Australia Enters the High-Rise Era

Australian cities have always had a low percentage of apartments compared to urban areas in Europe, Asia and the Americas. The sprawling nature of Australian cities is the inevitable result of the suburban Aussie dream, with lack of space one of the key factors leading to increased demand and unsustainable house price growth. Despite a recent slowdown, house prices on the Australian east coast continue to rise compared to apartments, which are forecast to fall over the next three years. Lower prices for apartments offer new hope to younger Australians who are looking to buy their first property, and could act as a cultural catalyst bringing lifestyles changes to Australian cities.

According to the new 'Housing Outlook Report for 2017-20' from Insurer QBE, apartment prices on Australia's east coast cities are set to fall between 4 and 7 percent by 2020. This is great news for young Australians looking to get into the property market, and also for an increasing number of older Australians who are looking to get the most from their retirement. According to QBE Lenders' Mortgage Insurance chief executive Phil White, "Unit prices are heavily influenced by investors, including overseas investors, and the actions being taken by the banks in response to the regulator is certainly now starting to have an impact on investor demand... Units, which are now making up about 50 per cent of all residential construction, are forecast to decline in our four major cities."

While demand for apartments is expected to weaken overall due to tighter lending standards, existing supply will become more accessible to people who are priced out of the housing market. Units now account for 46 percent of all residential construction across the country, with numbers only set to rise as lifestyle expectations change and Australia enters the high rise era. "The Australian Dream of owning property is increasingly turning to high and medium density apartments,” said Mr White, adding “Units contribute to a greater share of the market as changing lifestyles and affordability dictate property choices... Encouragingly, that dream should become a reality for more Australians, with improving affordability overall."

In comparison, house prices will continue to rise in most capital cities over the next three years, making apartment living more attractive to a growing number of Australians. While Darwin house prices are set to drop by 1 percent and Sydney is entering a cooling phase with an expected fall of 0.2 percent, other cities are likely to experience massive price surges over the next three years. According to the QBE report, Canberra house prices are predicted to rise by 16 percent, Melbourne house prices by 10.2 percent, Hobart house prices by 10.8 percent, and Brisbane house prices by 7.1 percent.

There is some danger of an unsustainable apartment market correction, however, with fund manager Roger Montgomery recently bringing up the possibility of a 10 to 30 percent price decline that would drag the entire housing market down with it: "If apartment prices were to fall by more than QBE is predicting then there will be a proportion of house buyers that would say 'why would I pay top dollar for a three-bedroom house if I can get a three bedroom that's just fallen 30 per cent'... And so a certain amount of demand for houses is removed and that means house prices fall as well," said Mr Montgomery, before adding "At the moment, everything is fine."

 

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