Shannon Molloy 18 Mar 2022
A perfect storm of factors could spark a property price boom in apartment markets in major cities across Australia over coming years.
Construction of new units hit near-record lows last year and the likelihood of an uplift in building activity anytime soon is unlikely, experts say.
But at the same time, the outlook for buyer interest in attached dwellings is bright, meaning demand is likely to far outstrip supply.
Lloyd Edge, director and founder of Aus Property Professionals, said delays in construction and a slump in new approvals “will keep supply down and push values up”.
“It’s certainly good news if you’re an investor,” Mr Edge said.
Unit demand set to surge
A new report by Charter Keck Cramer looking at the apartment market forecasts an imminent surge in demand from buyers in Sydney, Melbourne, and Brisbane.
That growth is attributed to a return of migration, a rebound in the international student market, and housing affordability constraints making units more appealing.
“With that growth will come the demand for additional and diverse forms of living,” the report said.
“At present, supply will not be able to respond as quickly to demand, which suggests that vacancies will decrease, and rents and prices will increase.”
PropTrack economist Angus Moore said growing rents will entice investors back to the market, many of whom sold out during COVID-19.
“On top of that, house prices have grown faster than apartments in the past couple of years, which means for first-home buyers or even those looking to upgrade, units are relatively more attractive than they were even a couple of years ago,” Mr Moore said.
“Also, apartments tend to be in the inner-city and those are areas that haven’t been attractive during lockdowns and while people were working from home and not needing to commute. That’s starting to reverse, at least partially, so we’re starting to see the inner-city become more in demand.”
Supply pipeline looks dry
While demand from buyers, especially investors, is set to take off in the next year, the supply of available apartments won’t follow the same upward trajectory.
Doron Peleg, chief executive officer of BuyersBuyers, said last year represented a significant collapse in the number of units under construction.
“There has been considerably less demand from overseas investors, which means that attached dwelling approvals, in particular for high-rise unit developments, have failed to gain as much traction through this market cycle,” Mr Peleg said.
Australian Bureau of Statistics data shows there were just 8800 apartment commencements in Sydney in 2021, down 70% from the last peak in 2016.
In addition, Sydney has seen a low volume of apartment completions over the past two years, which the Charter Keck Cramer report described as “alarming, given the large role apartment living plays in the Sydney housing market”.
In Melbourne, the 5600 attached dwelling commencements last year represented a 75% fall on the city’s last peak in 2015.
“This is the lowest number of apartment commencements recorded over the past decade,” the Charter Keck Cramer report noted.
The last peak in Brisbane’s apartment construction market was also in 2015, when there were a record 12,200 units started, compared to 1500 last year.
It will be years before the gap between supply and demand narrows in the Queensland capital, the report noted.
Construction constraints to persist
Across the board, Mr Peleg expects fewer new homes will be completed during 2022 as building approvals slump and the rising cost of materials and labour discourages development.
“Not only are financing costs set to rise, but the cost of building materials and trades labour has also already jumped,” he said.
Recent significant flooding across Queensland and New South Wales will also put upward pressure on the cost of materials and labour, he added.
And the surge of supply from the Commonwealth’s successful HomeBuilder stimulus package, which contributed to a huge uptick in dwelling approvals during COVID-19, has all but come to an end.
This combination of factors come on top of headwinds unique to the apartment market – rental market fluctuations, localised drops in demand, pockets of oversupply, and heavy activity among investors.
“Through much of the last decade, we had a real boom in apartment construction, but that has really eased and remains relatively low,” Mr Moore said.
“We’re simply building more houses now than we have at any other point in history.”
Mr Edge said a COVID hangover was still impacting development approvals in many local councils.
“Across the board I am seeing delays. Timeframes have nearly doubled in many cases.
“During COVID council staff were laid off or were put on part time. This meant files took longer to be processed and [there was] no one to take up the slack.
“There were increased applications in some areas but less council staff and certifiers to look at the cases.”
Mr Edge has also seen first-hand the problem of construction starts being delayed because of supply chain issues.
“Builders can’t get materials. There are long waits on timber and bricks. The cost of everything has increased dramatically as well which is also delaying the start to many developments.
“Builders are also having trouble finding subcontractors, so this delays the process as well.”