Higher densities are considered generally more sustainable and there’s a surge in higher density apartment developments in Melbourne and Sydney, with other cities and even regional centres starting to catch the bug.
But what’s driving the market? Is it sustainability, or are more basic market fundamentals driving outcomes that just happen to align with better environmental and sustainable outcomes?
According to apartment sector analyst Sam Nathan, a director of Charter Keck Cramer, one benefit of higher densities and apartments is the growing appreciation of being close to transport, and developers are increasingly aware of its benefits as a selling point.
More buyers are trading parking spots for train stops
“Transport is changing generationally,” Nathan says. “If a site is in proximity to several and very liquid forms of public transport, it has a primary marketing advantage. This advantage will strengthen as our cities become larger and increasingly congested.
“Roads are great, but generally younger owner occupiers and tenants are preferring public transport due to the cost of owning cars.”
Nathan says roads become lower on the buyer wish list when car travel can be substituted for quicker and reliable public transport.
In Brisbane, developments are likely to focus on the CityCat river service and access to train services, Nathan says.
In Sydney strong development activity is emerging in middle and outer suburbs around train terminals complemented by immediate lifestyle and retail amenity, and in Melbourne, trains and trams are the drawcards.
Financial and structural changes
A major driver of the growth in apartments, Nathan says, is the changing structure of the housing market and partly, it’s also a response to the financial markets.
According to Nathan, the current apartment cycle in Melbourne first gained momentum immediately following the global financial crisis, in 2009-2010. At the time Melbourne was best placed of all domestic capitals to act as a host for domestic investment, particularly on the back of strong economic and population growth through the 2000s.
Myths and global branding
In terms of foreign buyers, Nathan wants to debunk a few myths.
One is that this is a rampant trend just in Sydney and Melbourne. Instead, he says, it’s a global trend linked to investment behaviour.
“Globally, apartments are emerging as a conduit to capital transfer and asset diversification; the market is now highly interconnected and most global and near global city apartment markets are witnessing a similar shift in activity.”
According to Nathan foreign buyers didn’t enter the Melbourne market until 2011/2012, but while Melbourne was increasingly part of the global marketplace and Sydney has been a “global city” for longer, Brisbane and Perth still lack a clear “brand” offshore.
That could soon change, on the back of their proximity to Asian markets and strengthening educational and lifestyle drivers, Nathan says.
When prices go up, so does density
The theory behind the shift towards density is that as detached dwellings become too pricey and breach the affordability threshold for first home-buyers and investors, the development focus shifts to townhouses, until they too breach the affordability threshold.
Ultimately, Nathan says, apartments emerge as the relatively affordable housing.
However, he says, in Sydney there is less opportunity to buy townhouses due to stock availability and price thresholds, and the market has jumped directly from houses to apartments in many areas.
“Sydney will continue to be more mature as a market, there is less of a middle tier default position relative to other capital cities,” Nathan says.
The same theory applies globally.
As cities become prohibitively expensive investors turn towards lower cost areas to satisfy investment demand for property.
Nathan says building vertically is socially and economically viable for global cities but he acknowledges there is a “visual and perception challenge with the associated built form the market must become accustomed to.”
Melbourne apartments are not homogeneous, Nathan says.
The sector comprises a globally-focused CBD, a “vibrant and famous city fringe” and now they’re emerging in the middle suburban markets, particularly around multicultural activity nodes such as Doncaster and Box Hill.
“It’s a reflection of the increasing maturity of the Melbourne market,” Nathan says. In Sydney, a strong suburban apartment market is much more established.
Nationally the fastest take off in the apartment market was Melbourne, followed by Sydney, which recently overtook Melbourne for the first time since the Sydney Olympics in 2000. Now Brisbane is on the move.
Regional centres start to catch the density wave
Some of the major regional centres, such as Bendigo, Ballarat, Geelong, Wagga Wagga and Tamworth are also seeing a greater emphasis on medium density projects, although this is still in the infancy stage.
The picture in Adelaide, Darwin, Hobart and Perth
In terms of how the apartment sector is performing in other capital cities, Nathan says it is unlikely to emerge at a commercial scale for some time in Hobart, and despite some larger projects emerging in Adelaide, the market there remains in its relative infancy, with more call for medium density and townhouse projects than higher density towers.
“Perth is a little harder to understand. There is quite strong activity within core lifestyle precincts and activity and lifestyle hubs, and the Elizabeth Quays precinct will provide a catalyst for central city renewal, but we are not yet seeing a broader structural shift [in the housing market],” Nathan says.
“Darwin remains an employment hub, and we are seeing prolonged rental affordability, housing stress and a constant effort to deliver the quantity of housing required. The medium density and high density market has therefore performed quite well throughout the resources and associated infrastructure growth period on the back of investor demand.”
Melbourne developers expand northwards
An interesting trend is the northwards movement of Melburnians, taking development and marketing skills north to Sydney and Brisbane.
The trend of jobs shifting to the lower-density mortgage belt
In each of the three major eastern seaboard cities, some of the jobs are shifting to the lower-density mortgage belt. In Melbourne it’s areas such as Box Hill, Doncaster and Dandenong; in Brisbane it’s Eight Mile Plains and in Sydney it’s Parramatta.
The “twenty minute neighbourhood” which is a key goal of the recently finalised Plan Melbourne strategic vision for the city, seeks to create an optimum balance in terms of staff recruitment and retention, minimising absenteeism and ensuring work life balance, Nathan says.
Does the inner-city need to be family-friendly?
In terms of discussions around how family friendly high-density inner urban apartment projects are, Nathan says it can be questioned whether this is in fact the role of the inner city.
He says we could see the emergence of more family-friendly, smaller-scale medium density projects which provide shared open space and are more sustainable socially for mixed age households, but primarily in the city fringe and inner suburbs, and key suburban activity centres and nodes.
“For example, the ACT has shown it is possible to achieve quite significant density in four to five level developments, and there is a lot of that interspersed in the ACT activity centres,” Nathan says.