Brisbane market to be"chronically undersupplied: for next two to three years: Charter Keck Cramer
Brisbane's off the plan apartment market is expected to be "chronically undersupplied for the next two to three years," a new report by property consultancy firm Charter Keck Cramer has suggested.
Charter Keck Cramer's Metro Brisbane State of the Market H2 2023 found there were just 1,100 apartments launched in 2023, -76 per cent less than the decade average, while low completions are forecast for the next three years.
They did note that recently launched projects are achieving strong sales results.
"These are priced predominantly at the upper end of the market and targeted towards those who can accept the higher price points required to offset increased build costs," the report noted.
"Other local buyer segments remain priced out of the market or are disincentivised to buy given the uncertainty with interest rates and the significant upfront financial handbrake of stamp duty.
CKC said that whilst new apartment prices are still increasing and are being met with market acceptance in the higher-end and downsizer projects, this has not yet occurred in the mainstream segment of the market.
Repricing of off-the-plan apartments
Charter Keck Cramer said their analysis of Brisbane’s housing market shows that the price gap between detached houses and established units is 56% (the pre-pandemic average was 33%).
"Importantly, our detailed analysis of the established unit market (i.e. townhouses and apartments) shows established units are currently undervalued by +5% to +15% and given the supply/demand imbalance will continue to correct upwards over 2024 as the market finds a new equilibrium.
"Furthermore, the percentage of household income required to service a mortgage on a median-priced house has risen to 36% which is +10% to +15% above levels observed prior to COVID.
"When this is considered in light of the deposit hurdle and diminished purchasing capacity of buyers, many will simply need to make trade-offs should they wish to enter the for sale market with greater demand to be driven into the build to sell apartment market."
When the house price hierarchy is once again established, meaning when the established unit market gets closer to the cost of houses, then new off the plan apartments will be able to be delivered at price points which again make apartment development feasible.
"The timing for when this occurs comes down to when rates start to be cut and when government incentives are introduced, however the industry needs to prepare for dramatic price increases in new off the plan apartments of +25% to +30% (compared to prepandemic prices) over the next 12-18 months across many markets."
The median house price in Brisbane at December 2023 was $876,000, whilst the median unit price was $561,000.
Brisbane supply metrics
CKC said that while Brisbane’s City Fringe Region has historically been the city’s most active apartment region due to supportive planning controls as well as the proximity to, and views of, the Brisbane River and CBD, as the apartment market continues to mature, the Inner and Middle Regions will demonstrate a growing importance to Brisbane’s apartment supply.
Just 1,100 apartments were launched in 2023, the lowest volume of launches recorded in more than a decade and a -57% reduction on the previous 12 months. The most active region over the past decade has been the City Fringe Region, however Brisbane’s Inner Region has grown in importance over recent years and was the most active region in 2023, accounting for almost 50% of launches.
Only 1,600 apartments started construction in 2023 the lowest number of commencements recorded over the past decade and a decrease of -88% from the peak of 13,300 apartment commencements in 2015.
Brisbane recorded 2,200 apartment completions in 2023. This was an uptick of +70% on the 12 months prior but remains significantly below longer-term trends.
CKC said that completions are forecast to increase again over the next 12 months with 3,100 currently under construction and due to be completed in 2024, but due to the low level of launches and commencements recently, apartment completions are forecast to contract once again to just 1,200 in 2025.
"Charter Keck Cramer expects Brisbane’s apartment market to remain chronically undersupplied for at least the next 2-3 years given current market conditions and the time taken to mobilise and build out high-density projects."
Outlook over 2024
Charter Keck Cramer says conditions in early 2024 will be very similar to those of late 2023, and that it will take a lot more than interest rate cuts to stimulate the build-to-sell and build-to-rent apartments both initially back to life, but also to facilitate them to deliver the unprecedented quantum of apartments required to allow the Federal and State Governments to achieve the aspirational housing targets.
"After considering all the data, our view is that the market will start to turn towards the middle of 2024. Interest rates need to be cut by at least the middle of the year and several incentives need to be introduced immediately to stimulate the BTS and BTR apartment markets.
"These are the swing variables as to how quickly the BTS and BTR apartment markets start to turn and how quickly the housing and rental crisis is addressed."