By Brett Warren January 23, 2025

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Why Are Aussies Turning Their Backs on Apartments?

Property Investment
Why Are Aussies Turning Their Backs on Apartments?

Key takeaways

Despite the relative affordability of apartments, 84% of Australians prefer freestanding houses or townhouses. This demand isn't met as new housing construction hasn’t kept pace with population growth, especially for detached homes.

Since 2010, new housing approvals for apartments have surged, driven by policies promoting urban density and financial benefits for developers. However, this doesn’t align with Australians' housing preferences, particularly after the pandemic increased the desire for more space and nature.

Quality concerns plague new apartment buildings, with around 40% experiencing defects like water leaks and fire safety issues soon after completion. In NSW, 53% of recent apartment buildings have significant defects, making buyers wary of new builds and increasing interest in older, established properties.

The cost of new apartment construction has surged by up to 30% recently due to inflation, labour shortages, and supply chain issues. This price increase now places new apartments closer to townhouse prices, diminishing their affordability advantage.

For savvy investors, low-rise, boutique apartment blocks of 8-12 units in prime locations present a contrarian opportunity. Older apartments, often below replacement cost and with fewer defects, provide intrinsic value and are located in desirable areas with established amenities.

Well-located, older apartments in smaller blocks offer long-term potential. These units have intrinsic value, prime locations, and are typically structurally sound, appealing to investors who prioritize stability and lifestyle over new developments.

As Australia grapples with a housing crisis, an interesting trend has emerged: Australians are increasingly shunning apartments, particularly those in high-density developments.

In an article on news.com.au, Tarric Brooker explains that many Aussies are turning away from apartment living even though it’s a much more affordable option.

The growing aversion to high-density apartment living

In his article, Brooker explains that even though most politicians believe the solution to our housing problems is supply, supply, supply, supply; another vital element to the equation that he often overlooks is demand.

Brooker explains that Australia actually builds more homes per capita than all other countries but then asks the question: what type of homes do Australians want to live in?

Source: Tarric Brooker news.com.au

Quoting a recent survey by Westpac, Brooker explains that 84% of prospective homebuyers want to live in freestanding houses or townhouses.

Yet despite the overwhelming majority of Australians wanting to live in houses, the construction of new houses hasn’t kept up with the growth of the population, leading to higher prices and intense competition for detached homes.

Source: Tarric Brooker news.com.au

At the same time, the construction industry has shifted its focus toward apartment developments over the past 15 years.

The rise of apartments: an unintended consequence

Despite Australians' clear preference for houses, the construction landscape has tilted heavily toward apartments in recent years.

The shift began around 2010 when the proportion of new housing approvals held by apartments jumped to an average of 26%—a significant increase from the 15.8% average between 1992 and 2009.

At its peak in October 2015, 37.2% of new housing approvals were for apartments.

The surge in apartment construction can be attributed to several factors, including the push for higher-density living to accommodate urban population growth and the financial incentives for developers to build multi-unit dwellings rather than individual homes.

However, this shift hasn’t necessarily aligned with what Australians want.

Many buyers, particularly families, are reluctant to move into high-density living arrangements, especially after the pandemic made people crave more personal space and a connection to nature.

At the same time, more and more property investors recognise the premium they have to pay to buy a new apartment, particularly off-the-plan projects, which means they give the first five or 10 years of capital growth to the developer, and it’s not his to have!

Quality concerns: the Achilles' heel of new apartments

Compounding the issue is the growing concern over the quality of new apartment developments.

Brooker points out that defects in new buildings—ranging from structural issues to water leaks—are eroding buyer confidence.

Recent data shows that around 40% of new apartment buildings report defects within a few years of completion, which makes buyers wary of investing in these properties.

This sentiment has driven more people to seek established houses or townhouses, even if it means paying a premium.

The quality crisis: new apartments aren’t measuring up

Another significant reason behind the aversion to apartments is the widespread issue of construction defects.

The surge in apartment construction over the past decade has led to a drop in quality, with many new buildings plagued by structural issues.

From leaks to fire safety breaches, these problems have been widely publicised, eroding public trust.

Both homeowners and investors are reluctant to invest in new apartments when they’re constantly hearing stories of faults and poor construction quality.

This concern is not unfounded.

According to a report by the New South Wales government, a staggering 53% of strata buildings surveyed exhibited serious defects within just six years of construction.

The most common serious defect was waterproofing, impacting 42 per cent of buildings assessed, followed by fire safety systems with 24 per cent of structures afflicted.

Obviously, these defects pose a significant financial burden on unsuspecting apartment owners.

Rising costs: apartments are no longer an affordable option

Historically, apartments were seen as the more affordable entry point into the housing market.

However, due to surging construction costs—driven by inflation, labour shortages, and supply chain disruptions—new apartments are no longer the cheap option they once were.

The cost of building new apartments has increased by up to 30% over the past two years, making it challenging for developers to deliver quality homes at competitive prices.

As a result, the newer stock hitting the market is often priced similarly to townhouses or small houses, which offer more space and amenities.

What does this mean for property investors?

While the broader trend is bad news for apartment developers, it’s not all doom and gloom for investors who know where to find value.

The opportunity lies for those willing to look beyond the shiny new towers.

You see…Not all apartments are created equal.

As I’ve been saying for years, high-density developments with hundreds of units may be falling out of favour, but established, well-located “family-friendly” apartments in smaller boutique blocks are still in high demand.

These older apartments can be bought significantly below replacement cost, meaning they can be bought today with significant “intrinsic value” that is being overlooked in the current market.

Established apartments: the hidden gems of the property market

In my mind, investors should consider turning their attention to low-rise, boutique apartment blocks of 8 to 12 units in prime locations.

Here’s why these types of properties are becoming increasingly attractive:

Prime Locations: Older apartment blocks are often situated in well-established neighbourhoods, close to schools, parks, transport, and other amenities that families and professionals value. This makes them more desirable for owner-occupiers and long-term renters.
Better Value Proposition: These established apartments are currently priced substantially below replacement cost, so buyers are effectively purchasing them at a discount. With construction costs continuing to rise, the cost of building new apartments is far higher than the market value of existing ones. In other words, they have significant upside potential.
Lower Risk of Defects: Older buildings that have been well-maintained are often more structurally sound than newer builds, which have been rushed to completion. This lower risk of defects makes them a safer bet for investors.

The bottom line: a contrarian opportunity

While the mass market may be turning away from high-rise apartments, this could be the perfect time for savvy investors to take a contrarian approach.

By focusing on established, well-located apartments in boutique blocks, investors can secure properties with strong long-term potential and a solid rental yield.

As Australians continue to prioritise lifestyle and quality over convenience, these types of properties will only become more valuable.

So, if you’re considering your next investment, don’t just follow the crowd to regional hotspots or new house and land packages in the outer suburbs.

Look for the hidden gems that have been overlooked.

After all, property investing is all about finding value where others don't see it.

About Brett Warren Brett Warren is National Director of Metropole Properties and uses his two decades of property investment experience to advise clients how to grow, protect and pass on their wealth through strategic property advice.