Apartment building in Melbourne is set to plummet, with a respected research house tipping completion rates across Victoria will plunge from more than 16,000 units finished this year to just 800 in 2024.
The Urban Development Institute of Australia says the present glut of apartments in central Melbourne, a result of the COVID crisis, looks set to turn to an acute city-wide shortage in the coming years, in an unexpected knock-on effect of the pandemic, costing jobs and making the city’s housing supply problem worse.
Ashley Williams, pictured at Botanic apartments in Southbank, runs Evolve Developments.Credit:Joe Armao
The institute says developers are responding to the collapse in the market for central Melbourne apartments, driven by the closure of international borders to overseas students and tourists, by putting existing projects on hold and putting the brakes on new builds.
Georgia Warren-Myers, senior lecturer in property at Melbourne University, told The Age that general dwelling construction in Victoria was already behind what was needed but the absence of the key international students and short-stay apartment operators, and the uncertainty surrounding their return, was the key factor for the central Melbourne apartment market.
She agreed that the present glut could well turn into a shortage within years but said the forecast completion rate seemed overly pessimistic, with uncertainty around the resumption of international travel making predictions very difficult.
With lead-in times for a large apartment complex of up to five years, respected Melbourne research house Charter Keck Cramer forecasts that in 2024, Victoria will build just 4 per cent of the number of apartments completed at the sector’s 2016 peak, when 19,400 apartments were built.
The Urban Development Institute of Australia’s Victorian chief executive Matthew Kandelaars, said 800 new apartments in a 12-month period was enough to keep pace with housing demands, particularly if Victoria’s population begins to grow again when borders are finally reopened, and that tens of thousands of construction workers might be out of a job.
There are concerns over employment too, with many of the thousands of construction workers building apartments lacking the skills to move into the booming house-building sector.
“There’s no doubt that 2020 saw a shift in demand from inner-city living to our suburbs and regions, but apartment completions are fast heading towards a cliff,” Mr Kandelaars said.
“Despite current pandemic-induced trends, a city the size of Melbourne demands housing diversity across our suburbs, but also through larger-scale developments in our central city.
“There’s simply no way that the forecast level of apartment completions can cater for a city of the size and scale of Melbourne.”
Dr Warren-Myers said she would not be “crying doom and gloom” over the Charter Keck Cramer analysis.
“If everything bounces back to ‘normal’ yes there will likely be period where vacancy will drop and rents will increase generating an affordability issue,” Dr Warren-Myers said.
“However, I would say that once normal is back and vacancy rates drop, you will see a flurry of activity happening as this recovers and there will be subsequent increase in supply in later years – it just depends on how long it takes to get back to normal.”
Developer Ashley Williams, who is also the UDIA’s Victorian president, said his company Evolve had faced a challenge selling all the apartments in its recently finished Botanic project in Southbank, unlike its house-and-land packages on Melbourne’s northern fringe which were “selling like hot cakes”.
“We’ve been working with purchasers to settle those apartments and its been a very slow and a very tough process,” Mr Williams said.
“We’ve got another site just around the corner which we’re ready to start marketing that we’ve put on hold while we deal with leftover stock and wait for market confidence to return.”
Mr Williams said the apartment sector was coming off a “cyclic peak” with many large projects, often built by foreign builders and directly pitched to the overseas market, coming to market and struggling to achieve sales.
He said a plunging rate of apartment construction had implications for jobs as well as housing supply.
“Traditionally the industry has had a view that slow and steady was best for everyone,” Mr Williams said.
“But the problem when you get these shocks to the cycle, and you have all these people working building apartments and all of a sudden there’s no new jobs, no new projects to take over.
“Construction jobs then, disappear, fall away.”
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