26 April 2012 – The tale of two cities just got a little more intense with this week’s release of Victoria’s population numbers showing that the state exceeded 2008 expectations on growth.
Meanwhile separate research reveals a growing gap in the capacity of Australia’s major competing cities Melbourne and Sydney to deliver on housing and jobs.
In the commercial sphere Melbourne can accommodate more than half a million jobs in the coming decades, right on the doorstep of its CBD, compared with Sydney’s 175,000 jobs at best in a variety of disparate and unconnected sites, according to SGS Economics and Planning.
In Melbourne’s housing market, the craze for apartment living is entering its V2.0 stage, analysts Charter Keck Cramer say. And it’s spreading to the middle and even outer ring suburbs. Even more interesting is that the apartments are increasingly smaller and with fewer car spaces.
These trends add up to a direct bearing on sustainability, if you subscribe to the view that density is key to more sustainable, vibrant, happy, intelligent and creative communities, as cities authors such as Ed Glaeser contend.
According to a new report Victoria in Future 2012, overall population in Victoria, assessed at 30 June last year, outstripped 2008 projections by 72,000 people.
The figures also showed that:
- Victoria’s population is expected to grow by 1.7 million, from 5.6 million to 7.3 million,
- Melbourne’s population is expected to grow by 1.3 million, from 4.1 million to 5.4 million.
In the commercial sphere, Victorian Planning Minister Matthew Guy said he would consider expanding the reach of the special CBD planning provisions to Fisherman’s Bend close to the CBD.
“I look forward to reviewing the Capital City Zone and the potential to redefine the CBD by expanding its concept to Docklands, St Kilda Road and Fishermans Bend to optimise the advantages of a larger core for decades to come,” Mr Guy said in a side note to the announcement on the population figures.
Fishman’s Bend is where SGS director Patrick Fensham says Melbourne has capacity to accommodate more than 500,000 jobs in the coming decades.
Sydney by contrast will struggle to muster space for 175,000 jobs in the next 40 years, Fensham says. And these, apart from Barangaroo, which adjoins the city, in a number of scattered sites.
- Understanding Sydney: a view towards more jobs and housing
- SGS forum to unlock barriers to better cities
In the residential sphere Mr Guy said the new metropolitan strategy would look for ways to accommodate projected growth.
Mr Guy said: “A major component of the government’s long-term plan to manage growth and change is the delivery of new affordable homes, infrastructure and conditions that encourage jobs, businesses and attract investment.”
The new metropolitan planning strategy would “consider all aspects of planning – from where new housing and jobs should be located as well as transport connections, health services, schools, community facilities and parks,” Mr Guy said.
But despite what the government comes up with there are already some interesting trends under way in Melbourne in the apartment market. And they contrast strongly with Sydney’s residential market, where developers have thrown in the towel on apartment development.
According to analysts Charter Keck Cramer, Melbourne’s appetite for apartments appears to be spreading with as many as 5000 of the planned 30,000 units expected to start construction in the next two years slated for middle and outer ring suburbs.
Developers say they are surprised by the level of interest they are receiving in new suburbs such as Caroline Springs, 30 kilometres north-east of Melbourne.
Boom Property Group for instance is building more than 100 apartments at Caroline Springs and has proposed 74 apartments in Doreen in the city’s north.
BPG managing director George Mariotti said he was surprised at the level of interest from buyers.
“Caroline Springs has become a fantastic little city in itself,’’ he told The Australian Financial Review.
Sam Nathan, director residential projects, Charter Keck Cramer highlighted some of the key market forces underway in an article in The Asian Executive magazine. Key points include:
- A compelling “Melbourne Story.” Melbourne’s rising prosperity through the 2000s served as a magnet for investment attraction.
- Stronger than forecast population growth; escalating housing prices; eroded lifestyle affordability; historically tight vacancy rates and associated rental growth; nation-leading international education opportunities and the benefit of a “user friendly” city layout gave rise to a compelling story for residential investment.
- Residential property has long been the preferred defensive vehicle for mum and dad investors during the global financial crisis, and Melbourne’s compelling city story paved a ‘golden path’ to Melbourne’s door.
- A shift to defensive residential investment was demonstrated nationally through the initial stages of the GFC, however Melbourne’s reaction was the most pronounced of all capital cities….[with] highly visible investment momentum that captured the attention of interstate and offshore investors.
- For the majority of Melbourne’s peak marketing boom the opportunities for apartment investment in alternate capital city and regional markets were comparatively weak.
- By comparison Sydney provided relatively few major investment grade projects, due to a range of factors including land supply and planning constraints, and the available stock often breached price point thresholds tolerated by investors
- Due to an underlying market imbalance South-east Queensland was hit hardest of all markets by the GFC and did not support a new wave of apartment releases
- The Perth market remained in its relative infancy and did not have the capacity to provide a critical mass of new stock to meet national demand.
· The composition of Melbourne’s development sector: Melbourne is characterised by a set of predominantly private developers adept at identifying and seizing on emerging trends, configuring and marketing projects that meet the requirements of a clearly defined purchaser profile. Melbourne’s developers identified key investor drivers and requirements more dynamically than other capital cities, and delivered commensurately configured projects.
This particular point was highlighted by Melbourne’s Director of City Design Rob Adams in our interview with him in 2009:
- Interview: Rob Adams – small and clever can save our cities
- Melbourne’s planning framework (which could be described as the “best of a bad bunch”) enabled the comparatively timely approval of projects characterised by smaller apartments, scaled-down amenity and (in the CCR context) lower car parking entitlements to meet the price-point requirements of the local, interstate and increasingly international investment sector.
- The emergence of an intelligent cottage industry: “nouveau developers” providing boutique suburban investment opportunities at a localised scale.
- focus is generally on the activities of the highly visible commercial scale (100+ apartments) sector, under-estimating the volume of stock provided within boutique (< 50 apartments) projects sponsored by smaller builder/developers and niche developers.
- Smaller scale suburban projects represent a critical mass of overall stock, generally cater to localised demand, and represent a real demonstration of the progressive structural change in Melbourne’s suburban housing markets. The emergence of these projects provided a counter-point to larger schemes and provided a vehicle for developers to tap into local demand.
- Market Commoditisation: Charter Keck Cramer’s internal research indicates that up to 85-90 per cent of project releases since 2009 have been orientated to the investment market. The emergence and subsequent entrenchment of the intermediary agency networks have acted as a conduit between developers and investors.
- Off the plan apartment marketing has become increasingly commoditised. The intermediary financial services networks (often under the banner of a headline agent) are now the primary method to market for commercial scale projects, capitalising on their capacity to “place product” into pre-qualified purchaser cohorts across the national and international context.
- Entry of offshore developers with closer cultural and educational ties than other capital cities. In the early 2000s the number of apartment completions within the central city region by offshore developers accounted for around 10 per cent of annual stock, however is forecast to increase to 19 per cent in 2012 and 38 per by 2015.
- There is increasing scrutiny of the potential impact on market balance as a consequence of pending completions, particularly against the background of a weakening of the drivers that supported the “Melbourne Story” relative to those which prevailed prior to the current cycle. In isolation of any short (and potentially medium) term impact to market balance and measures of investment performance for OTP purchasers, V2.0 of the apartment market provides a strong indicator of Melbourne’s transition towards world city status, and represents the commencement of a permanent structural change in housing patterns and city formation.
- Read the whole story https://www.charterkc.com.au/newsmedia/documents/Melbourne_Apartment_Market.pdf