Is Canberra the best property market? A detailed look at what’s happening in resi

Charter Keck Cramer released its H2 2024 State of the Market report for residential build to sell and build to rent apartments this week, and the real star of the data is Canberra. It’s overturning many of the treasured tropes of the development industry, with what the authors describe as the most balanced apartment market in the country.

While other markets are struggling, particularly in the build to sell sector, Canberra has a nice equilibrium between supply and demand. It’s still affected by challenges such as rises in labour costs and materials, yet developers are still generally succeeding in bringing projects to market.

An aspect of the market noted in the report is that most development sites are procured under a land lease arrangement. What that means is the price of land is not escalated by the competitive urge seen in other cities, where there have been constant uplifts in value and ever-spiralling land prices.

As we know, the ACT also has some of the most rigorous planning requirements in the country. Developments can no longer connect to gas, there are requirements around green space, pedestrians, native vegetation protection, amenity and high energy efficiency expectations.

Yet this does not seem to be making projects unviable, despite “red tape” “planning requirements” “levies and charges” and “sustainability” so often being cited in other markets as reasons homes and apartments are not affordable.

It’s also become relatively more affordable

While the ACT has previously taken either the number one or number two spot in the league table for highest weekly rents for homes and apartments, it’s now slipped to number four, behind Sydney, Gold Coast and Perth.

Demand fundamentals remain sound. The report notes that the ACT has a large proportion of the population in white collar occupations, earning higher than the national median wage.

A quick check of the 2021 ABS demographic data bears this out – 58.4 per cent of the population categorised themselves as either professionals or managers, compared to 47.7 per cent of the Australia-wide proportion in the same occupations.

The median household income in the ACT was also higher, at $2373 a week compared to $1746, which leads some observers to wonder, are higher average wages a lever for improving the viability of the housing market that should receive more attention?

Materials, labour and development approaches

In most other markets, the rising cost of materials and labour has been hurting the supply end of the apartment market, with build to sell projects in Sydney most affected by this.

The report also notes that the development approach can be a factor. In a commentary on the Melbourne market, the authors state that the major risk is “revenue assumptions, with many projects that are feasibility engineered (rather than design-led) missing the mark.”

Capital and obtaining it is another challenge, and in some markets, developers are struggling to secure a third-party builder due to competition from infrastructure projects.

This is particularly the case in Brisbane. The report suggests developers with in-house builders are finding it easier to get projects out of the ground in the current conditions.

Off the plan still lagging

Across the country, there is also a growing gap between the sale and rental prices for existing apartment products compared to new builds.

There are some mixed messages though. While the lack of supply as reflected in record low apartment vacancy rates is a problem, there is also a note that some investors are responding to changes in rental regulations and cost of living pressures by withdrawing property from the rental market.

How this translates into those properties then becoming available as property for owner-occupiers was not clear, although theoretically, if the price of existing apartments is stabilising, and more existing property is becoming available for purchase, that traditionally mitigates scarcity of rentals.

Menzies 2.0?

One interesting bit of commentary was the authors’ suggestion that the current state and federal governments could improve the market by taking a lead from Menzies government post-war policies.

A cornerstone of the Menzies approach was the development of public housing that was then sold to either tenants or on the open market. Sadly, we do not have the investment going into public housing to take this approach, nor is there much public housing left to sell off.

Furthermore, any conversion of public housing for the most vulnerable into private market housing is only going to make homelessness worse. However, this is not an aspect of the apartment market the CKC report included within its analysis.

• Access the report here