Affordability Crisis Drives Apartment Market Renaissance

A deepening affordability crunch will drive people back to apartment living but stock levels cannot meet demand in the near term, an industry report warns.

Charter Keck Cramer’s report on the apartment market shows smaller owner-occupier targeted developments could help to shore up stock levels because they were more appetising to buyers and quicker to market.

“This particular sub-market gained significant momentum through 2021, with record prices and robust sales velocity achieved for premium product,” the report said.

But apartment construction commencement numbers were significantly down across major capital cities in Australia last year.

In Sydney there were 8800 apartment commencements, down 71 per cent from its 2016 peak of 30,800 apartments. In Melbourne apartment construction commencements were down from 22,500 in 2015 to 5600 in 2021, a 75 per cent decrease.

Brisbane’s apartment market underscored a very low commencement rate of just 1500 apartments, the lowest number of apartments commencements in the past decade, down 88 per cent from its 2015 record of 12,200 apartments.

The apartment sector suffered a demand-side shock in the midst of the Covid-19 pandemic with many people abandoning city centres in favour of suburban and regional living.

But the apartment market research indicated cyclical and structural changes under way would support the next cycle of build-to-sell apartments and the emerging build to rent sector when population growth returns to capital cities in 2023.

Apartment market, fourth quarter 2021

City Median apartment price Median apartment rent Apartment vacancy rate
Sydney $802,255 $476 2.6%
Melbourne $593,387 $375 3.2%
Brisbane $416,033 $400 1.3%

The report said a growing acceptance of family living in apartments, increased detached dwelling affordability constraints and record median house to apartment price gaps would encourage a flight to apartment living.

The “alarming” low number of apartment project launches and commencements across Melbourne, Sydney and Brisbane last year means that new supply will continue to be constrained over the next two to three years.

“Demand, via population growth, will return to [cities] from 2023 onwards,” the report said.

“With that growth will come the demand for additional and diverse forms of living … at present supply will not be able to respond as quickly to demand which suggests that vacancies will decrease, and rents and prices will increase.

“This will drive the next cycle of the build to sell apartment market and first wave of build to rent apartment projects.”