The Rise of the Apartment Culture

Like the world’s largest metropolises such as New York, London, and Paris, Australian cities are undergoing a discernible shift towards inner city living. It’s not merely a shift to living in or living closer to the city centre. It’s also a shift toward higher density living, from detached housing to units or apartments. This trend presents opportunities for investors and property investment, which we’ll look at in more detail in this article.

The Growth of Apartment and Townhouse Living

The numbers are very clear on the trend towards inner city and higher density residences and a shift away from standalone housing. Apartments are well on course to overtaking detached houses as the most popular new homes in Australia’s big cities.

Consider these facts:

• According to the Australian Bureau of Statistics (‘ABS’), in the 1990s, there was 1 apartment approved for every 3 houses.
• As of April 2011, there were only 1.6 house approved for every apartment. This is the lowest ratio in Australia’s history.
• The ABS June 2011 figures show that home building for detached houses continues to dwindle, while apartment building levels grew by 36 per cent in the year to June 2011.

Broad demographic shifts, including smaller households and families with no children, are some of the underlying push factors that have brought inner city living, especially apartment living, to the forefront of options for investment property. Relatively poorer infrastructure and amenities in outer areas have also contributed to the high desirability of inner city living, where public transport, facilities, and amenities tend to flourish in abundance.

And while the idea that houses always see more capital growth than apartments has been traditionally accepted as wisdom, the Australian market has clearly gone against this idea in the past five years. Although growth has varied in intensity from city to city, capital growth in units or apartments has been consistently stronger throughout Australia’s cities when compared with houses.

Houses versus units:

• Unit values grew at an average annual rate of 6.3 per cent over the past five years compared with growth in housing values of 5.7 per cent annually over the same period.
• The value of houses in capital cities fell by an average of 2 per cent. In the same period, unit values rose by 0.1 per cent on average.

Lifestyle Benefits

Inner city living offers significant lifestyle benefits. For those who need to commute on poor infrastructure through congested peak hour traffic, the allure of a 10 or 15 minute walk to work may be the answer. Being closer to amenities, restaurants, cafes, and public transport is another lifestyle benefit. Empty nesters preferring lower maintenance properties tend to enjoy living close to major work nodes and both social and cultural precincts.

All this suggests that the Australian dream of home ownership is changing in character. Inner city, higher density properties have excellent potential for both rental yields and capital growth. Sydney, which is Australia’s most mature housing market, has seen apartment sales volumes outperform house sales volumes consistently for several years, while for Melbourne, Australia’s second largest city, the figure is is edging close to 40 per cent.