House prices have recently reached new heights across the country, making ownership of this property-type less and less likely, particularly for first home buyers. In contrast, apartment prices have remained relatively flat, with the price gap between units and houses now sitting at the largest they have been in over a decade, particularly in Sydney and Melbourne. As such, more owner-occupiers have been turning to the apartment market to realise their property ownership aspirations.
However, the relative affordability of apartments could be about to change. The last 18 months have seen a slowing in the approval and construction of new apartment projects due to the uncertainty caused by COVID. The shortage of new apartments coming to market across the country, coupled with expected growing demand as the economy recovers, points to a potential future shortage.
A looming shortage on the horizon.
Following the exodus of investors from the market and halting immigration caused by COVID the construction of upcoming apartment projects has slowed. According to Urban Developer, the number of new apartments launched nationally dropped from 5000 in late 2019 to 3250 in early 2021. And the trend is set to continue with The Australian Residential Development Review 2021 predicting there will be approximately 86,400 new apartments built by 2024 compared to the 135,300 apartments built between 2018 to 2020.
Volume of apartments launched nationally (2015 - 2021)
The apartment market has taken a hit during COVID. Inner-city areas, which house many high-rise apartment complexes, experienced high vacancy rates with tenants traditionally made up of international students, ex-pats, and travelers all but gone. In Melbourne, the CBD was the worst hit with about 70 per cent of apartments there owned by investors. (Source) The last 18 months have been particularly hard on investors in these areas, nevertheless, it has opened up opportunities to owner-occupiers otherwise priced out of the housing market. However, as vaccination rates rise allowing immigration and travel to start up again, it’s predicted there will not be enough apartments to accommodate the growing demand. This will likely have a flow-on effect pushing up price growth in the coming years.
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