Sydney to be hit by ‘extraordinary price and rent changes’

Sydney’s abnormal housing market conditions are expected to bring ‘unique levels of risk and opportunity’, according to a new study.

Green shoots are beginning to emerge in Sydney’s new apartment market despite significant negative sentiment and general apprehension, according to research from the property advisory firm Charter Keck Cramer (CKC).

While there has been a resilience shown over the past 18 months, CKC suggests conditions in the Sydney new apartment market are the toughest since the post GFC period.

The report concluded many apartment projects were stalled or abandoned due to a lack of profitability. There were a total of 7300 apartments launched for sale to market in 2022-23, a 48 per cent annual decrease.

Green shoots are beginning to emerge in Sydney’s new apartment market. Picture: Plantation Architects

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While Sydney’s more centralised and middle regions have historically delivered the greatest volume of new apartments. Sydney’s outer region has assumed growing importance to apartment supply with more than a third of apartment launches. Construction commenced on 8300 apartments in 2022-23, the lowest commencements over the past decade. It represented a 73 per cent decrease on the peak commencements during 2016-17. And apartment completions in metropolitan Sydney fell to 7700, the second consecutive year of decade-low delivery.

An artist's impression of a proposed five-story apartment block redevelopment at 61 North Steyne, Manly. Picture: Plantation Architects

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All up there are 21,500 apartments currently under construction set for delivery over the next two years, plus a further 7800 marketed for FY2025 completion, as the market tries to catch up from the Covid-affected years.

But Sydney’s apartment market will remain under-supplied as Sydney needs to build between 22,000 to 25,000 apartments every year to accommodate the growing population.

“This misalignment between supply and demand is anticipated to remain an ongoing issue, and depending on the responses by government, could potentially be exacerbated over the balance of the decade,” the report by Richard Temlett, CKC’s research executive director, warns.

Many stakeholders are suffering from what CKC are calling “recalibration pains”.

“The majority of buyers as well as many developers, sales agents, builders and financiers are still operating on pre-pandemic assumptions when it comes to land and build costs as well as apartment revenues,” Temlett says.

“The landscape in 2023 is however vastly different. “We do not anticipate land values to fall materially and while building costs are expected to stabilise they are likely to continue increasing.

“Prices of new apartments will need to recalibrate upwards for projects to become financially viable,” the report suggests.

The lack of new supply should result in greater demand for apartment stock, especially the most affordable dwellings in locations offering superior lifestyle factors including proximity to public transport, retail, schools and employment. Temlett concludes that Sydney is not experiencing normal housing market conditions which means “there will continue to be extraordinary price and rent changes with more unique levels of risk and opportunity compared to historical patterns”