A new report from Charter Keck Cramer has laid bare the challenges facing the apartment development market across the country.
The H1 2024 State of the Market report, focusing on residential build-to-sell (BTS) and build-to-rent (BTR) apartments across Australian capital cities, found that high construction costs exacerbated by material and labour shortages are leading to an undersupply of apartment projects.
In Melbourne, BTS apartment launches have reached a 15-year low with many projects remaining financially unfeasible. The report found this was due to high construction costs and material and labor shortages, that will lead to a significant apartment undersupply over the next 24-36 months.
Victoria’s tax policies, including high stamp duty and foreign buyer taxes, are also deterring investment and stalling new housing supply, the report said.
In Sydney, new apartment supply is far below targets, with only 8,400 BTS and BTR apartments completed in FY2024, compared to the 52,680 annual goal of new dwellings, the report said.
Sydney’s apartment market faces severe feasibility issues, with the report noting that construction costs are up 30-50 per cent since the pandemic, while prices stagnate.
The report said there is an “urgent need for government intervention” to address developer contributions, streamline approvals and enhance collaboration.
The BTR sector is gaining momentum, with FY2025 expected to deliver over 1,000 new apartments, but site availability, high land prices, and capital costs remain major barriers.
In Brisbane, the report found the market has been the beneficiary of strong demand (particularly downsizer apartments) and price growth, but that the market is grappling with an acute shortage of apartments with only 3,000 units expected to be built annually.
The report found the Perth market to be slowly recalibrating, with the right-sizer segment the most active. Perth is also facing low levels of BTS apartment commencements, the lowest in over 15 years, and no new BTR commencements.
A lack of third-party builders willing to take on high-density projects due to elevated construction costs and capacity constraints is a major hurdle the report said. It is the same issue facing Adelaide.
In Adelaide, the report said the market recalibration is taking longer the expected.
“While the right-sizer segment, driven by Baby Boomers, remains active and supports higher-priced smaller-scale projects, the broader market is sluggish. Investor-focused developments are facing thin demand, and incentives are necessary to boost investor interest and support the required housing supply,” the report said.
The report was released before the most recent set of dwelling approval numbers, which came out on Monday.
The total number of dwellings approved rose 10.4 per cent in July to 14,797, after a 6.4 per cent June decrease, according to seasonally adjusted data released today by the Australian Bureau of Statistics (ABS).
“Private dwellings excluding houses rose 32.1 per cent after a low June result,” Daniel Rossi, ABS head of construction statistics, said.
“Private sector house approvals also rose by 0.6 per cent. Despite the bounce in July, total dwellings approved remain 5.1 per cent lower than the five year average.”
Private sector house approvals rose 0.6 per cent (to 9,252 dwellings), driven by an 8.5 per cent rise in New South Wales in July.
Approvals across the remaining states were mixed. Queensland and Victoria fell after both states rose in June, while South Australia and Western Australia continued to track upwards. Private house approvals in Western Australia reached the highest level since July 2021, in seasonally adjusted terms.
Private sector dwellings excluding houses rose 32.1 per cent (to 5,234 dwellings), to be 15.9 per cent higher than one year ago. The bounce followed a low June result of 3,963 dwellings approved.
The result in July was driven by an increase in approvals for high-density apartments. There were 2,504 apartments approved in nine or more storey blocks in July, in original terms, compared to 533 in June.