Building costs and tenuous financial viability could ground Jacinta Allan’s activity centre high-rises
The state government promised thousands of new apartments, but industry insiders are now doubting their viability.
The government’s ambitious high-rise towers at its planned activity centres could go unbuilt and unsold, property experts have warned.
The Victorian government released detailed maps for 25 of the city’s new train and tram zones in early September, which included proposed height limits up to 16 storeys that outraged communities in Melbourne’s affluent bayside suburbs.
But now property and planning experts say that due to significant costs and tenuous financial viability the apartment towers might never rise.
Intrapac CEO Max Shifman said the price point for the new apartments could put them out of reach for many first home buyers.
“I’ve been warning about this since they first came up with the idea for activity centres, they’re doing all of this to sell the idea that they’re solving housing supply without actually solving housing supply,” he said.
To get finance for developments of this type, builders have to prove to financiers that there is demand, typically by pre-selling at least 50 per cent of the apartments.
Mr Shifman said that demand is unlikely to be met at the activity centres.
He cited increasing building costs, regulatory costs and labour costs as factors driving up the prices of dwellings in these new developments.
“All of this stuff conspires to make the end price that you need to charge consumers significantly higher than what they’re prepared to pay. And as long as that remains the case you’re not going to see apartments happen at scale.”
Charter Keck Cramer’s Richard Temlett echoed concerns about the financial viability of the towers, and called for regulatory hurdles to be removed to solve the issue.
“There are certain areas where building costs have risen forty to fifty per cent since 2019 and the realisable revenues, or the prices, have not yet jumped up and so some of those areas, they’re not viable.”
He said that if government levies and charges are removed, it could bring investors back to the market and “make a number of areas more viable”.
“It actually is to the benefit of the community and it will make a lot of those suburbs more liveable and more balanced from a housing perspective.”
Still, Mr Temlett was optimistic about what the activity centres could look like if it was more affordable to build.
“Melbourne needs more house and land packages, it needs more townhouses, it needs more apartments.
“Different people in parts of their lives want to live in apartments or a house or a townhouse and all those dwellings need to be delivered and it will make Melbourne much more liveable.”
Planning researcher Dr Stephen Glackin from Swinburne University said he supported the government’s activity centre plans, seeing them as an important and beneficial move for Melbourne’s urban development.
“Apartments are a clear signal that people want to live in the area and they want to sacrifice backyard for higher amenity, higher access to services.”
“The other issue is just the alternative. It’s like you can’t keep having sprawl and it’s really expensive for governments to put in all the infrastructure,” Dr Glackin said.
“So it would be cheaper to retrofit the areas where there’s actually existing infrastructure rather than rolling out miles and miles on their own.
“It allows more value to be extracted out of those redevelopments, it means that the developers are actually going to be able to build to scale.
“That’s just good economic sense.”
