, as well as eroding wealth, confidence and spending.
This “negative feedback loop”, the investment bank said, could translate to a 33% decline in apartment construction, putting 200,000 jobs at risk.