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Apartment construction driven by traditional indicators

Across Australia’s major cities, more and more apartment buildings – large and medium-sized – are being built and in most cases, being purchased and populated relatively quickly. What drives the apartment living phenomenon is a regular question in Australia. Latest work from the RBA appears to provide some answers.

Michael Shoory from the Reserve Bank of Australia has delivered a series of indicators and drivers, from both a demand and a supply perspective, that are useful in understanding the trend towards apartment living. The full analysis, worth a read and relatively brief, can be found by clicking here. 

Dealing first with demand, Mr Shoory demonstrates that apartment living is supported by capital city population growth, linked to new employment opportunities. As evidence for what seems an obvious but contestable point, the data seems to support the proposition, as the chart below shows.

Fig13

Over the period 2012 to 2015, all of the indicated capital cities experienced apartment growth that, based on 2011 apartment numbers, was between 18% (Sydney) and 36% (Brisbane) of the existing stock.

Coupled with the population and employment equation, the cost of land for free-standing dwellings has grown dramatically and has priced many younger people from the market. In short, the affordable option is an apartment, at least for those that don’t prefer or who cannot stay living at home with their parents until they themselves have retired.

The foreign buyer phenomenon is not universal across Australia, with demand in Brisbane fuelled by domestic investors, including those from inter-state. The hype appears to be different to the reality in this respect.

Turning to the supply-side factors helping to drive apartment growth, Mr Shoory points to several factors but does not quantify their impact. He identified the different approvals processes for apartments across Australia, the importance of zoning of land and the different forms of financing arrangements that are available for larger apartment buildings as all having an impact on apartment supply.

Although he does not land firmly on one side or the other, the author’s conclusion seems to be that it is demand that drives supply for apartments. If that is so, it would seem that the demand is often more implied than it is expressed – at least until apartments go on the market and the buyer frenzy takes hold.

Posted Date: June 28, 2016

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