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The Melbourne apartment surge is just beginning. In the next few years, an unprecedented number of apartments will hit the city’s already crowded skyline.
But our <a target="_blank" href="https://artsonline.monash.edu.au/cpur/melbournes-high-rise-apartment-boom/">new research</a> at Monash University shows this does not mean more Victorians are embracing inner-city living; rather it is the result of the marketing of thousands of tiny, poor quality apartments to investors, which threatens to undermine the carefully fashioned story of Melbourne’s liveability.
Apartment capital of Australia?
While Sydney has traditionally been the epicentre of apartment development, there has been an unprecedented surge in high-rise apartment completions in Melbourne since the late 2000s, located primarily in the inner city and CBD fringes.
Between 2010-2012, the inner-city skyline was transformed with the completion of 22,605 apartments. However, the city is set to see a further 39,000 additional completed apartments that have already commenced or have been released for off-the-plan sale.
The apartment boom is driving Melbourne’s extraordinary share of Australia’s dwelling approvals. In 2012-13 they constituted 24.3% of the Australian total. Yet Melbourne’s share of Australia’s population in mid-2012 was 18.5%.
Does this mean that households in Melbourne are embracing inner-city apartment living? Our analysis indicates that it does not. Rather, it is an investor rather than an occupier driven boom.
Apartment residents remain overwhelmingly young singles or couples who are renters. They continue to be transients who, as in the past, will move into family-friendly housing when they decide to raise a family. Most of the new households in Melbourne will be looking for such housing. There is no large potential source of apartment occupiers (including empty nesters) who will be attracted to apartment living.
Melbourne is not like Sydney, where restrictions on outer suburban expansion have compelled 11% of households (including some families with children) to occupy apartments. There are huge tracts of outer suburban zoned for the development. Detached houses can be bought for far less than two bedroom apartments in the inner city. By 2011 only 4% of households in Melbourne lived in apartments of four storeys or more.
In the case of the City of Melbourne, while there has been an increase in the number of those who live and work in the CBD, by 2011 they comprised just 27,912 of the 344,790 persons who worked in the city. Overseas students have also been an important source of apartment occupiers. In addition, to our surprise, there has been an increase in the number of those who live in the City of Melbourne and work outside it. They increased by 5,246 between 2006 and 2011 to 19,108.
There will have to be massive increases in the numbers in each of these categories if they are to approximate the expected surge in apartments on the market.
A risk to liveability?
Local apartment developers, who dominate the inner suburb apartment market are backing off on new proposals. However, overseas developers are undeterred. They have the resources to outbid locals for sites in the inner city and are likely to approach 100% of completed apartments in this area by 2016. They are responsible for the recent surge in proposals for CBD apartment towers.
Melbourne is a more attractive to developers than Sydney because there are more potential sites for high-rise apartment projects which can be developed at prices affordable to most investors (less than $500,000). These pricing priorities are also responsible for the increasing share of apartment projects comprising tiny apartments (mostly sub 50 square metres in net living area).
Inner Melbourne is also attractive because of its amenities, enhanced by massive state government and City of Melbourne investment in infrastructure (including CityLink and Southern Cross Station) public spaces (Federation Square), parks (Birrarung Marr) and laneways.
This investment was intended to enhance Melbourne’s prospects of becoming a centre of knowledge-intensive industries by enhancing the city’s liveability. It was hoped that this would attract the “creative class” believed to drive this transformation. For its part, the City of Melbourne has long wanted to transform the CBD and surrounds into an inviting mix for residence, work and entertainment.
Squandering the “Melbourne story”
This investment has helped in the fashioning of a ‘Melbourne story’, which has been particularly attractive to Asian developers and investors.
However, the apartment boom is squandering this investment. It is delivering tiny, poor quality apartments that will repel rather than attract this market. City of Melbourne planners have recently issued a withering critique of the outcome, with the chief advocate of the local authority’s original vision, Rob Adams, declaring the current ‘flood’ of apartments has gone too far.
Despite warnings of an apartment glut the state government and the City of Melbourne are pressing on with plans to facilitate further urban renewal. They include Fishermans Bend and the City North and Arden-Macauley precincts to the north of Melbourne’s CBD. The City of Melbourne’s planning blueprint assumes that the number of dwellings will increase from 67,533 in 2012 to 110,533 in 2031.
The state government wants the apartment boom to continue because it is one of the few bright lights of the current Melbourne economy. It can ignore the City of Melbourne planners’ concerns because it holds the planning authority for apartment towers in excess of 25,000 square metres floor space. It is approving almost all proposals put to it.
The outlook is that the investment in the city’s amenities will be squandered. The city is heading towards becoming a dormitory rather than a centre for knowledge-intensive industries. The balance between apartments and offices in the CBD is swinging rapidly towards the former with the prospect that apartments will crowd out sites for offices in prime CBD locations.
In the three years 2013 to 2015 there will be three times the amount of floor space completed for apartments in the CBD and Docklands than for new office space.
The planning elites shaping Melbourne’s future are ignoring the disconnect between the investor-driven apartment boom and real housing preferences. Their plans for the inner city’s expansion and for its economy are based on a property boom that our analysis indicates will implode.
 
<hr>
 Bob Birrell ia a researcher at <a target="_blank" href="https://www.monash.edu.au/" rel="nofollow">Monash University</a>.
Ernest Healy<a href="https://theconversation.com/profiles/ernest-healy-3629" rel="nofollow"></a> is senior research fellow in the Centre for Population and Urban Research at <a target="_blank" href="https://www.monash.edu.au/" rel="nofollow">Monash University</a>.
This article was originally published at <a target="_blank" href="https://theconversation.com/" rel="nofollow">The Conversation</a>.  
 
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 Melbourne's highrise apartment boom threatens city's liveability: Bob Birrell and Ernest Healy

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The high cost of housing in Australia’s cities is denying most aspiring first-home buyers the opportunity to purchase a home. The current high dwelling prices reflect the long boom of the 2000s, when across all Australian metropolitan centres dwelling prices doubled or tripled, with the sharpest escalation being for dwellings close to inner city amenities and high paying jobs.
One consequence is the extraordinarily high level of household debt in Australia. It rose sharply from 100% of annual household income in 2000 to 150% in 2009. It remains at this level – exceeded only by the Netherlands amongst developed countries. Most of this debt is mortgage-related.
Similar dwelling price escalation occurred in Britain and the United States, among other developed nations. What is distinctive about the Australian experience is that there was no contraction in dwelling prices at the time of the global financial crisis.
To the contrary, dwelling prices surged in 2010 when the Reserve Bank sharply reduced interest rates and the Australian government lured first-home buyers into the market via additional grants. Since 2010, after a brief and minor price contraction, prices have moved up again, especially in inner-city areas.
Notwithstanding this situation, the housing affordability issue has barely rated a mention during the election campaign. The reasons are not difficult to discern. There are far more voters happy to see dwelling prices increasing than there are disappointed first-home buyers or their sympathisers.
They include those owning or purchasing a home and the army of investors who hold property. Nearly 20% of individuals in Australia aged 45-64 receive income from a rental property. Their ranks are surging with growth in the Self-Managed Superannuation Funds (SMSF) industry. The rules governing these funds were changed in 2007 so that investors can now borrow to finance a property investment with the accompanying tax advantages, including negative gearing.
What if anything can be done about the situation? Even well-informed economists such as <a href="https://www.themonthly.com.au/video/2013/03/24/1364105156/great-crash-2008-featuring-ross-garnaut-p1" target="_blank">Ross Garnaut predicted</a> that Australian dwelling prices would implode, as elsewhere. Among the factors preventing this outcome has been the continued growth in household numbers flowing from historically-high levels of population growth.
This factor has been strong in Sydney and Melbourne because these two cities are the main destinations of overseas migrants. It is not likely that either of the major political parties will address this issue, because both see population growth as a crucial driver of aggregate economic growth, particularly now that the mining investment boom has abated.
Also crucial (until recently) has been the growth in household income in Australia, due to the strong employment situation and the income boost attributable to the decline in import prices resulting from Australia’s favourable terms of trade and the high Australian dollar. This boost is now going into <a href="https://www.ace2012.org.au/ACE2012/documents/Gruen_D_Productivity_and_Structural_Change_Presentation.pdf" target="_blank">reverse.</a>
While household income was increasing and young people were confident that jobs were plentiful and house prices would keep rising, they were prepared to take the risk of very high mortgage indebtedness.
However, we are in a new phase of the housing market. The middle-income blue and lower white collar demographic that bought house and land packages on the fringes of our major cities during the boom years is less willing or able to do so.
 
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The risk of taking on the typical first-home buyer mortgage of $300,000 (more in Sydney) in the current weakening labour market is considered too great by many. The labour market is most precarious for people from this background. This is the major reason why developers are having fewer problems selling apartments off the plan than they are house and land packages on the fringe. The apartment purchases are by local and Asian investors; the fringe purchasers are locals.
First-home buyer demand would be greater if house and land packages were cheaper. This has been a central theme of developers. If only the planning rules were less cumbersome and more land was released for subdivision, this would solve the price problem in their view. This proposition has some merit in Sydney, where it has long been state government policy to limit fringe expansion.
This, plus the fragmentation of broadacre land holding, has meant that very few blocks are available for less than $250,000. In Melbourne, by contrast, there is no longer a land shortage. Developer display signs and sales offices are everywhere. They simply cannot sell what they have to offer. Nor can they discount too heavily because the costs of developing land on the fringe have increased, partly because of Government levies designed to deal with <a href="https://artsonline.monash.edu.au/cpur/" target="_blank">infrastructure deficiencies</a>.
One of the most disturbing issues now emerging is the extent to which those attracted into the housing market during the boom, and especially during 2010, have a heavy legacy of mortgage debt.
Click to enlarge
<a rel="shadowbox" href="/images/stories/2013/08/heals-aug-28-chart-big.gif" title="Click to enlarge"><img src="/images/stories/2013/08/heals-aug-28-chart-small.gif"></a>
These households are vulnerable at a time when jobs are insecure. As is evident from the table, the potential problem is acute for younger households because over a third of these households are paying more than 30% of their household income in mortgage payments. We have included several of the major fringe LGAs in Melbourne because it is where recent new home buyers have been locating.
As awareness of this predicament grows, is it any wonder potential new entrants to the housing market are holding back?
 
<hr>
 Ernest Healy<a href="https://theconversation.com/profiles/ernest-healy-3629"></a> is senior research fellow in the Centre for Population and Urban Research at <a href="https://www.monash.edu.au/" target="_blank">Monash University</a>.
Bob Birrell  ia a researcher at <a href="https://www.monash.edu.au/" target="_blank">Monash University</a>.
The authors do not work for, consult to, own shares in or receive funding from any company or organisation that would benefit from this article. They also have no relevant affiliations.
This article was originally published at <a href="https://theconversation.com" target="_blank">The Conversation</a>. 
 
 
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Bob Birrell and Ernest Healy

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