Melbourne apartment boom to “implode”

ScreenHunter_06 May. 06 09.27

Cross-posted from The Conversation

The Melbourne apartment surge is just beginning. In the next few years, an unprecedented number of apartments will hit the city’s already crowded skyline.

But our new research shows this does not mean more Victorians are embracing inner-city living; rather it is the result of the marketing of thousands of tiny, poor quality apartments to investors, which threatens to undermine the carefully fashioned story of Melbourne’s liveability.

Apartment capital of Australia?

While Sydney has traditionally been the epicentre of apartment development, there has been an unprecedented surge in high-rise apartment completions in Melbourne since the late 2000s, located primarily in the inner city and CBD fringes.

Between 2010-2012, the inner-city skyline was transformed with the completion of 22,605 apartments. However, the city is set to see a further 39,000 additional completed apartments that have already commenced or have been released for off-the-plan sale.

The apartment boom is driving Melbourne’s extraordinary share of Australia’s dwelling approvals. In 2012-13 they constituted 24.3% of the Australian total. Yet Melbourne’s share of Australia’s population in mid-2012 was 18.5%.

Does this mean that households in Melbourne are embracing inner-city apartment living? Our analysis indicates that it does not. Rather, it is an investor rather than an occupier driven boom.

Apartment residents remain overwhelmingly young singles or couples who are renters. They continue to be transients who, as in the past, will move into family-friendly housing when they decide to raise a family. Most of the new households in Melbourne will be looking for such housing. There is no large potential source of apartment occupiers (including empty nesters) who will be attracted to apartment living.

Melbourne is not like Sydney, where restrictions on outer suburban expansion have compelled 11% of households (including some families with children) to occupy apartments. There are huge tracts of outer suburban zoned for the development. Detached houses can be bought for far less than two bedroom apartments in the inner city. By 2011 only 4% of households in Melbourne lived in apartments of four storeys or more.

In the case of the City of Melbourne, while there has been an increase in the number of those who live and work in the CBD, by 2011 they comprised just 27,912 of the 344,790 persons who worked in the city. Overseas students have also been an important source of apartment occupiers. In addition, to our surprise, there has been an increase in the number of those who live in the City of Melbourne and work outside it. They increased by 5,246 between 2006 and 2011 to 19,108.

There will have to be massive increases in the numbers in each of these categories if they are to approximate the expected surge in apartments on the market.

A risk to liveability?

Local apartment developers, who dominate the inner suburb apartment market are backing off on new proposals. However, overseas developers are undeterred. They have the resources to outbid locals for sites in the inner city and are likely to approach 100% of completed apartments in this area by 2016. They are responsible for the recent surge in proposals for CBD apartment towers.

Melbourne is a more attractive to developers than Sydney because there are more potential sites for high-rise apartment projects which can be developed at prices affordable to most investors (less than $500,000). These pricing priorities are also responsible for the increasing share of apartment projects comprising tiny apartments (mostly sub 50 square metres in net living area).

Inner Melbourne is also attractive because of its amenities, enhanced by massive state government and City of Melbourne investment in infrastructure (including CityLink and Southern Cross Station) public spaces (Federation Square), parks (Birrarung Marr) and laneways.

This investment was intended to enhance Melbourne’s prospects of becoming a centre of knowledge-intensive industries by enhancing the city’s liveability. It was hoped that this would attract the “creative class” believed to drive this transformation. For its part, the City of Melbourne has long wanted to transform the CBD and surrounds into an inviting mix for residence, work and entertainment.

Squandering the “Melbourne story”

This investment has helped in the fashioning of a ‘Melbourne Story’, which has been particularly attractive to Asian developers and investors.

However, the apartment boom is squandering this investment. It is delivering tiny, poor quality apartments that will repel rather than attract this market. City of Melbourne planners have recently issued a withering critique of the outcome, with the chief advocate of the local authority’s original vision, Rob Adams, declaring the current ‘flood’ of apartments has gone too far.

Despite warnings of an apartment glut the State Government and the City of Melbourne are pressing on with plans to facilitate further urban renewal. They include Fishermans Bend and the City North and Arden-Macauley precincts to the north of Melbourne’s CBD. The City of Melbourne’s planning blueprint assumes that the number of dwellings will increase from 67,533 in 2012 to 110,533 in 2031.

The state government wants the apartment boom to continue because it is one of the few bright lights of the current Melbourne economy. It can ignore the City of Melbourne planners’ concerns because it holds the planning authority for apartment towers in excess of 25,000 square metres floor space. It is approving almost all proposals put to it.

The outlook is that the investment in the city’s amenities will be squandered. The city is heading towards becoming a dormitory rather than a centre for knowledge-intensive industries. The balance between apartments and offices in the CBD is swinging rapidly towards the former with the prospect that apartments will crowd out sites for offices in prime CBD locations.

In the three years 2013 to 2015 there will be three times the amount of floor space completed for apartments in the CBD and Docklands than for new office space.

The planning elites shaping Melbourne’s future are ignoring the disconnect between the investor-driven apartment boom and real housing preferences. Their plans for the inner city’s expansion and for its economy are based on a property boom that our analysis indicates will implode.

Article by Bob Birrell and Ernest Healy from the Centre for Population and Urban Research at Monash University



  1. Bob Birrell is quite right. Many residents in Docklands, Southbank are dead miserable with their shoeboxes. The quality civic amenities and views are not enough to offset the ruthless developer penny-pinching on size and quality and those staggering body corporate fees.

    If livin’ the dream is a townhouse and bush/beach home, better to take a Carlton or Fitzroy terrace.

    Apartment developers are in a bind. Current land prices assume existing build quality, but the market for it is limited to retail investors. Holding vacant land through the correction is highly unattractive. Many are building onward to flip or selling the land. All must act. Stay away from this market.

    Don’t Buy Now!

  2. I lived in Docklands for a year, and our apartment was lovely. I agree there are big issues with quality for the newer developments (particularly those constructed in the past 2-3 years), but I don’t understand what is wrong with living in apartments in principal, even with a young family. Vancouver (also among the most livable cities, albeit with a massive housing bubble of its own) has lots of apartments.

    • How did you find living in Docklands?

      I previously lived in the CBD (on Collins Street) and worked in the Docklands (again on Collins Street but much further down) and enjoyed living in the city but didn’t really enjoy working in Docklands.

      Far too cold and windy in winter and pretty deserted when I worked late.

      • It was a bit boring, but it was quiet at night. Supermarkets are all there, as are medical centres etc. I know people bag out Docklands, but I don’t think it’s that bad. Certainly Pyrmont in Sydney is nicer.

    • reusachtigeMEMBER

      Agreed! It annoys me to no end all the hate on here for apartments. I absolutely love apartment living but there’s freaks that seem to think a house on a block is all proper people want. They are just as bad as the general property spruikers. Then they argue for the carving up of farmland yet hardly ever mention knocking off a few nimbys so more apartments can be built to house people more affordably. Agendas much? Save our suburbs man!!

      • Classic straw man. The issue is not about houses versus apartments. It’s about lowering overall land prices and allowing supply to be set by consumer preference rather than planner preference.

        Under the current system, prices are being pushed-up via a combination of factors (both supply and demand), and home buyers are being deprived of choice – both by high prices and by planners demanding what types of homes get built where.

      • Apartments are ok, as long as they’re not 500k! Or rather 600-700k now in Sydney, just for an average suburb.

        The arrogance of the establishment to not only force us into apartments, but to make us pay the same or more as what our parents paid for a house, is just a blatant human rights violation.

      • After travelling around Europe and staying in Apartments in or near the city such as Rome, Amsterdam, Paris etc we were at a time of wanting to buy again and an apartment was a very attractive proposition to us, but after further investigating we found the apartments here far too high (Europe was a maximum of 6 floors) the apartments very small for what you paid and were shocked at the corporate fees (do they pay corporate fees in Europe?) In the end we gave apartment living a miss and bought 5 acres around 70km from Melbourne, it only takes us 60 minutes drive to Melbourne CDB even on the worse days. We also now enjoy watching the roos while having breakfast on the decking. We think we made the right choice (for a change)

    • Nothing wrong with apartments. Just think they can be relatively speaking overpriced. Also in some cases there is false advertising.

      Plus the discrepancy in size etc can be huge between some nice apartments and newer ones where corners have definitely been cut and both are available at a similar price.

      • the problem with some of the latest builds is that some of the 1/2 bedroom builds are built to a student accomodation spec and being passed off @ $400k/$550k

      • Exactly. Which is probably ok in a real demand driven market or space constrained area but is bound to be an issue otherwise.

  3. And I will add, if what you’re saying is correct about people’s preferences, then the market should correct and the price of apartments will come down until they become a viable choice for people to live in.

  4. Its funny when people say there is only a bubble in inner city apartments and the the rest of Melbourne has sound fundamentals.

    Whats going to happen to all those slumlords in the middle ring when their tenants move out and move into one of these newer dog boxes close to their job, amenities and a free pool/tennis court courtesy of the landlord paying mind blowing body corporate fees.

  5. Wasn’t this part of the Ireland and Spain story? Too much building of properties people didn’t want to live in, targeted at investors?

  6. UE my family and I weren’t forced to live in an apartment, we choose it. I’d like to be able to afford to buy it not rent it, but if even if I could afford a mansion I’d still chose an apartment, there are loads of advantages . . . .proximity to people, parks, transport. No gardening on the weekend and you can lock them up and go away easily.

    However, if I really was a millionaire I’d buy a rooftop garden (and gardener).

    I buy your argument about how supply increases speculation but I really think you need to accept that increased density is something many people seek, even those with children.

    • Sounds like we agree. I want people to be able to choose where and how they live, not have it dictated by planners via artificial growth constraints. If these means apartments, so be it. Ditto houses.

      The important thing is to ensure that land costs are minimised so that the cost of housing – both units and houses – is brought down and speculative behaviour is reduced.

  7. Ultimately the market will decide what people want but I think part of the solution to our real estate insanity is to increase inner urban density.

    It makes no sense that a priveleged few get to enjoy the amenities of downtown living while the unwashed “plebs” are safely consigned to the outer suburbs.

    For all the jibes about shoe boxes anyone who has lived abroad in Asia will know that size and convenience are usually a trade off.

    As a young single person I was quite happy to live in a one bedroom apartment within walking distance of “the action”.

    Similarly, a lot of empty nested would perhaps like such locations.

    I think its not an “either/or” proposition.
    We should be removing obstacles to growing the urban boundaries AND increasing inner urban density in an intelligent way.

  8. I’m happy for them to build, build, build. The more supply, the better. Hopefully they keep a certain standard though and don’t make the city ugly. It would be good to see more 3 bedroom apartements. There are definitely too many 1 bedders.