Australia built 44,884 homes in the September quarter against the 60,000 needed. Intrapac chief executive Max Shifman says construction costs are the biggest barrier to apartments, citing a 40-50 per cent gap between median unit prices and replacement cost, and wants focus shifted to greenfield and mid-density.
As I told the Australian Property Journal: “Despite the rhetoric and headlines, I’m yet to see anything across the suite of state and federal government announcements that will actually reduce construction costs.”
I also said: “Every element of new housing development is much more expensive than it was just a few years ago – land, materials, labour, finance, taxes, development charges and design regulation.”
And I added: “As long as governments acts as though you can legislate and over-tax your way to housing supply, Australia will continue to fall well short of its housing targets, with apartment development most acutely impacted.”
I went on to say: “If we are serious about tackling the challenge in the short-term, we need a reallocation of planning efforts and investment to unlock more, less costly, faster to deliver and more-feasible projects – greenfield land and mid-density townhouses – massively reducing the burden of red tape and slow decision-making along the way.”
I also made the point: “Buyers should pay more for a new dwelling than an old one, just like a new car costs more than a used one, but until that gap shrinks – closer to 20 per cent or 25 per cent – apartment sales will be fraught and new projects won't get built.”
And finally: “Median unit prices – which range from $480,000 in Melbourne’s West, up to $670,000 in the Inner East, are up 0.8 per cent on average across the year.”
I also noted: “Why are these important? Well, these are a proxy for the price the market expects to pay for a new unit, for which the median is likely to be a two-bedroom apartment. Compare those prices with the replacement cost a developer needs to charge for a new apartment in these same areas and there is a 40-50 per cent gap – think a new two-bedroom unit needing to approach $1 million.”
I went on: “On the flip side, those median house prices – even if lower than they were – still compare very favourably to a new house and land package or larger townhouses in middle-ring areas, so demand will pick up in such projects much sooner than for other forms of housing. It again demonstrates why a dogged focus on apartment development as being the solution to housing supply is so fraught – it's all in the numbers.”
Australian Property Journal, 23 January 2025 — Read the full article