Is Sydney’s Inner West property market undersupplied?

Sydney’s inner west is one of Australia’s most undersupplied property markets, according to a recent report.

If you’ve looked through online property advertisements lately, or you’ve been on the lookout for open home signs as you drive through the inner city and inner west, you may have noticed there’s not a lot for sale right now.

In fact, recent research has found that our area is one of the most undersupplied in the country when it comes to homes for sale.

We explore what’s behind this phenomenon and what it means if you’re looking to buy or sell in 2024.

How many properties are for sale in Sydney’s inner west?

The report, which was undertaken by SQM Research, measured the number of homes for sale in different suburbs around Australia and compared this with the total number of dwellings.

It discovered that Sydney’s inner west—along with the eastern suburbs and northern beaches—had the tightest housing market in the country, with just over 0.3% of homes for sale at any one time. This compares to a natural turnover of around 1.2%.

This means, on average, for every 1,000 homes in our area, only three will be on the market at any given time.

The report also found that 51 of the 60 tightest-held suburbs were in our city.

Of the 12 most tightly held suburbs across Australia, four were in Sydney’s inner west.

Stanmore topped the list, with 0.25% of stock on the market. Meanwhile, Newtown came in at equal fifth (0.33%), Balmain at equal eighth (0.34%) and Marrickville 12th (0.40%).

Inner West residents staying put

When reporting on the data, the Australian Financial Review argued that one of the key reasons for supply being so low in our area could be that people are staying in the inner west for longer.

There was a time when people often moved into our area as students or young adults. Many would start off as renters, buy into the area, but then move out when they had a young family.

We’ve noticed that’s not always the case anymore. It’s much more common for people to raise a family in an apartment rather than move into a bigger property. It’s also more common for people living in a small home to renovate and upgrade rather than move on for more space.

This is reflected in the hold times for properties, which have increased right across the city. CoreLogic data shows that the median hold period for Sydney houses went from 5.3 to 10 years between December 2002 and December 2022. Hold time on apartments went from 4.3 to 8.3 years over the same period.

We’re also noticing that when people do upsize, they’re more likely to do so locally than was once the case. This increased demand means that when a larger local property does come to market, it is more hotly contested and tends to sell rapidly. This also reduces supply because it takes a property for sale off the market.

How lack of stock impacts the market

Lack of stock affects a property market in many ways, most - but not all of them - negatively. Here are some of the effects we’ve seen in the inner west.

Reduces choice. If you’re looking for a home to buy, a lack of available properties means you won’t have much to choose from. When you do find something you like, you may also have more competition to secure it.
Inflates prices. Often, a lack of listings inflates prices because it rewrites the equation between supply and demand. In a falling market, this can mean prices don’t tumble as much as they otherwise would. However, in a rising market, it can send home values soaring.
Reduces market activity. Most buyers are also sellers, who are taking the next step on their property journey. When people can’t find a property they would like to move into, they often stay put. This means low listings levels can become self perpetuating.
Inflates rents. Indirectly, fewer sales listings can push rents up. That’s because people who would otherwise buy can’t find a home they’d like to purchase, so continue renting. It’s also because it reduces the amount of stock available for investors to buy and let out.
Encourages development. Fewer property listings should ideally mean more projects being undertaken to increase supply. However, other factors - such as lack of sites and high construction costs - are countering this phenomenon in Sydney’s inner west right now.

How to buy or sell in a market with few listings

Lower listing levels normally benefit sellers because there are fewer competing properties. However, that’s not always the case.

When no - or few - comparable properties have been sold recently, it can be more difficult to accurately gauge the true value of a property. Buyers may become wary of overpaying and offer less than they would if there had been more sales.

For buyers, having little choice means your property search may take longer than otherwise. It also means you’re probably going to put your best foot forward and offer strongly when you do find something for sale. Even if you feel you’re overpaying slightly, the reality is that the long-term trend for Sydney property is almost always to rise, so chances are your investment will be a solid one.