Victoria's new apartment rules a recipe for recession

The Victorian government’s decision to restrict the booming apartment construction in Melbourne might push Australia into recession in the next year and a half.   

The Victorian government’s decision which could increase the cost of building apartments by about $100,000 will deliver a big blow to employment in the state, says Robert Gottliebsen, a columnist at The Australian. 

Especially, because Victoria has been erecting many more apartments than NSW and all the other states. 

Given Melbourne has a similar population to Sydney, the Victorian government’s decision to slash apartment building will not only create a Victorian recession but also increase the risk of the nation going into recession within 18 months, as the current pipeline of Victorian apartment projects are completed.

NSW cannot carry the whole nation in spite of the boom in apartment construction, argues Gottliebsen.

Going by the new rules, an apartment that currently costs $400,000 will now cost $500,000 and so on up the scale, he says.

“Whether it was planned or not, the boost to the cost of apartments will make it tougher for first home buyers to get onto the property ladder and force dwelling developments into the outer suburbs, with the greater levels of infrastructure investment that such projects require.” 

Only when the price of apartments rises to cover the higher costs will building restart.

The report relied on research by Craig Yelland, a director of Plus Architecture.

The new rules that will inflate the cost of apartment building come in two parts:

• Any apartment complex over two storeys must allow more open space and be further set back from the road. This means less apartments on any block. 

“Under the old rules, a block where, say, 367 apartments could be built, now only 213 can be built — a 40 per cent reduction in the yield. The actual boost to the cost of apartments caused by this regulatory change depends on the project, but for most it will boost the cost of each apartment by $20,000 to $40,000.”

• 15 specific building requirements have been introduced such as greater window areas. Each such addition will add between $2,000 and $10,500 to the cost of a unit — a combined increase of $62,500. 

Combining the two sets of measures adds an average of around $100,000 to the cost of apartments.

“Had these measures been introduced at the start of the apartment building boom their blows would have been less devastating.

“But in 2016, the measures come in the middle of a bank credit squeeze on apartment developments, which is forcing many developers around the nation to use high-cost second mortgage financiers to fund more of their apartment developments. This is also curbing development in NSW.”

The apartment boom in Victoria countered the impact on jobs due to the decline in manufacturing, but coinciding with the new restrictions on apartment developments, the state government’s decision to stop coal seam gas development and deprive farmers of the $100,000-a-year income will push up gas prices at the same time. 

“The almost inevitable Victorian recession will change the national outlook and make a nonsense of the Federal Budget growth sums.

“The development of lower cost apartments in Melbourne will restart when prices rise by around $100,000 per apartment and the banking regulator allows the banks to once again lend to apartment developers. Meanwhile the value of development land will fall.”

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