Rob Burgess is National Director of Research and Strategy at Charter Keck Cramer. With over 20 years of experience in strategic property advisory, development management and urban planning, he has an extremely detailed understanding of real estate markets, cities and development.
Australia’s housing market is undergoing a profound, structural shift, driven by an expanding and ageing population. This is creating new challenges for the supply of housing. This week we hosted a round-table discussion, led by Rob Burgess, about the complexities of apartment supply and demand.
Fuelled by continued overseas and interstate migration, metropolitan Melbourne’s forecast growth is expected to increase by an additional one million people by the end of the decade. According to Charter Keck Cramer’s research, approximately 50,000 additional dwellings per annum are required to accommodate this growth. If this volume of housing is to be provided, metropolitan Melbourne needs to see a significant increase in apartment projects.
In recent years, numerous regulatory changes and subdued market conditions have impacted the ability to deliver much-needed apartment stock. The off-the-plan market has been negatively impacted by:
more stringent lending practices;
new APRA rules and directives;
higher interest rates on investor loans;
multiple limitations placed on foreign purchasers, such as additional stamp duty;
restrictions on lending; and
a cap on the number of foreign buyers within individual projects.
The extent of the decline in Melbourne’s apartment market is highlighted by its construction rates. In 2019, construction commenced on only 12,400 apartments. This represents a decrease of 6,200 from the 18,600 commencements recorded in 2018 and the lowest number since 2013. Equally significant was that there were only 6,300 apartments released to the market last year. This is half the amount recorded in 2018 and the fifth consecutive year in which releases declined. This will result in a substantial reduction in the number of apartment completions in 2021, and an even further decrease in 2022. Against this rapidly diminishing supply, the demand for affordable and well-located housing continues to grow.
As it stands, delivery of the number of dwellings required to satisfy metropolitan Melbourne’s growth is heavily constrained. This is reflected by the fact that between 2009 and 2018, Sydney’s middle suburbs provided some 75,000 new apartments, while Melbourne’s middle suburbs delivered only 18,500 apartments over this time.
Many suburbs in Melbourne make it difficult to deliver apartment projects because they are simply not feasible from a development perspective – apartment prices may not cover high land and constructions costs. The challenges presented by the planning process also act as a significant impediment, despite Plan Melbourne’s bold ambition for previously established areas to provide the vast majority of all new housing.
Population pressures , evolving demographic trends, changing household needs and ongoing affordability challenges demand that policy makers enable market-based solutions. These solutions must be found if the housing required by all Victorians, both now and into the future, is to be provided.
