The impact of Melbourne’s West Gate Tunnel Project on dwelling prices will be positive for some but negative for others, according to the latest analysis by RiskWise Property Research.
The $6.7 billion project, under construction since January and due to open in 2022, is touted as being a gamechanger when it comes to the way people move around the congested city, which is projected to have a population explosion to five million by 2021 and eight million by 2050, according to demographer Bernard Salt.
While the tunnel’s construction will, according to Transurban, reduce peak travel time by up to 20 minutes, take about 28,000 vehicles off West Gate Bridge and 22,000 vehicles off Bolte Bridge daily, generate 6000 new jobs and remove more than 9000 trucks from local streets, not all its effects on the property market will be positive, says RiskWise CEO Doron Peleg.
“There are many positive aspects to the construction of the West Gate Tunnel especially as it is expected to provide a $11 billion boost to the Victorian economy,” Mr Peleg said.
“Dwellings that are well located and in good proximity to transport hubs will have much greater access to the CDB and this means they are projected to have solid capital growth, at least for houses.”
He said this was particularly the case for houses in Yarraville and Footscray, which already enjoyed strong demand and would deliver outstanding capital growth in the long term.
“Overall house price growth in Greater Melbourne has decelerated to 2.2 per cent in the past 12 months, however, the five-year capital growth in the city’s western suburbs was 69.1 per cent and this area is projected to deliver a solid long-term capital growth,” he said.
“What we are seeing is that the inner-city suburbs of Melbourne are following the same demand and capital growth patterns of Sydney’s inner-west suburbs where proximity to the CBD, relative affordability (five years ago) and gentrification saw demand increase with very strong property capital growth of 92.7 per cent over five years and solid capital growth predicted in the medium-to-long term.
“The western suburbs of Melbourne are following the same pattern. Add to that major ‘transformation projects’, and the capital growth is projected to be very good in the long term.
“It is important to note though that the same cannot be said for units in Melbourne which suffer from significant oversupply. Our research shows that areas with a high level of stock and an elevated number of approvals and units in the pipeline suffer from poor and often negative capital growth, and this significantly increases the settlement risk for units purchased off-the-plan, particularly in larger developments.
“In Footscray there are 2280 units in the pipeline for the next 24 months, which equals an addition of 41.3 per cent to the current stock.
“Oversupply of apartments in some cases leads to voluntarily lending restrictions by the major lenders, such as lower loan-to-value ratio (LVR) mortgages for new units. These lending restrictions are in addition to broader lending restrictions that have been set by APRA to significantly reduce investor activity.”
He said while unit oversupply was a concern, the new infrastructure would likely improve demand, and this could mitigate the risk to some extent.
Mr Peleg said another consideration when it came to any negative consequences of the tunnel was that some dwelling prices could be impacted because they were too close to high-traffic areas which meant they could carry a higher level of risk due to poor demand, and this was the case for both houses and units.
“Major infrastructure can often result in negative outcomes for some properties in the sense that people are excited by it yet tend to forget that some properties will be negatively impacted,” he said.
“About 350 houses will sit above the tunnel, which will run at least 18m beneath the ground, and while the state government has promised compensation to those whose properties are damaged by underground boring, it is likely to reduce demand and prices for those affected.”