The Great Australian Dream of buying and building on a block of land or purchasing a first house is fast becoming a distant memory, particularly for many young Australians looking to enter the property market.
It’s been well-documented that home ownership rates have contracted amongst all Australians in recent years with people in the 25-to-35-year-old age bracket representing a 10 per cent decrease in home ownership since 1996. So just exactly where is this buying group turning for alternatives to the traditional house-and-land offering? The answer is high-rise/high-density living.
At a national level, recent research by Cordell Information shows new flats and units project activity is currently experiencing one of its biggest booms in modern times. This category represents the most substantial increase in all construction classes with a 32 per cent increase in new projects reported in Q1 2015 from Q1 2014.
This far outweighed more modest gains in industrial (eight per cent) and civil engineering (four per cent), whilst the remaining commercial, community and mining categories saw a downturn last quarter. Congruently, there’s also been a 58 per cent increase in the actual dollar value of new Flats and Units projects from $ 7.6 billion in Q1 2014 to $12 billion Q1 of this year.
Looking at this phenomenon on a state-by-state basis, in NSW from January through to March of this year, newly-reported apartment projects increased 40 per cent over the same period in 2014, with 500 new projects against 358 last year. One only has to look out the window at the vast array of cranes on the horizon in areas such as the Sydney CBD, Liverpool and Parramatta to see evidence of this activity.
In Victoria, the volume of new flats and apartments reported in Q1 2014 was 359, whilst for the same quarter this year 522 were reported, an increase of 45 per cent. In turn, the value of these apartments is also on the rise, with VIC values increasing 41 per cent, giving weight to the affordability argument.
“During this first quarter we ran a survey to all the franchisees within the Barry Plant group. More than half of them reported an increase in first-home buyer enquiries on flats and apartments, so it stands to reason that OFI attendances and sales are on par with this increase," said Mike McCarthy, CEO of the Barry Plant Group. "We’re certainly seeing a higher demand from first-home buyers across the board in this category.”
To a lesser extent, it’s a similar scenario in Queensland where the volume of new flats and apartments increased 14 per cent (227 in Q1 2014 vs 259 in Q1 2015). The value of the projects in this category has also risen from $1,325 million in 2014 to $2,926 million this year – an increase of 121 per cent.
Not to be outdone, South Australia has recorded new apartment construction increases of 58 per cent in volume and 54 per cent in value. Even Western Australia, now grappling with the repercussions of a mining and commodity bust, still saw a seven per cent volume increase with a 24 per cent value increase to boot.
Tasmania takes first prize in the flats and units stakes with a massive 350 per cent increase in the volume of new projects, albeit the quantity is markedly less than elsewhere in the country.
No doubt apartment living has its own special appeal in terms of convenience and a low-maintenance lifestyle. But there is little doubting that this substantial increase in flats and units construction is also driven by a finite, ever-decreasing amount of land near major metropolitan hubs as well as the fact that single-dwelling prices are, no pun intended, through the roof.
As we now see demand diverted toward apartment living for many entry-level property seekers, could this be the start of the current similar trend we see in single dwellings? For example, if the median price of a Sydney house is expected to reach $1 million by the end of this year, will the price hike pattern carry through to apartments in the future?
Unlike in the past, when developers required pre-commitment of at least 50 per cent in sales, these days the demand is well and truly strong enough to proceed with development approval and construction.
It has many economic experts questioning where first-time buyers will turn to in five years’ time, and what role government and industry regulators will play to intervene and manage price elevation in order to sustain this group’s buying capacity.