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Brisbane apartments: from over to under-supply?

February 6, 2020 / By

In 2016, JLL research reported that over 7,000 new apartments were brought to market within the city’s inner ring (0-5km), the largest level of supply in Brisbane’s history. The market was left over-supplied and has been rebalancing ever-since. So, several years on, could Brisbane now be heading from over-supply into an under-supply?

Several factors drove the initial supply peak and subsequent sharp decline. Firstly, an influx of investor demand, both domestic and foreign, drove developers to bring new supply to the market. As such, Brisbane’s strong supply wave in 2016 was dominated by investor-orientated stock. Then, project feasibilities declined as capital restrictions and other factors largely pushed foreign buyers out of the market, leaving many projects in limbo. Subsequently, higher regulatory scrutiny of borrowing and repayment capacity contributed to protracted lending approval timeframes and eroded the domestic investor buyer pool. The evaporation of investor demand meant that many projects approved in the last cycle had to be redesigned, as they no longer met the more owner occupier-dominated market demand.

So, what do owner occupier apartments in Brisbane look like? Recent amendments to the Brisbane City Council’s (BCC) City Plan (2014) have promoted apartment living by enhancing the practicality of compact living. Amendments to legislation have seen an increased minimum requirement for car-parking spaces, paired with increasing apartment sizes and more progressive design requirements. For example, amendments to the Bowen Hills Priority Development Area (PDA) in June 2019, now require a minimum 10% of the floor area to be configured as three-bedroom or greater sized dwellings. Changes such as these are paving the way for a more family-friendly vision of apartment living.

In line with changing attitudes, the prevalence of apartment living has been growing at a phenomenal rate. The 2016 Census found that 15.1% of the Brisbane Local Government Area (LGA’s) population reside in apartments, translating to around 20% of total private dwellings in the Brisbane LGA. In tandem, affordability pressures have seen the homeownership rate continue to decline. The Australian Bureau of Statistics (ABS) has reported a steady decline in the proportion of households that own their home – from 70% in 1997-98 to 66% in 2017-18. This demonstrates the underlying shift in housing preference towards apartments. Simultaneously, lower prices and attractive rental yields compared to Sydney and Melbourne will steadily attract more investor demand back to Brisbane over the next few years.

In short, underlying demand for apartments in Brisbane will continue to rise as apartment living gains greater acceptance, while investors will also steadily come back to the market. At the same time, supply will remain muted over the next few years, as construction activity slows and existing stock is consumed. Other amendments by the BCC to restrict the development of townhouses and apartments in suburban areas will further exacerbate the imminent supply shortfall. Consequently, we anticipate that Brisbane will move into an under-supply over the next few years.

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