Industry Focus

INDUSTRY TREND need to maximise the use of existing infrastructure rather than build it new. Governments encourage high-rise construction because, being labour and resource intensive, it creates jobs and boosts the local economy. The current market in Sydney and Melbourne is largely led by investors, says Allen, as low interest rates and high rents push yields closer to the borrowing rate. Renters are largely the single or DINKS demographic. However, first-home buyers and empty nesters are also potential purchasers, so developments need to offer something to all types. But Allen stresses that apartments have to be liveable—they can't be pokey little flats with low light and bad quality. Much depends on what buyers are used to, he says, and people need to have a positive experience when they move in. "To be successful, it's got to be the right stock at the right price. That's a key thing," says Allen. Despite investor activity in Sydney, there is still inherent undersupply thanks to a deficit between 2006 and 2012 of about 30–40,000 dwellings. "Anywhere in Sydney is a good environment for developers right now," says Wilson. BIS Shrapnel forecasts a solid upswing in Sydney apartment completions in the four years to 2016–17, with an average of 2800 per annum. Wilson remains confident medium-term demand is strong enough to absorb any short-term oversupply because, long term, there is growing demand for apartment living. While high-rise development tends to yield larger profits for developers since there's only one block of land but many dwellings to sell, it's also riskier, says Allen. If demand slows there are a lot more dwellings to sell and potentially lose on. Allen says Australian cities have lagged well behind major cities around the world in terms of apartment living because we've had the land and haven't had the population to require extensive inner-city apartments. But this is changing. Both Allen and Wilson agree that economic imperatives will continue to push us towards higher-density living, unless decentralisation of the workplace and telecommuting become much more widespread. "It's inevitable that we will eventually look like [cities such as London, Paris or New York] unless the government can do something sensible like create different [work] hubs and encourage [companies] to have headquarters in other areas," says Allen. Wilson agrees. He notes that a mix of density would be best: "I think governments should be more active doing that rather than looking for short- to medium-term responses to what are very significant issues." Apartment proportions of dwelling completions 40% 35% 30% 25% 20% 15% 10% 5% 0% Jun 08 Dec 08 Jun 09 Dec 09 Jun 10 Dec 10 Jun 11 Dec 11 Jun 12 Dec 12 Jun 13 Year Ended Greater Sydney Greater Melbourne Greater Brisbane Sources: ABS, BIS Shrapnel Property • Issue 1 11

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