Apartments continue to dominate new construction projects

CoreLogic’s Cordell Construction Monthly report for April 2018 found that apartments and units represented 28 per cent, or $3.6 billion, of the total value of new construction projects in March.

“The continued strength in the apartment development space comes from a combination of long-term confidence in east coast cities, particularly close to the inner city suburbs,” CoreLogic commercial research analyst Eliza Owen said, adding that it therefore “calls for more housing to address a reported undersupply, particularly in social and affordable housing”. 

CoreLogic cited Meriton’s acquisition of the City of Sydney council depot site in Zetland as an example of increased confidence in east coast suburbs, saying that the 1.1-hectare site has the potential to accommodate around 300 apartments.

“Although some developers continue to be confident in the Sydney unit market, joint venture projects and state government participation in housing is starting to rise in an effort to deliver affordable housing in the cities,” Ms Owen said.

The property data and analytics company noted that the Victorian Department of Health and Human Services is seeking expressions of interest from the social housing sector and private developers to participate in joint venture property development. The initiative aims to provide affordable housing on state-owned land throughout Victoria, starting with 52 vacant sites running from Melbourne’s western suburbs to Geelong.

Despite representing the largest segment of new construction projects, the value of apartment and unit projects dropped to just over half ($3.6 billion) of the $6.1 billion recorded in February, with the average value per project standing at $1.44 million.

Ms Owen further noted that while the construction pipeline continues to rise in value, the number of projects moving into the construction stage has hit a two-year low, at 597. This is compared to the five-year monthly average of 1,009.

Apartments and units accounted for 21 per cent of the total number of projects that have progressed to construction in March, and 17 per cent of the estimated value of commencements, which totalled $4.4 billion during the month, down from $5.1 billion in February.

Ms Owen attributed the decline in progression to a $1.4 billion decrease in the value of apartment and unit commencements.

“However, the losses were partially offset by increased commencement value in industrial, commercial and community starts over the month,” the commercial research analyst added.

A recent report from the Housing Industry Association (HIA) states that the “dramatic” increase in the number of apartments built in Australia is “the most defining change” in the housing industry in recent years. The latest census results collected by the Australian Bureau of Statistics showed that apartments and semi-detached apartments are the fastest growing dwelling types in Australia.

HIA attributes this trend to Australians showing a preference for living in metropolitan areas, increases in residential land prices, as well as increases in other fees, taxes and regulations.

“These factors have increased the cost of housing at the same time as state planning strategies have promoted consolidation and have forced a considerable number of households away from their first choice new housing type,” the residential housing industry body stated in its Housing Australia’s Future 2018 report.

[Related: Key trends that will define the Sydney housing landscape in 2018]