According to the Sydney and Melbourne’s Housing Affordability Crisis: No End in Sight report released by The Australian Population Research Institute (TRAPI) earlier this week, both Sydney and Melbourne will see apartment completions soar in 2016 and 2017 compared to recent years.
Report authors Bob Birrell and David McCloskey claim the boom in apartment numbers has been driven by a mix of overseas buyers and local investors looking to buy off the plan
The report claims Sydney will see more than 22,000 apartments come online in both years, while just over 21,000 new apartments are predicted each year for Melbourne.
In comparison, both cities saw 10,600 – 14,800 apartments completed each year from 2013 -2015.
According to the report, authored by Bob Birrell and David McCloskey, the boom in apartment numbers has been driven by a mix of overseas buyers and local investors looking to buy off the plan.
For Todd Hunter, head of buyer’s agency wHeregroup, the figures put forward by TRAPI come as no surprise.
“From the number I’d seen I thought that would be the case,” Hunter said.
“That’s only the ones they know of already, that’s not the ones that pre-work and plans that are coming through for, so I think those numbers will be even higher,” he said.
While the sheer number of apartments coming online might be warning enough for some, the TRAPI research highlights another issue as developers look to maximise their profits on each site.
“Most of the product is small, around 50 square metres. They are this size because the smaller the apartment the more that can be put on to each site. There are no requirements in Sydney or Melbourne for developers to provide a mix of apartment sizes or prices. It is the investors who are bearing the risk,” the report said.
“They prefer small apartments because most don’t want to pay more than $500,000. A family friendly apartment of 80 square metres will cost at least $700,000 to $800,000. As a result, few are being constructed.”
With that being the case, Hunter believes lenders could soon become more restrictive as they look to minimise the risks involved with lending to a saturated market.
“Lenders who might be overexposed in a particular suburb or building will then cease to finance them completely. It won’t come down to lending policies, it will come down to something like one lender has 30 or 40 units in one building that they’re lending to and they’ll say no more and won’t take the risk on.
“We’ll see more and more of that. Lenders have the right to do that and they do exercise that right. It can go down to suburb, street or development. The data they have on that now is very good and they can work that out very well.
Birrell and McCloskey also believe the flood of apartments, many of which are predicted to be extremely similar in size, could also see investors walk away from deposits as valuations come in under the agreed purchase price, something Hunter also agrees with.
“I’ve read some stories where that’s been happening already with valuation shortfalls or they haven’t been able to get finance,” he said.
“I think we’ll see more and more of that coming up, but there hasn’t been a huge volume of it so far.”
