Rush to produce high density apartments is a race to the bottom, and we're risking oversupply

Every second new home built today is attached – either a townhouse, villa, ‘plex’, flat or apartment.

Just 56% of the new dwellings approved during 2013 were detached houses.  It was 73% just five years ago.

One in four new dwellings approved are now in mid to highrise apartment towers.

Is this a fundamental shift?


What the stats say

The graphic shows that there has been a rapid drop in new detached housing approvals in recent years.  In contrast, there has been a big lift in the number and proportion of mid-to-highrise apartments approved across the country.  There has been little real change in the level of new townhouses or low-rise unit construction.

Australia’s new housing market is now quite polarised between detached homes and apartment towers.

The cost to actually supply a new detached house (excluding land, taxes/charges etc.) is now similar to the cost to supply a new apartment.  It is considerably cheaper to supply a new townhouse or walk-up flat.

Of course, the size of a new house is much larger than a new apartment, with the average cost to build a new project home somewhere around the $1,000 per sqaure metre mark.  The cost to build new mid-to-high-rise stock sits at somewhere between $2,500 and $3,000 per square metre (as a ballpark figure).  It costs about $1,500 per square metre to build a new townhouse or basic walk-up flat.

Most new townhouses are three bed, two and a half bath, with two cars.  Many of the new walk-up flats are in two bed/two bath (with car parking) arrangements.  Many of the new mid-to-high-rise apartments are under 85 square metres and increasingly, one bedroom product.  New detached houses, by and large, remain three or four bedroom affairs.

Current demographic trends strongly suggest the need for more two and three-bedroom attached product.

    My opinion

    We seem to be stuck in the house versus apartment tower mindset.  This is especially the case in Queensland.

    The recent changes to the Brisbane Town Plan further push this building form, i.e. traditional suburbia versus mid- to highrise density around select urban nodes.

    What is missing – from an affordability and liveability viewpoint – is new housing product in-between.  We need more townhouses, ‘plexes’, terrace homes, granny flats, small lot homes and flexible dwellings.  These need to be supplied across much of the Australian fabric and especially in our middle-ring suburbs.

    For mine, we also need one set of rules when it comes to new housing form.  This should apply across an entire state or territory.  Maybe it should even apply across the country, allowing of course for climatic differences.  It is all well and good that Ipswich City Council now permits granny flats.  But why not Brisbane?  Why does Adelaide – yes Adelaide - permit a much finer grain of new housing choice than Brisbane?

    Our experience is that many residents want to ’age in place’.  Most don’t want to live in a highrise apartment complex.  They would like to downsize, stay local and have some nexus to the ground. But in the absence of affordable choice, they stay put, often as a couple in large detached homes.

    This ‘in-between’ housing would also suit many first home buyers.

    There is a real lack of new housing choice in the Australian market.  This is stopping first home buyers.  It is stopping empty-nesters from downsizing.  It is, by default, oversupplying the new high-rise apartment market and stalling detached housing supply.

    Public policy is not allowing private enterprise (developers and builders) to supply what the market wants.

    Is this a fundamental shift?


    But the role of the developers and builders is to respond to opportunities and work within planning frameworks (as dysfunctional as they might be) to deliver a product that sells.

    The opportunity is that Australians, by and large, want more compact housing.  They are trading ’space’ for ‘place’.

    The trouble is that this demand is largely being forced into one new product type – high density apartments.

    Many buying this product anticipate strong capital gains and high rental returns.  On paper everything looks rosy. In reality, investment outcomes will be determined largely by supply.

    For mine, we are now in danger of oversupplying the mid to highrise apartment market.

    And sadly, within this mid to highrise space, apartment choice is increasingly limited.  It’s a race to the bottom – the smaller the better (read cheaper); or as the spin goes, “cheap and cheerful”.

    Opportunity to supply a range of new housing types would reduce this propensity to overproduce, reducing the severity of the property cycle.

    Michael Matusik is the founder of Matusik Property Insights, which has helped over 550 new residential projects come to fruition.

    Read Michael’s Blog or follow him on Facebook and Twitter or connect via LinkedIn.

    Michael Matusik

    Michael Matusik

    Michael Matusik is the founder of Matusik Property Insights, which has helped over 550 new residential projects come to fruition.

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