Sydney, Melbourne shift to apartment living

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By Leith van Onselen

Today’s dwelling approvals data for September, released by the ABS, confirmed the ongoing shift towards unit & apartment living, with approvals rising by 32% year-on-year to be well above their long-run average level (see next chart).

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Unit & apartments’ share of total dwelling approvals has also risen substantially over the past four years, rising from just 25% of approvals in mid-2009 to 43% currently on a trend basis:

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This drive towards units & apartments has been driven by Sydney and Melbourne, where approvals exceed those of detached houses:

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Units & apartments are especially popular in Sydney, where their share of total approvals has risen to a whopping 67%. Melbourne’s unit & apartment share is lower at 53%, although it has risen inexorably over the past 8 years:

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Some would argue that the shift towards units & apartments reflects buyers’ growing preference to live in the inner city and close to amenities. While this factor no doubt plays a part, the trend towards unit & apartment living is equally likely to have been driven by state governments’ urban consolidation policies, which have effectively restricted development on the fringe and forced-up overall land/housing prices, making unit & apartment living relatively more attractive than detached housing from an affordability perspective.

Indeed, it is important to note that while the share of unit & apartment approvals have risen, the rate of unit & apartment construction relative to population has barely budged in 30-years:

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So in effect, the rate of unit & apartment construction has merely held firm while detached housing construction has fallen by the wayside – a victim of escalating land prices and tighter planning.

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Comments

  1. GunnamattaMEMBER

    As someone who has come back to Australia after living in apartments in Europe (mainly) for a decade or so, I dont have a problem with apartments. It is a simple matter of trading in the backyard and private grassy spaces for bigger parks and inner city types of stuff.

    The thing I find kind of weird here (I have looked at the idea in Melbourne) is that there are no apartments suitable for a family (3-4 bedrooms) and if they are they are ridiculously priced or located in such a way as to deprive inhabitants of the actual upside of inner city living (ie long way from places to take kids, child related services etc)

    • Gunna: yep. + 100 more.

      Two reasons I guess:

      – you can fit more 2br apartments into a building than 4-bedders, so developers build 2-bedders to maximise profits. As long as all the 2-bedders are selling, there’s no incentive to build bigger apartments.

      And why are they all selling…?

      – because investors prefer them, and only investors are buying. With our current distorted cost and tax structure, who would be insane enough to build for what owner occupiers want?

      • Here is excerpts from a communication from a developer who does not wish to be named.

        “……I pay $— psqm and I have to sell at $—– psqm due to losing 49% of the land to roads and parks, and after infrastructure costs and so on of $600 psqm the costs are vastly more expensive than anyone would think. Housing built will be $450k-700k for dwellings of 100-130 sqm each. Is that affordable? Interestingly I have sold 50% of it and not one buyer is an occupier. All investors.

        The point of this example is to demonstrate that land in zoned-intensive areas is very very expensive and will not result in affordable housing. Intensive housing is so expensive to develop and build (W D Woodhead: The Economics of High Density Housing, 1994, is correct), that when weighed up purchasers opt to stack apartments instead to get a viable financial return.

        Developers are selling apartments from $700k each. Is that what was in mind when the city planners thought of affordable housing? Sounds pretty much like the price one could pay for a single level brick and tile house……

        “…..What is interesting is that I envisaged 25 odd upmarket terrace houses and 5 or so commercial buildings as a value proposition competing against houses and old run down villas which are smaller but more costly.

        Due to the high build costs most purchasers opted to go more intensive. Only 9 of the 31 lots will have the owner occupying the completed buildings and of those only 3 are building terrace houses with the rest building intensive apartment buildings (renting lower floors and occupying upper floors). The balance are stacked small fine grain apartment buildings. Where I thought we might see 25-35 dwellings we have over 120 dwellings. Lot owners are made up of 9 owner occupiers, 13 investor-owners, 7 developers and 1 commercial owner occupier. The over-riding proportion of dwellings will be owned by investors for rental – either directly through development or as the secondary purchaser off an initial building developer.

        What this tells me is that despite the obvious potential that a single dwelling would be a similar price, very few people are making that choice and those who are have stacks of cash and don’t fit the profile for affordable homes. They are building monuments……”

    • innocent bystanderMEMBER

      .. cause they are built for investors not owner occupiers?
      not sure I want to own one anyway … the quality sucks.

      edit: whoops, arrow beat me to it – I should try and remember to hit refresh

      • +100

        Watch Brunswick VIC (off Sydney Rd) in the next 5 years as a place with high density apartments with no infrastructure or planning restrictions. Moreland Council is doing nothing just raking in the money.

      • What is even more stupid about Brunswick and surrounding suburbs, is the high amount of Part-Time property investors outbidding owner-occupiers, so they can tear down, sub-divide and sell of squashed townhouses in an area that will be full of apartments.

        They are bidding at 10% over reserve, leaving the owner occupiers way behind (who are usually in the ballpark of ~5% above reserve).

        People say property investors don’t make emotional bids need to attend some Melbourne Auctions.

    • Gunna’s point alludes to another issue, not just one of NIMBY planning and the inertial fund raising department it has become, but lack of real effective planning of everything else. If central planning cannot deliver cohesively on the supporting infrastructure is required to transition to family unit living in the case of densification then what productive use is central planning to the community other than protecting the status quo land holder’s interests?

      • Yep – it all comes down to the fact that apartments are being sold to the investors and they are looking for what is going to be easiest to off load.

        If you are buying to live for 20+ years – selling fast is less of an issue.

        This is the same reason every 2 bed room unit wastes a chunk of the main bedroom with an cramped and largely pointless ensuite when the other bathroom is literally 2 steps down the hallway.

        Ensuite is a tick a box investor feature.

    • And the most recent ones (that I have seen pics/floor plans for) appear to have little to no kitchen space. A single burner and a microwave do not equal a functional kitchen.
      The design assumes young, urban professional with no material goods (NO storage space) with a habit of eating takeaway and going out. And earning a lot. As someone who sits just under the “rich threshold” the weekly rent for these places is about $200/w too much for me. lets not talk about the purchase price.
      I’ve lived in units in Japan and Geneva, and they may have been small, but they considered that one might live there for years, and designed accordingly. The ones going up now appear to be style over substance

      • Gunnamatta said:

        “….The thing I find kind of weird here (I have looked at the idea in Melbourne) is that there are no apartments suitable for a family (3-4 bedrooms) and if they are they are ridiculously priced or located in such a way as to deprive inhabitants of the actual upside of inner city living (ie long way from places to take kids, child related services etc)….”

        The answer is that the “compact city” ideology forces up the cost of land everywhere in the city by a similar percentage.

        This means that inner city stuff is inflated in price at least as much as fringe McMansions, even though the density is much higher at the centre – the land rent is much higher too. And the opportunity cost of space sacrificed to the kind of amenities families might want, is too high.

        Houston doesn’t just have affordable suburban McMansions, it has affordable centrally located Condos too, many of them suitable for families. And surroundings suitable for families. Take a look:

        http://www.realtor.com/realestateandhomes-search/Houston_TX/type-condo-townhome-row-home-co-op,multi-family-home/price-na-150000/sby-1?pgsz=50

      • Phil, how can they be so cheap?

        I mean, even if the land is free, the costs of building materials and construction should be more than the selling price?

      • That is depreciated buildings, that’s all. The land IS worth only around $70,000 per acre even in the mature locations.

        This is perfectly possible in a city with no urban fringe constraints, a land rent curve anchored in rural values of $10,000 per acre, and a land rent curve flat enough to still be only 7X higher relatively close to the city centre.

        Cheshire and Mills (1999) found that the difference in city centre land values, between a growth contained UK city and an unconstrained US city similar in many other ways, was around “300 times”. Yes, that means similar land might be $70,000 in the US city and $21 million in the UK city. This is why a 30-year-depreciated 1000 sq ft condo can be $60,000 in Houston and a 30-year-depreciated 300 sq ft apartment can be $600,000 in London. Aussie cities are heading the same way.

        Guess who wins, and wins big?

        Oh, we all know the “vested interests” we have to be on guard against, are the “vested interests” in “sprawl”, don’t we……?

      • That link to the Houston ‘Domain’ website is stunning.

        http://www.realtor.com/realestateandhomes-search/Houston_TX/type-condo-townhome-row-home-co-op,multi-family-home/price-na-150000/sby-1?pgsz=50

        Apartments for less $20K and I notice blocks of land are circa $5K.

        We are not talking Detroit we are talking about one of the more economically active areas of the United States.

        The situation in Australia where young families are being forced to pay $300-500K to buy a house on the outskirts and even more closer in, for no other reason than a profound public policy failure is not just a disgrace it is criminal.

        We are talking about the imposition of 20-30 year terms of debt servitude for NO REASON other than stupidity and ignorance on the part of our politicians and policy makers.

        A National Summit on New Housing Construction?

        I am starting to think more along the lines of a Royal Commission into the Financial Oppression of the Australia Public.

        If ever there was a story for 4 Corners, Today Tonight and a Current Affair to flog non stop until action is taken this is it.

      • Wow! Just looking at the prices – seriously, anyone can afford to buy something over in Houston, be it a flat or a mansion, but they can buy something! Compare with prices here – $300-$500K for a 1 bedroom flat, and $400-$700K for 2 bedroom flat! And they tell us here that there’s no bubble….

      • GunnamattaMEMBER

        You have echoed the words of Mrs Gunnamatta, who has observed ‘300K here gets you nothing but a shithole’

        But just to give everyone the idea (for Geelong at least – and you would probably get more here for 300K than in many other locales)

        http://www.realestate.com.au/property-house-vic-norlane-115035515

        Have a geek at this in Milwaukee too

        http://www.realtor.com/international/rdc/listing-detail/4644-N-104th-St_City-of-Wauwatosa_WI_53225_7548947943

      • That is just incredible isn’t it.

        I’m not making this up – i just got a 400K quote from a builder to do a minor renovation on a house (no major structural). Put down some tiles, fix up the bathrooms and kitchen and put up a few walls and whack on a deck.

        Australia is really just f…d at the moment – this is only one industry, housing and it is being goosed like nothing else.

        Guess what. Looks like I’ll be keeping my cash in my pocket and making do.

        Based on the quotes for my little bit of work, some of those houses would be in excess of 1mil to build in Aus – even before you add the absurd land prices.

        what a joke.

      • aj, that is what I was getting at in my original question to Phil. I thought perhaps they might have secretly reinstated slavery (Mexican version)……

        But then again, if the dollar tanks to, say, 0.2 USD, then purchasing power parity will be more or less realized….. and that will help our car industries I guess…..

        Of course, that would mean up to $7 per litter of petrol.

        Will be fun. After all, people like horror movies, no?

      • Gunna, your Geelong example would be 3 times the price if it were within say, 15kms in the eastern to south-eastern suburbs of Melbourne.

      • AJ: “some of those (USA) houses would be in excess of 1mil to build in Aus – even before you add the absurd land prices.”

        And as we all know too well that’s our sad state of affairs, the Australian land prices close to city amenities are fricken crazy. $1million+ for a block land.

        The parts of Texas I’ve visited are beautiful and leafy green, like Brisbane in some ways. I would move there ASAP if my circumstances allowed.

  2. The last sentence is the key – “the rate of unit & apartment construction has merely held firm while detached housing construction has fallen by the wayside”.

    Some people do prefer to live in apartments. A lot of others just have no choice, because (mostly) that’s all we’re building.

    Imagine if enough suburban land was actually released so that land prices returned to normal, and people wanting a house on a sensible-sized (not tiny) block could actually build the house they want.

    Hello, construction boom. Hello, economy.

    • Free_Market_Delusion

      There is no room for that kind of logic!!!

      I have said it before but a quick look over the Melbourne area shows there is vast vast quantities of land that could be utilised.

      On the Mornington Peninsula there are so many 40 plus acre lots of land that are not being used for any productive purpose. Imagine they allowed them to be subdivided into even 5 acre lots. Win win for everyone land owners makes some money and more affordable acerage for those that want space with minimal environmental or amenity impact.

    • Arrow2,

      + plenty.

      I like the sight of a goat running free as much as the next person and am more than happy for some land to be reserved for goat farms, but the policy of making every acre goat farm until some boofhead decides it is “now time” to allow it to be used for something else is nutty.

      If people don’t like housing and people they should campaign to stop population growth but if they fail in that campaign they should not punish them with overpriced housing.

    • “….Some people do prefer to live in apartments. A lot of others just have no choice, because (mostly) that’s all we’re building….”

      Yeah, and the cost of all housing has been inflated so much that tiny amounts of space are all that many people can afford, often in non-central locations too.

      I say that bicycles versus cars is a similar idea; sure some people like riding bicycles, but there is a difference between them and people who can’t afford a car if regulations had been enacted that made them 3 times too expensive.

  3. Neville Gearless

    I have to say I think this apartment trend is a negative thing. I’m all for apartment living, having done so for many years in Taipei, (the downstairs convenience stores my own personal walk in fridge was great).
    But detached housing and their yards require lots of goodies to fill them up. We need to stay rich trading gazebos, BBQ’s, pool floaties etc.

    Also, Taiwanese were quiet neighbours, OTOH Aussies are such a noisy bunch, I couldnt go sharing walls with ’em…

  4. I am pleased others have picked up now on what an incredible resource for advocacy of reform, RE sites in US cities are.

    Pfh007 said:

    “….If ever there was a story for 4 Corners, Today Tonight and a Current Affair to flog non stop until action is taken this is it……”

    See where you get, trying to get anyone in the MSM to actually take up this stuff.

    As Pfh007 says, Houston is not Detroit; it is probably the developed world’s top genuine boom city right now.

    What this illustrates, is that housing does not have to be any different to any other goods for which there is elastic supply. Boom cities don’t have more expensive bread, milk, cars and laptops.

    There are dozens of other cities in the USA that are not doing too bad economically; the correlation is obvious to me that low cost land and housing is a CAUSE of economic resilience and growth.

    There would be quite an overlap between the data sets of Demographia median multiple 3 cities, and cities that rate as economically promising, by organisations such as EMSI and Policom.

    For example, it would be nonsense to say that housing is affordable in any of the following cities only because they are economically moribund:

    Houston
    Austin
    Dallas-Ft Worth
    San Antonio
    Salt Lake City
    Nashville
    Raleigh
    Charlotte
    Kansas City
    Oklahoma City
    Omaha

    If you want to see house prices in an economically moribund city, go to Detroit.

    In contrast, if you want to see an economically moribund and “urban growth contained” city, look at Liverpool. Just as stuffed as Detroit, yet housing is STILL unaffordable…..! And it is a whole lot smaller, older, and lower in quality.