Making apartments affordable: moving from speculative to deliberative development

The following is an abstract from the "Making Apartments Affordable - moving from speculative to deliberative development" paper published by Swinburne University in late June. Urban Melbourne will let the paper do the talking and we likewise recommend all development industry participants from the CEO level to the analyst level download the paper from Australian Policy Online.

The paper's authors are Dr Andrew Sharam - Research Fellow at Swinburne Institute for Social Research; Dr Lyndall Bryant - Property Economics lecturer at Queensland University of Technology; and Dr Tom Alves - adjunct Research Fellow at Swinburne Institute for Social Research and Senior Adviser at OVGA.


Urban planning policies in Australia presuppose apartments as the new dominant housing type, but much of what the market has delivered is criticised as over-development, and as being generic, poorly-designed, environmentally unsustainable and unaffordable. Policy responses to this problem typically focus on planning regulation and construction costs as the primary issues needing to be addressed in order to increase the supply of quality, affordable apartment housing.

In contrast, this paper uses Ball’s (1983) ‘structures of provision’ approach to outline the key processes informing apartment development and identifies a substantial gap in critical understanding of how apartments are developed in Australia. This reveals economic problems not typically considered by policymakers.

Using mainstream economic analysis to review the market itself, we find high search costs, demand risk, problems with exchange, and lack of competition present key barriers to achieving greater affordability of apartments and limit the extent to which ‘speculative’ developers can respond to the preferences of would-be owner-occupiers. The existing development model, which is reliant on capturing uplift in site value, suits investors seeking rental yields in the first instance, and subsequently capital gains, and actively encourages housing price inflation. This is exacerbated by lack of density restrictions, such as has been the case in inner Melbourne for many years, which permits greater yields on redevelopment sites.

The price of land in the vicinity of such redevelopment sites is pushed up as landholders' expectation of future yield is raised. All too frequently, existing redevelopment sites go back onto the market as vendors seek to capture the uplift in site value and exit the project in a risk-free manner.

This paper proposes three major reforms, which together would enable development of better, more affordable apartments for housing consumers:

  • Firstly, that the market for apartment development be re-designed, following insights from the economic field of ‘Market Design’ (a branch of Game Theory). A two-sided matching market for new apartments is proposed, where demand-side risks can be mitigated via consumer aggregation.
  • Secondly, consumers should be empowered through support for ‘deliberative’ and ‘do-it-yourself’ (DIY) development models, in order to increase competition, expand access, and promote responsiveness to consumer needs and preferences. A ‘Smart Housing Market’ is proposed to broker the necessary connections and simplify the process.
  • Finally, planning schemes need to impose density restrictions (in the form of height limits, floor space ratios or bedroom quotas, for example) in localities where housing demand is high, in order to dampen speculation and de-risk development by creating certainty. Restrictions on over-development on larger infill sites can be offset by permitting intensification of ‘greyfield’ suburbs. Aggregating existing housing lots to enable precinct regeneration with moderate height and density increases would permit better use of airspace thus allowing design outcomes that can optimise land use while retaining neighbourhood amenity.

To download the full paper, visit Australian Policy Online.


Bilby's picture

So, density / FAR restrictions have been in place in many cities (e.g. New York) for ages - why is this sort of approach news in Australia?

Bilby's picture

This article was posted a week ago and the sheer lack of interest via the comments section is fascinating - particularly when compared to Craig Yelland's post some time back on the same topic - apartment affordability. Is 'consumer aggregation' or 'do it yourself development' somehow threatening to commenters, or just not as interesting as discussing how high residential towers should be? Or is the idea of planning via density restrictions unpalatable to some?

I would have thought that this piece would have been intensely scrutinised by the readers of Urban Melbourne ... maybe it is because we just all happen to agree with the sentiments expressed in the abstract?

Ned5's picture

My micro-apartment in Sth.Yarra in Vogue is "affordable" . If developers have to stop building internal bedrooms (where I have blissfully quiet sleep on Chapel St. ) then retirees like myself might be limited by price and choice.

Would like to see a discussion on density in Sth. Yarra. It is denser around the station than anywhere in City of Melbourne, because Matthew Guy over-ruled City of Stonnington. Why has it been left out of the density review?

Marcio Wilges's picture

As a homeowner, I see the development plan of making apartments as the new dominant housing type as a positive initiative. The concept helps to save land space for other projects that will benefit the residents within nearby vicinity and beyond. I would not mind moving to an apartment should I see the need to relocate in the future but provided that it is within my financial means obviously.

Marcio Wilges

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