Why the present belongs to apartments – and maybe the future too

With apartment prices rising, apartment rents surging and the shift to higher-density living gaining pace, one of Australia’s leading property economists believes this may mark the start of a major shift from house to apartment living.

Ray White Group Chief Economist Nerida Conisbee said Australian apartment prices were now back to their 2022 peak, having barely fallen last year.

“Over the past 12 months, unit growth has been the same as house price growth. In Brisbane, unit prices are now growing faster than houses. Across the country, rents for units are increasing twice as fast as houses. The old adage that houses always do better than apartments is not currently playing out.”

Ms Conisbee said there were two reasons apartment prices had returned to peak so quickly.

First, they didn't increase as much as house prices during the pandemic.

Second, a lot of people shifted from inner-city apartments to outer-suburban and regional houses during lockdown, because living in small spaces with restricted movement was hard, many CBD amenities were closed and there was no need to live close to the office.

“Now that things are pretty much back to normal, apartment living is again attractive. Most of us are going back to the office more frequently and all the best things about living in higher-density suburbs are back. We have moved quickly from a situation where there were too many apartments to not enough. Demand is exceeding supply, driving up prices and rents,” she said.

Apartment supply faltering as demand keeps rising

Ms Conisbee said this apartment undersupply would not change anytime soon.

“Fewer apartments are being built. Building approvals are currently at levels not seen in more than a decade. Even if approved, the likelihood of many projects being constructed any time soon is low. Construction costs are at record highs and the rate of increase is now only starting to come down. The timing between approval and completion can be several years,” she said.

At the same time, Ms Conisbee forecast that demand for apartments would increase in the coming years, as land restrictions forced more people to shift from house to apartment living.

“Australia has extremely low density relative to other major cities. Sydney is our highest-density city but half of all homes are still detached houses. In Hobart, just 15% of homes are attached or apartments,” she said.

“Without higher densities, we will need to rely on urban sprawl, which is expensive to service and makes us more car dependent. Younger generations and those on lower incomes are locked out of established suburbs when apartment development is restricted. For older generations, the ability to downsize from a big family home to a smaller home in the same suburb is more difficult without higher densities.”

Ms Conisbee said in terms of financial metrics, apartments were definitely outperforming houses right now. Longer-term, Australians would need to embrace apartment living even more “to ensure greater liveability of our cities and allow for more equitable housing across generations and income levels,” she added.

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