Sydney apartments to boom, Melbourne’s to bust

By Leith van Onselen

The AFR is out today with more bullish forecasts for Sydney apartment construction, but predicting a big slowdown on the horizon for Melbourne:

Sydney will be the epicentre of Australia’s next apartment boom, say forecasts suggesting multi-unit construction will be almost double that of Melbourne over the next five years.

The Housing Industry Association forecasts more than 25,000 apartment starts in NSW between now and July next year and a similar level of starts over the next four years.

In contrast, HIA forecasts that Victoria will undergo a quite dramatic slowdown in apartment development following three years of surging construction activity primarily in inner Melbourne, spurred on by demand from Asian investors…

Pushing more new home buyers towards apartment living are afford­ability concerns, a desire to live closer to the city and amenities, the sense of community offered in new developments, and a preference for more ­leisure time on weekends.

Looking at the ABS dwelling approvals data, you can see the ongoing shift towards apartments in Sydney, with units and apartments now accounting for nearly 70% of dwelling approvals (see next chart).

The comparisons with Melbourne also look to be on the money. As shown below, Melbourne experienced a massive apartment boom over the past four years, which now seems to be running out of steam. By comparison, Sydney’s apartment approvals overtook Melbourne’s a few months back, with the trend looking likely to continue:

Pent-up demand also looks much stronger in Sydney. As shown below, the actual number of units constructed per 1000 head of population has declined quite sharply over the past 15 to 20 years, suggesting that there is an inherent undersupply (the trend is even worse for detached houses):

By comparison, Melbourne’s supply is far more abundant, which obviously does not auger well for future construction activity:

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