Are we heading for a highrise oversupply?- Michael Matusik

Every second new home built today is attached – either a townhouse, villa, ‘plex’, flat or apartment.

Just 56% of the new dwellings approved during 2013 were detached houses.  It was 73% just five years ago.

One in four new dwellings approved are now in mid-to-high-rise apartment towers.

A fundamental shift?

NEW-HOUSING-TRENDS-PNG

Some comments:

  • The graphic shows that there has been a rapid drop in new detached housing approvals in recent years.  In contrast, there has been a big lift in the number & proportion of mid-to-high-rise apartments approved across the country.  There has been little real change in the level of new townhouses or low-rise unit construction.
  • Australia’s new housing market is now quite polarised between detached homes & apartment towers.
  • The cost to actually supply a new detached house (excluding land, taxes/charges etc.) is now similar to the cost to supply a new apartment.  It is considerably cheaper to supply a new townhouse or walk-up flat.
  • Of course, the size of a new house is much larger than a new apartment, with the average cost to build a new project home somewhere around the $1,000/m2 mark.  The cost to build new mid-to-high-rise stock sits at somewhere between $2,500 & $3,000/m2 (as a ballpark figure).  It costs about $1,500/m2 to build a new townhouse or basic walk-up flat.
  • Most new townhouses are 3 bed/2.5 bath with two cars.  Many of the new walk-up flats are in two bed/two-bath (with car parking) arrangements.  Many of the new mid-to-high-rise apartments are under 85 m2 & increasingly, one-bedroom product.  New detached houses, by and large, remain three or four bedroom affairs.
  • Current demographic trends strongly suggest the need for more two & three-bedroom attached product.

My opinion:

We seem to be stuck in the house versus apartment tower mindset.  This is especially the case in Queensland.

The recent changes to the Brisbane Town Plan further push this building form i.e. traditional suburbia versus mid-to-high rise density around select urban nodes.[sam id=34 codes=’true’]

What is missing – from an affordability & liveability viewpoint – is new housing product in-between.

We need more townhouses; ‘plexes’; terrace homes; granny flats; small-lot homes; flexible dwellings.  These need to be supplied across much of the Australian fabric & especially in our middle-ring suburbs.

For mine, we also need one set of rules when it comes to new housing form.

This should apply across an entire state or territory.  Maybe it should even apply across the country, allowing of course for climatic differences.  It is all well and good that Ipswich City Council now permits granny flats.

But why not Brisbane?

Why does Adelaide – yes Adelaide – permit a much finer grain of new housing choice than Brisbane?

Our experience is that many residents want to ’age in place’.

Most don’t want to live in a high-rise apartment complex.  They would like to downsize; stay local & have some nexus to the ground.

But in the absence of affordable choice, they stay put, often as a couple in large detached homes.

This ‘in-between’ housing would also suit many first home buyers.

There is a real lack of new housing choice in the Australian market.

This is stopping first home buyers.  It is stopping empty-nesters from downsizing.

It is, by default, oversupplying the new high-rise apartment market & stalling detached housing supply.

Public policy is not allowing private enterprise (developers & builders) to supply what the market wants.

Fundamental shift?

Yes.

But the role of the developers & builders is to respond to opportunities and work within planning frameworks (as dysfunctional as they might be) to deliver a product that sells.

The opportunity is that Australians, by and large, want more compact housing.  They are trading ’space’ for ‘place’.

The trouble is that this demand is largely being forced into one new product type – high density apartments.

Many buying this product anticipate strong capital gains & high rental returns.  On paper everything looks rosy. In reality, investment outcomes will be determined largely by supply.

For mine, we are now in danger of oversupplying the mid-to-high-rise apartment market.

And sadly, within this mid-to-high-rise space, apartment choice is increasingly being limited too.  It’s a race to the bottom – the smaller the better (read cheaper); or as the spin goes, “cheap and cheerful”.

Opportunity to supply a range of new housing types would reduce this propensity to overproduce in one particular sector, thereby potentially reducing the severity of the property cycle.

OPINION: What we think. Not the final word.

……..
Michael Matusik will be presenting at the National Property and Economic Update seminar in Brisbane on 29th March. Click here now for full details and to reserve your seat.

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Michael Matusik

About

Michael is director of independent property advisory Matusik Property Insights. He is independent, perceptive and to the point; has helped over 550 new residential developments come to fruition and writes his insightful Matusik Missive


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