Ray White Chief Economist
Is this the year of the apartment? Australian apartment prices are now back to their 2022 peak, having barely fallen last year. Over the past 12 months, unit growth has been the same as house price growth. In Brisbane, unit prices are now growing faster than houses. Across the country, rents for units are increasing twice as fast as houses. The old adage that houses always do better than apartments is not currently playing out. What has driven this and will it continue?
Part of the reason that apartments have gotten back to their peak so quickly is because they didn’t increase as much as houses during the pandemic. Apartment living wasn’t much fun during lockdowns. Living in smaller spaces with restricted movement was difficult and a lot of the best things about urban living were not available. Cafes were closed, CBDs were deserted and there was no night life. It was also not so necessary to live close to workplaces leading to people moving to outer suburbs and regional areas.
Now that things are pretty much back to normal, apartment living is again attractive. Most of us are going back to the office more frequently and all the best things about living in higher density suburbs are back. We have moved quickly from a situation where there were too many apartments to not enough. Demand is exceeding supply, driving up prices and rents.
This situation of not enough apartments relative to demand is not going to change any time soon. Fewer apartments are being built. Building approvals are currently at levels not seen in more than a decade. Even if approved, the likelihood of many projects being constructed any time soon is low. Construction costs are at record highs and the rate of increase is now only starting to come down. The timing between approval and completion can be several years. The one positive is that strong price and rental growth will make more projects viable.
More of us living in apartments is our future. Australia has extremely low density relative to other major cities. Sydney is our highest density city but half of all homes are still detached houses. In Hobart, just 15 per cent of homes are attached or apartments. This has created a lot of challenges in housing growth in students wanting to study in that city, as well as accommodating downsizers.
Without higher densities, we will need to rely on urban sprawl, which is expensive to service and makes us more car dependent. Younger generations and those on lower incomes are locked out of established suburbs when apartment development is restricted. For older generations, the ability to downsize from a big family home to a smaller home in the same suburb is more difficult without higher densities.
In terms of financial metrics, this year is the year for apartments. But longer term this change to living in more densities needs to continue to ensure greater liveability of our cities and allow for more equitable housing across generations and income levels.