A diminished supply of new houses aimed for investors would put more strain on an already overstressed rental market as developers look to owner-occupiers, according to Knight Frank’s recent research.
The Australian Residential Developer Survey 2023, which polled 70 companies at the end of last year, discovered a concentration on creating owner-occupied stock, with 56 per cent of respondents stating that owner-occupiers were the primary targeted customers for their most recent project.
This was compared to just 11 per cent focused on investors and 33 per cent being a balance between the two buyer types.
Going forwards, there will be a greater emphasis on owner-occupiers, with 58 per cent of respondents stating that they would seek owner-occupiers for their next project, while just eight per cent would target investors entirely, and 34 per cent would be balanced.
According to the findings of the poll, the main focus for developers is townhouses and terrace homes, with 31 per cent reporting they had developed this style of housing in the last three years, compared to 18 per cent for freestanding houses and 46 per cent for apartments.
35 per cent of respondents said they would develop townhouses and terraces, followed by freestanding homes (18 per cent) and apartments (45 per cent).
Erin van Tuil, Partner and Head of Residential at Knight Frank, stated that more builders are choosing for a balanced buyer pool or residences created just for an owner-occupier.
“Many owner-occupiers are looking to move from a standalone house to a townhouse or terrace home to downsize or rightsize,” she said.
“COVID put the spotlight on how we are living as being stuck at home during lockdown gave people the time to reflect on their lifestyles, with these downsizing or rightsizing buyers now looking for more generously sized townhouses or apartments, but with impressive amenities to provide convenience and luxury.”
The total number of dwellings approved rose 18.5 per cent in December, in seasonally adjusted terms, according to data released by the Australian Bureau of Statistics (ABS), mainly driven by new apartments.
“The increase in the total number of dwellings approved in December was led by a sharp rise in approvals for private sector dwellings excluding houses (+56.6 per cent). The result was driven by a number of large apartment developments approved in New South Wales and Victoria,” Daniel Rossi, ABS head of construction statistics, said.
“Approvals for private sector houses continued to track downwards, falling by 2.3 per cent.”
Michelle Ciesielski, Partner and Head of Residential Research at Knight Frank, stated that the supply of new houses in most Australian major cities remained tight, negatively influencing the present low rental vacancy rates and resulting to significant rental increase.
“There will continue to be significant pressure for the rental market with fewer new dwellings being designed for investor buyers to add to the rental pool, coupled with other issues for investors such as recent higher investor mortgage lending rates.
“Aside from developers exploring a hybrid, build-to-rent model for responding to the rental crisis, the incentive for developers to build more investor stock is limited.
“There is also the further challenge with affordability, with 52 per cent of developers surveyed saying the cost of living crisis is having a significant impact overall on buyer sentiment.
“However, as migration picks up the pace over the next two years, there will be more demand for rental stock, which will lead to a greater undersupply, pushing up rents even further.”
According to the Knight Frank report, the building pipeline for apartments in Sydney, Melbourne, and Brisbane will decline over the next two years.
The vast majority of respondents to the Knight Frank poll indicated worries regarding the availability of acceptable development land for the future, with 79 per cent of developers asked indicating land was ‘restricted’ or ‘extremely limited’.
Nine out of ten developers also stated that the impact of planning restrictions was a barrier to the delivery of future home supply, with half of respondents now feeling that a site with development approval is best for their next acquisition.
Nevertheless, planning delays are projected to be the biggest obstacle this year, with 15 per cent of developers selecting this as the top issue affecting residential construction in 2023.
Buyer sentiment, material costs and availability, labour costs, the local economic outlook, construction delays, land availability, viability of development finance, skills and labour availability, and mortgage availability and cost were all followed by this.