Building crisis spreads to high-rise apartments

Advertisement

After witnessing a conga line of home builders go bust amid soaring supply costs, the crisis is now spreading to high-rise apartment towers:

A $140m apartment tower on the Gold Coast has been axed and others shelved as developers look for cash injections from private equity to cushion spikes in construction costs…

Projects without approvals were selling at prices that often did not account for the 9 per cent rise in construction costs over the year to March, which have destabilised builders’ balance sheets and sent some to the wall…

A recent report by Urbis found there was only three months’ supply of new apartments (411 properties) on sale at the end of March. That is the lowest number ever recorded by Urbis since it began monitoring the new apartment market in 2014…

Australia’s banks are also turning the screws on new apartment projects:

More than half of the 100-plus lenders surveyed by commercial mortgage originator Stamford Capital – 57 per cent, up from 45 per cent last year – now require developers to sell at least 60 per cent of apartments off the plan to qualify for funding…

“Lenders now expect developers to generate enough presales to satisfy their risk appetite,” Stamford Capital’s 2022 Real Estate Debt Capital Markets Survey said…

“It’s more of an issue for new projects trying to get out of the ground. There’s been a material shift in [building] contractor pricing which is going to stymie a lot of projects,” Mr Hynes said.

Advertisement

By stifling construction, these developments will worsen the rental shortage across the nation. According to CoreLogic, the vacancy rate on apartments collapsed to only 1.5% in April:

Rental vacancy rates

This comes as immigration is being rebooted which, according to PropTrack director for economic research, Cameron Kusher, will worsen the rental crisis:

Advertisement

“A lot more people are seeking rental properties and we don’t have anywhere near enough properties – ultimately that’s the issue”…

“In fact, with international borders reopened and migration recommencing, we are anticipating a further tightening of rental supply over the coming months, which is likely to lead to further increases in rental rates”…

“This is expected to be most prevalent in Sydney and Melbourne”…

Where will all of the new Australians live if we don’t have enough rental properties to house the existing population? In cardboard boxes?

About the author
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.