Apartment demand puts pressure on shortage

Increasing demand for apartments will only exacerbate the east coast shortage that developed through Covid, experts say.

The number of apartments being offered onto the Sydney market has fallen below the 10-year average. Picture: Damian Shaw

Increasing demand for apartments will only exacerbate the east coast shortage that developed through Covid, experts say.

Through the pandemic, as urbanites traded their inner-city homes for the lifestyle regions, one of the biggest concerns within the property industry was a possible fundamental shift in Australians' relationship away from apartment living.

This appears not to have eventuated, with search and page views for apartments listed on the rental market through Realestate.com.au showing marked increases over the year to June.

Changes were most significant in Brisbane (up 60.2 per cent), the capital city which received the largest influx of interstate migrants over the past two years, followed by Melbourne (up 52.7 per cent) and Sydney (up 48.2 per cent).

PropTrack economist Paul Ryan said demand in the rental market has a flow-on effect to the sale market, as rising prices encourage some tenants to purchase and entice investors to take advantage of attractive returns.

“Now is the biggest divergence in prices between houses and apartments,” Mr Ryan said.

“It’s not that houses are more expensive, it’s that apartments are cheap. PropTrack expects them to outperform over the next couple of years.”

But increased demand comes at a time when the number of new apartments being offered to the market has contracted.

Analysis from property services firm Charter Keck Cramer suggests each of the east coast capitals is in the throes of a shortage, with the number of apartments being released on to the rental market well below the 10-year average even prior to the Covid pandemic.

Associate director Richard Temlett said it was too soon to say when more high-density homes would be built given the uncertainties around CPI growth, inflation and interest rates. But he noted developers who have been around a while were seeing the silver linings in the market and taking control of conditions. Melbourne is currently seeing the fewest properties become available – a symptom of projects being shelved through the harsh lockdowns.

“Lots of developers are worried about costs and demand,” Mr Temlett said.

“But the more experienced developers can see past the short- term pressure and are looking at supply and searching for sites.”

Developer Don O'Rorke from Consolidated Properties Group. Picture David Clark

A warning has been issued by developers that the cost of newly-constructed apartments could rise as much as 20 per cent in response to continued pressure on materials, land and labour supply and costs.

Brisbane suffered through a glut of apartments around 2016 which had long been consumed.

Local development veteran Don O’Rorke, chairman of Consolidated Properties, said the macro-­economic driver of population through the broader southeast Queensland region would help encourage more project launches.

On the Gold Coast – a region that has boomed over the past two years following huge population growth – Siera Group managing director Brent Thompson said it was impossible to keep up with demand. “We can’t just turn supply on,” said the developer. “We bought the site for our Tapestry Tower at the end of 2021 and it won’t we be finished until 2024. I don’t think people realise we need to be more pro-development to help with ­affordability.”

Mr Temlett said buyers and renters alike were expecting more from apartments, with developers needing to narrow in on an owner-occupier minded design.