[+] Apartment Sweeteners Urged to Loosen Development Gridlock

Uncertainty is rife across the apartment market but the horizon looks less bleak, according to Charter Keck Cramer data for the first half of 2023. Charter Keck Cramer national executive director Richard Temlett says there are “green shoots” emerging in the market. Apartment projects that are able to get out of the ground are recording strong sales but the supply side constraint continues to flag as feasibilities don’t stack up, he says. “Australia’s three biggest markets—Sydney, Melbourne and Brisbane—remain critically undersupplied and overseas migration is very strong , which is accentuating the mismatch between demand and supply,” Temlett says. “Green shoots are starting to come through in Sydney, Melbourne and Brisbane, but for Brisbane developers the biggest risk is securing and retaining a builder.” In Sydney there were 7300 apartments launched (for sale) to market in the past financial year. This is a 48 per cent decrease in apartment launches compared to the previous year and also a considerable decrease from the peak between 2014 and 2018. Melbourne had just 4400 apartments launched to market, 82 per cent below its peak in 2016. Launches and commencements: Sydney ▲ Source: Charter Keck Cramer Launches and commencements: Melbourne ▲ Source: Charter Keck Cramer Master Builders Australia is warning that at current building rates there is no way we will hit the National Housing Accord target of 1.2 million new homes. And AMP chief economist Shane Oliver concurs. Oliver says high interest rates are stymieing the industry and it would take a combination of faster land release, faster development times and a boost in the volume of institution-grade social and affordable housing to get anywhere near the proposed figure. But there could be a way to grease the wheel and create upside in the build-to-sell apartment market. Temlett says the Australian government should look to Ireland for guidance on how to support the housing industry and create momentum in the market. ▲ Apartments along the River Corrib at Galway, in Ireland’s west. This year the European Commission approved a $750-million scheme to support the construction of build-to-sell apartments in Ireland. The money is tied to the construction of four-storey apartment blocks in urban infill areas in Dublin, Cork, Galway, Limerick and Waterford where there is an acute shortage of housing supply. It is designed to reduce the gap between construction costs and sales figures, which could, in theory, put feasibilities back in the black. While Temlett acknowledges it’s a short-term solution to a long-term problem, it could, he says, create the momentum needed to get the build-to-sell market moving again. “An Apartment Viability Fund would close the gap between what we can build it for and sell it for and make it feasible to build build-to-sell apartments,” he says. “It would stimulate supply. They could target it to certain areas or even extend it to investors.” Temlett says there is a significant number of sites across the country where there is an approved apartment development scheme but the project is not feasible in the current market. ▲ Apartments at Burwood in Sydney’s west. “Building costs have gone up between 30 and 50 per cent across the various cities. Having that subsidy could support these projects to get out of the ground and stimulate the apartment market and create momentum.” Australia is staring down the barrel of a target of 1.2 million extra homes by 2029. Temlett says the apartment market can and should do the heavy lifting. Research released this week from the Australian Housing and Urban Research Institute demonstrates that policy settings aimed at getting first homebuyers into the market have had the opposite effect. “While high house prices are often cited as the biggest challenge faced by first homebuyers, our inquiry highlights that the problem is significantly more complex,” University of Sydney Professor Stephen Whelan says. “Critically, we found existing policy settings are likely to have exacerbated rather than alleviated the challenge faced by first homebuyers to finance home ownership. “Politically seductive measures such as first home owner grants and tax concessions have failed to arrest declining rates of home ownership over time.” ▲ There are still “recalibration pains” in the pipeline for the residential sector. Whelan says it is supply-side measures that could move the needle. He says making home ownership more affordable and accessible was crucial. “Policy settings in Australia have focused almost exclusively on demand-side measures that boost first home buyers’ purchasing power, such as first home owners grants and stamp duty concessions,” he says. “A mix of supply-side and demand-side approaches would help more households who would not otherwise be able to buy a home.” Temlett says there are still “recalibration pains” in the pipeline for the residential sector. Buyers are facing confronting price tags but, he warns, these price tags will not be coming down. “They are having a bit of a crisis getting their heads around what they can afford. It may be that they have to take a smaller property or move further out,” he says. “The market is going to have to recalibrate upwards.” You are currently experiencing The Urban Developer Plus (TUD+), our premium membership for property professionals. Click here to learn more.

Residential
Taryn Paris
Thu 14 Sep 23

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