Apartment standards: $145K extra and it's not about the size

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Apartment standards: $145K extra and it's not about the size
Apartment standards: $145K extra and it's not about the size

If all of the apartment standards being considered are brought to Melbourne, apartments will cost approximately $115,000 to $145,000 more. Perhaps the most misunderstood aspect of this, is that the proposed increase in apartment sizes means an additional $15,000. Where then does the extra $100,000 come from and what is contributing to this spike in price?

Working with Rider Levett Bucknall, the global property and construction practice specialising in cost consultancy, project management and advisory services, I have calculated the very real cost associated with each of the proposed designed standards. Understanding that size accounts for just 10-12% of the overall cost, I think it’s time we realised size, whilst it has been the most publicised factor, doesn’t matter nor cost as much as these other standards.

In confirming that the apartment standards will be released in the same time frame as the C270 amendment, Planning Minister Richard Wynne has verified that we can expect these standards to come in to effect in September this year. The Minister has also said consultation was undertaken with industry bodies, yet no official apartment standards have been released to the public for their feedback, nor have indicative costings been disclosed.

The government seemingly refuses to tell the public what they are in for and what the true cost of these apartment standards will be. They simply plan to set into motion, planning legislation that will forever change our city and hurt housing affordability, without further notice.

You see in 2014, The Office of the Victorian Government Architect (OVGA) drafted their recommended apartment standards, which were subsequently leaked to the press that year – by whom exactly, we don’t know. What we do know is that these leaked standards are very similar to SEPP65 - the NSW apartment standards and appear to be based on this model.

And whilst it must be said that the public survey conducted by the Victorian government covered these same standards, it did so without conveying the price tag associated, thus making the results more or less redundant. After all, what is the point of asking if people want something if you don’t tell them how much it costs to have it? If you don’t communicate that these things come at an expense, you are implying they are free. It’s like asking if someone would like a nicer car, better clothes, longer holidays etc. of course they would, but ask them if they want to pay for such a privilege and many will turn it down.

To better understand the economic trade off I’m talking about here, I have created the following table (see below), which outlines the true cost of each of the standards detailed in the OVGA’s aforementioned documentation.

No one other than the Government knows what the standards being introduced in September will look like, which raises other concerns and begs the question why so much secrecy? What are they trying to hide? And why won’t they just tell us what we’re in for?

It doesn’t instill a lot of faith and quite frankly I’m not alone in my frustrations about the lack of transparency and democracy being exercised here, but those with the most to worry about are those looking to buy an affordable apartment – they stand to suffer the most. Mind you the affects don’t stop at the lower end of the market…

  • Luxury apartments with a view to the south will be banned.
  • A development on the northern side of the city won't be able to face the view, meaning Mirvac’s Eastbourne would cease to exist.
  • Anything on the bay won’t face the water.
  • And apartments, like my own home, which enjoy lovely roof top views to the south west will be banned.

Seems ludicrous right? That’s because it is.

If we take a step back though and consider what prompted this government intervention, we see that this came about at a time when the industry was producing predominantly small, one and two bedroom apartments. Why were we doing that? Because that's what buyers wanted and where the market was experiencing demand.

Today, it’s a very different scenario. Today, the market wants larger more luxurious apartments and so we adjust. The majority of Plus Architecture's work today, is premium two and three bedroom residences that are designed and developed specifically for the wealthy owner-occupiers that are flooding the market.

That is not to say that we won’t go back to the smaller models, because we will – the market is cyclical and eventually there will be demand for these once again. Whilst the market has moved on for the moment and done so naturally and without government imposed bans might I add, by the time this model returns to favour many will be in for quite the rude shock because the asking price will be $490,000+ as opposed to the $390,000 entry point we now enjoy.

Thus, the introduction of such standards can be seen to severely damage affordability and somewhat unnecessarily so. Last month alone, the Planning Minister approved $2 billion worth of development in inner Melbourne – a record amount set to generate thousands of jobs, more than 2,000 apartments and more than 300 serviced apartments. He did this without design standards.

Both Minister Wynne and his department have proved they are more than capable of assessing the viability and appropriateness of projects without these mandatory measures in place, so why then are we still having this conversation?

Why then are we still willing to risk housing affordability and destroy development opportunity for something that is already happening organically?

That’s what I’m still trying to work out.

Craig Yelland is a Director of Plus Architecture – a firm with vast experience in the multi-residential sector, Craig Yelland is an advocate of apartment living and innovative design.

Apartment standards: 5K extra and it's not about the size
Plus Architecture and Rider Levett Bucknall additional cost calculations

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Discussion (10 comments)

theboynoodle's picture

These changes might cost that much more to build, but apartments are not sold at cost-plus. They are sold at the market price.. which is what buyers are willing and able to pay. If new apartment purchasers had an extra $145,000 available then apartment vendors would already be charging it.

Perhaps Mr Yelland can enlighten us as to how apartment prices kept rising even as construction costs fell? Where did the savings from the global fall in the price of steel go? Why aren't apartments cheaper in large developments where economies of scale mean lower per-unit construction costs?

Craig Yelland's picture


You are right. The price of property is market driven, not cost plus. If people can't afford the price that developers have to charge to meet the Bank's profit requirements, the projects won't happen.

In our experience, the cost of construction has gone up. I cant comment on the price of steel.

High rise apartments cost at least 10% more to build than low rise apartment buildings.

Director of Plus Architecture

theboynoodle's picture

The price of property is market driven, not cost plus. If people can't afford the price that developers have to charge to meet the Bank's profit requirements, the projects won't happen.

Of course they will. Developers will just pay less for the land (sellers of which will just have to lump it because they're still not going to get any better offers). There may be interim difficulties where sites have already been purchased with a certain yield assumed.. but even then, the site cost will be a sunk cost so the optimal financial outcome will be to develop because the build cost will be lower than the selling price.

High rise apartments cost at least 10% more to build than low rise apartment buildings.

I can accept that, but developers always seem to want to go higher.. because their is an overall higher yield from building more units (obviously) and I'd be surprised if those additional units weren't at a higher margin than the average of all the others. Even though the build cost logically increases every time you add a floor.. the site cost doesn't. Yet that 'saving' isn't passed on... though as we've already agreed that property isn't sold at cost-plus, we know this already.

br_tr's picture

I’m a bit skeptical. It’s hard to judge without seeing Craig’s methodology but it seems to me that these figures are a bit misleading.

Firstly, Craig has modeled his analysis from the OVGA’s 2014 draft apartment standards, I suspect that the apartment standards we end up with will be far more modest and flexible than those proposed by the OVGA.

Secondly, Craig applies the OVGA apartment standards as if they were set in stone and immovable. For instance he goes as far to say that ‘apartments with a view to the south will be banned’ and has used ‘delete south facing apartments’ to attribute an extra $12,500 cost for minimum standards.

We will never end up with apartment standards that ban south facing apartments and I am sure that the planning controls will say that development ‘should’ meet these standards rather than ‘must’ meet these standards. In the Better Apartments Discussion Paper there is a discussion point around ensuring ‘a majority of apartments receive sunlight’ – certainly no talk of banning south facing apartments.

Thirdly, judging from Craig’s fairly opaque costings it seems that the costs (including the energy efficiency costs) of things like extra windows and extra floorspace have been included but the efficiency benefits of shade, ventilation or recycled water haven’t been included. I’d be keen to know if just the capital cost or also the lifetime operating costs of these standards have been calculated.

I’d also like to know what is being used as the baseline to compare the extra costs too. It appears that the extra costs are being measured against the current minimum allowable apartment. Whilst there are plenty of small, low-quality apartments available on lower end of the market I suspect that there are plenty of average (or above average) apartment on the market that would already meet these hypothetical standards.

Craig Yelland's picture


Keep this in mind.

SEPP65 in NSW was intended to be a guideline and ended up being implemented as mandatory controls.

SEPP65 deletes most south facing apartments.

I have done in depth comparison of our project "Central South Yarra" - as built vs SEPP65. The apartments need to sell for an extra $123000 to achieve the same profit margin.

The base case is an average of our current approved projects.

I don't think these costings are opaque. Jump on your calculator and give it a go. I haven't included life cycle costing. Some of proposed standard are good for the environment and some are not.

You are right. Most penthouses meet these standards.But who can afford one?

Director of Plus Architecture

Peter H's picture

As a person who loves cool weather & hates summer, give me a south facing apartment any day. Privacy and space between apartments is more important than any of the items you've listed here. Over-regulation will wreck affordability - just look at the Nightingale debacle! Great project, popular with owner occupiers, yet VCAT insists on adding unnecessary costs & "features".

Geoff's picture

SEPP65 is always made out to be a bad unachievable target but if you actually go to the NSW Legislation website nowhere in the SEPP does it state that you must achieve X number of north facing apartments, that apartments must be xx in size, etc. The SEPP lists 9 DESIGN QUALITY PRINCIPLES that Architects should be addressing.

Wrightly or wrongly people assume that the Apartment Design Standards (which is a guideline document as to how to achieve compliance to the 9 DESIGN PRINCIPLES and is a supplementary document) is gospel and must be strictly followed. This is not the case, if you can prove that your design addresses the DESIGN PRINCIPLES in a different way and still achieves the intent of the Apartment Design Standards then you can achieve compliance with SEPP65.

People forget that the whole point of SEPP65 was to improve the quality of apartments for the worst case not improve the good designs already being done. For people who aren't innovative or lack the design skills there should be a base requirement, this is what the Apartment Design Standards Document set out. It's a document to ensure Architects do what they were educated to do, deliver reasonable quality spaces for people to live in.

A simplistic explanation would be, if you are confused, don't want to spend time on designing, or can't design anything better, follow these simple diagrams and you will get an approval.

SEPP65 does not stifle design, costings are debateable and the argument that it will increase apartment costs is irrelevant in the current market. The argument should be that it will slow the construction industry and potentially cost jobs, but that's a different beast.

It woun't affect housing afforability in the near future as the 1000's of apartments that have been approved and not built prior to the new standards and the 1000's that have/are currently being built will be available for resale or off the plan sale.

By the time the already approved stock are completed the market will be much wiser and be demanding the new standards as a base model once they've lived in the sub-par apartments currently being built at the moment.

johnproctor's picture

I can accept that, but developers always seem to want to go higher.. because their is an overall higher yield from building more units (obviously) and I'd be surprised if those additional units weren't at a higher margin than the average of all the others. Even though the build cost logically increases every time you add a floor.. the site cost doesn't. Yet that 'saving' isn't passed on... though as we've already agreed that property isn't sold at cost-plus, we know this already.

I think your confusing 'yield' with total profit.

Developers want to build as many apartments as possible to drive up total profit. They may do it at the expense of yield (profit as % of expenditure). If I sell 10 apartments for $2 million each and they cost $1 million each to build thats $10 million profit on $10m spent. On the same land I sell 100 apartment for $250,000 and they cost $150k each to build I still make $10 million but had to spend $15 million to make that $10 million.

Generally development size is managed by playing to some pre-determined building sizes that influence big cost increases in construction if you go over that. So 3 levels jumps to 8 levels jumps to 40 levels jumps to 60 levels as costs and add ons come into play (OH&S requirements (union involvement), numbers of lifts shafts required etc).

Its why CE built roughly 40 stories in Southbank for so long, why most tram corridor apartment buildings in preston/brunswick etc. are 6-8 stories, why most backstreet apartment are 3 stories and why there are so many 220m towers proposed at the moment.

Craig. Absolutely on board with you here. The guidelines to me are elitist, generally middle aged planners and architects wanting to place onto others what they themselves would not choose to live in. Meanwhile I lived in a 36m2 apartment in richmond with no balcony, eaves, storage, bicycle storage, recycled water, double glazing, air con etc. withmy girlfriend for 5 years very happily (as someone who could ahve afforded to live 'bigger' if we'd wanted to).

IMO they should do an audit of every building built in the last 5 years and determine which apartments would not meet the requirements. They should then go and doorknock each of those apartments and ask the occupants why they chose to live in such dingy hell holes that aren't fit for human living and be surprised that most of the people there are very happy with the lifestyle choice they've made to live in Southbank or the CBD affordably and for various reasons they don't care about not having x or y that is listed on the apartment standards.

Thiefsie's picture

Finally, someone giving us concrete, monetary evidence of these adjustments.
If only the groups responsible for developments the other way that are supposedly 'ethical' (whatever that means) would do the same thing.
There is no way to deny that this will make the market pricing go up. What is still in flux however is how long this pricing adjustment may last, and whether the market will shift (or be forced) to accept these proposed changes.
Will it drive existing 'lower-standard' stock pricing down? Hard to tell. I doubt it.

Bilby's picture

What is more likely to drive low quality apartment stock down is building more low-quality apartment stock. When you say "concrete, monetary evidence", Thiefsie, what exactly are you referring to? Craig Yelland has simply provided a budget based on what apartment buyers / investors are currently prepared to pay, all things being equal. This is no more "concrete" than any other market driven pricing. If the figures provided were based on the base cost of production and labour, then we might be able to say what effect new apartment standards would have on the cost price. Even then, there would still be the question of developer margin - the one "concrete" figure that Craig has omitted from his analysis of costs.

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