The fundamentals look solid across the country. But in Brisbane, they look amazing.
I’m generally not a massive fan of high-rise apartments as an investment class. There’s just so little you can do with them to create value if you need to. Like you can almost never add another bathroom and an entertainment area.
But it is interesting to see what’s happening in the unit market right now.
Basically, there’s a massive shortage, and prices are set to lift substantially.
You can see the effect of the shortage most clearly in the rental data. Rents are booming across the country, but in the unit market, they’re headed for the moon.
19% in Sydney. 16% in Melbourne and Brisbane. Those numbers are unreal.
Partly there’s a bit of catch up there. Rents for detached housing lifted earlier than for units, but still. 20% is 20%in anyone’s language.
Same story with the vacancy data. Vacancies have collapsed everywhere. Units were late to the party, but with a vacancy rate of 1.0% they have officially reached ridiculous.
But this is the thing. This is all what’s happening now.
But looking forward, things look like they’re going to get even tighter, and the massive shortage in high-rise looks set to continue.
First up, the number of apartments approved for construction has tanked and is tracking near 2012 levels, according to the Australian Bureau of Statistics:
And looking at sales, Charter Keck Cramer’s analysis of off-the-plan apartment projects across Melbourne shows that Melbourne’s apartment supply is set to crash by 7900 units, or 65.3%, by 2025:
Richard Temlett, Charter Keck Cramer’s national executive director, says the RBA’s rapid interest rate hikes, the surge in construction costs and poor consumer confidence have made many apartment projects unfeasible and depressed sales rates.
So the supply of apartments is slowing to a dribble.
But high-rise apartments is what we’ve usually gone to when we need to beef up the housing stock quickly.
And over the next five years, we’re going to need to do it very very quickly indeed.
Particularly beacuase overseas immigration is surging, and high-rises in Sydney and Melbourne have typically been the first port of call for new residents.
Following a record 500,400 increase in Australia’s population last calendar year, the federal budget forecasts a record 1.5 million net overseas migration in the five years to 2026-27, which will drive a 2.18 million increase in Australia’s population – equivalent to five Canberra’s or one Perth’s worth of population.
Most of that population surge will be looking for homes in apartments in Sydney and Melbourne (unless recent settlement patterns change).
But those apartments just aren’t going to be there, because sales and approvals have collapsed – particularly sharply in the two big cities.
All of which leaves an apartment shortage going from dire to catastrophic.
Expect prices to go through the roof too.
DB.