Apartment plague ‘the Australian property market’s biggest ever issue’

William Jolly By on September 24, 2019
 

Photo source: Propertyology

There is a huge difference in price growth between houses and apartments in Australian cities, and it could be one of the biggest issues Australian property markets have ever seen.

Research by Propertyology delivered exclusively for Savings.com.au reveals the overall financial performance of high-rise apartments in Australia has been “horrible”, something that should concern both current and would-be property investors.

According to Propertyology’s research, Australia has produced “a tsunami” or residential apartment construction since the turn of the century.

It took Australia 250 years to build 10 million dwellings, but one million have been built in our eight biggest cities in just the last 16 years alone.

Propertyology Head of Research Simon Pressley recently referred to the over-development and subsequent shoddy workmanship of many high-rise apartment buildings as “Australian real estate’s equivalent of the Bubonic Plague“, holding grave concerns for all owners of high rise apartments built at any time during the last 20 years.

“Every year, forever and a day, there will be tens of thousands more apartments with major defects that get exposed and very few apartment owners will have any form of financial recourse,” Mr Pressley said.

“Consequently, existing apartment owners now have the enormous uncertainty of when-will-it-happen-to-me while the pool of prospective future buyers will forever diminish.

Simon Pressley_010
Propertyology Head of Research Simon Pressley.
Image: supplied.

“High-rise apartment owners should be more concerned with the price growth differential between a standard house in their city and those apartments – the gap is enormous.”

“Zero growth and even substantial losses over the next decade are highly possible for apartment owners, and the precedent has already been set in hundreds of high-density suburbs.”

Simon Pressley

Mr Pressley said it’s likely this real estate bubonic plague will be the biggest issue to affect Australian property markets in its 250+ year history.

To demonstrate this, Propertyology has compared the total increase in Australia’s big-city median detached-house prices over the decade ending May 2019 with the median apartment price increase in hundreds of high-density suburbs across the country.

Find your city:

Canberra

Median house price (May 2009) Median house price (May 2019) Average annual growth rate (10YE May 2019) Cumulative capital growth rate (10YE May 2019)
$450,000 $660,000 3.9% 46%

Simon says:

“Apartments and townhouses, as opposed to detached houses, have long been the more common dwelling type in Canberra. 62% of all new dwellings approved in Canberra over the last 16 years were apartments and townhouses.”

“Over the 10-years ending May 2019, Canberra’s median house price increased by 46%. The median apartment price increases were below 20% in 25 individual Canberra suburbs.”

Source: Propertyology

The numbers:

SuburbHigh-density suburbs (apartments/houses ratio)Apartment capital growth rate (10YE May 2019)Price growth differential
(house v apartment)
Watson-19%65%
Barton94%-12%58%
Forrest62%-10%56%
Hawker-9%55%
Lawson84%0%46%
Wright62%0%46%
Greenway92%1%45%
Philip88%2%44%
City99%2%44%
Griffith64%32%12%

10 suburbs with the highest price growth differential shown, sorted highest to lowest.

Melbourne

Median house price (May 2009) Median house price (May 2019) Average annual growth rate (10YE May 2019) Cumulative capital growth rate (10YE May 2019)
$392,000 $750,000 6.7% 91%

Simon says:

According to Mr Pressley, the Melbourne high-rise apartment market has performed “significantly worse” than every other Australian city.

“High-density is no longer confined to Melbourne’s inner 10-kilometre ring. Suburbs like Dandenong, as far as 34 kilometres from Melbourne’s CBD, now have six apartments for every 4 houses. In Box Hill, Elwood and Parkville, apartments represent 8 out of 10 dwellings.”

“Being centrally located, in a trendy area, being close to a train station, or having a sleek fitout mean absolutely nothing from a capital growth perspective if there are thousands of same-same ‘Lego properties’ for buyers to choose from. There’s no significant point of difference from one apartment to the next.”

The numbers:

Suburb High-density suburbs (apartments/houses ratio) Apartment capital growth rate (10YE May 2019) Price growth differential
(house v apartment)
Abbotsford 70% 3% 88%
Docklands100%11%80%
Parkville 77% 12% 79%
Balwyn 44% 18% 73%
South Yarra 84% 18% 73%
South Bank 100% 24% 67%
North Melbourne 77% 24% 67%
Melbourne City 99% 27% 64%
Hawthorn East 59% 27% 64%
St Kilda 87% 30% 61%

10 suburbs with the highest price growth differential shown, sorted highest to lowest. 

Brisbane

Median house price (May 2009) Median house price (May 2019) Average annual growth rate (10YE May 20190 Cumulative capital growth rate (10YE May 2019)
$412,000 $560,000 3.1% 36%

Simon says:

According to Mr Pressley, there would be very few high-rise apartments built at any stage in the last decade that would not have declined in value.

“Apartment owners hit the hardest are those within newer buildings in suburbs such as Newstead, Milton, Bowen Hills, Hamilton, Fortitude Valley, Chermside and West End.”

“10-years ago, for $420,000, one could have purchased a new apartment in Bowen Hills, 2-kilometres north of the CBD, and today it’s worth $365,000 (a 13% decline). Instead, one could have purchased a good house and backyard at Petrie for $365,000 and today it would be worth $450,000 (23% growth).”

“The lost opportunity cost from lots of same-same dwellings is big!”

Source: Propertyology

The numbers:

Suburb High-density suburbs (apartments/houses ratio) Apartment capital growth rate (10YE May 2019) Price growth differential
(house v apartment)
Newstead 99% -28% 64%
Milton 80% -21% 57%
Beenleigh 35% -15% 51%
Woodridge 41% -14% 50%
Bowen Hills 96% -13% 49%
Enoggera 31% -13% 49%
Kippa Ring 23% -13% 49%
Waterford West 27% -11% 47%
Carindale 10% -10% 46%
Brisbane City99%14%22%

10 suburbs with the highest price growth differential shown, sorted highest to lowest. 

Sydney

Median house price (May 2009) Median house price (May 2019) Average annual growth rate (10YE May 2019) Cumulative capital growth rate (10YE May 2019)
$456,000 $915,000 7.2% 100%

Simon says:

Sydney has amassed more than 1.8 million dwellings since the First Fleet arrived in Botany Bay in 1788, and Sydney has the highest dwelling density in Australia.

65% of the 10-year growth since May 2009 occurred during a four and a half year period ending in July 2017, but according to Mr Pressley, the growth rate for apartments was much less than that of detached houses.

“Suburbs such as Ryde, which have seen an enormous increase in apartment construction in recent years, produced only a very small portion of apartment price growth (25%, compared to 100% for Greater-Sydney houses).

“Norwest and Strathfield South (29% growth), Killara (32%), Little Bay (34%), Holroyd (40%), and Asquith (41%) were the weakest Sydney property markets.”

“There will be literally thousands of Sydney apartments which today are worth significantly less than 4 or 5 years ago.”

Source: Propertyology

The numbers:

(Most suburbs in Sydney have 50% or more apartments)

Suburb Apartment capital growth rate (10YE May 2019) Price growth differential
(house v apartment)
Ryde 25% 75%
North Ryde 25% 75%
Strathfield South 29% 71%
Norwest 29% 71%
Killara 32% 68%
Little Bay 34% 66%
Holroyd 40% 60%
Asquith 41% 59%
Wentworth Point 46% 54%
Warrawee 46% 54%

10 suburbs with the highest price growth differential shown, sorted highest to lowest. 

Perth

Median house price (May 2009) Median house price (May 2019) Average annual growth rate (10YE May 2019) Cumulative capital growth rate (10YE May 2019)
$430,000 $515,000 1.8% 19%

Simon says:

According to Mr Pressley, a number of suburbs have recorded between zero growth and a 32% decline over the last 10 years due to over-supply and over-priced high rise constructions.

“With a 21% decline in median apartment value, the cosmopolitan Perth inner-city suburb of Burswood was one of Australia’s worst-performed apartment markets over the 10-years ending May 2019.”

“Hundreds of property buyers would have initially been lured by the aesthetic of a shiny new apartment with water and city views and being located adjacent to the new Perth Stadium and the Crown entertainment precinct. Older-style apartments with character, found in locations such as Fremantle, performed quite well over the last decade.

“This is proof that apartments per se aren’t necessarily poor asset choices – substandard performance occurs as a result of cookie-cutter, same-same, mass production (and poor construction industry governance which has resulted in a significant deterioration in product quality).”

Source: Propertyology

The numbers:

Suburb High-density suburbs (apartments/houses ratio) Apartment capital growth rate (10YE May 2019) Price growth differential
(house v apartment)
Armadale 16% -32% 51%
Kelmscott 10% -29% 48%
Burswood 77% -21% 40%
Queens Park 17% -20% 39%
St James 17% -17% 36%
Midland 49% -17% 36%
Tuart Hill 54% -11% 30%
Subiaco 56% -10% 29%
Osborne 70% -11% 30%
Innaloo 29% -9% 28%

10 suburbs with the highest price growth differential shown, sorted highest to lowest. 

Adelaide

Median house price (May 2009) Median house price (May 2019) Average annual growth rate (10YE May 2019) Cumulative capital growth rate (10YE May 2019)
$364,000 $480,000 2.8% 31%

Simon says:

“Adelaide’s property market has run mostly parallel to Brisbane over the last decade. Greater-Adelaide’s median house price increased by 31% during the 10-years ending May 2019,” he said.

“Aside from Adelaide’s city heart and neighbouring suburbs, the seaside suburb of Glenelg is one of the very few suburbs with apartment prominence. Villas and townhouses are found throughout suburban Adelaide.”

The numbers:

Suburb High-density suburbs (apartments/houses ratio) Apartment capital growth rate (10YE May 2019) Price growth differential
(house v apartment)
Glenside 50% 93% 62%
Salisbury 27% -25% 56%
Goodwood 29% -14% 45%
Walkerville 42% -14% 45%
Ashford 65% 0% 31%
Mawson Lakes 37% 2% 29%
Camden Park 40% 4% 27%
Payneham 45% 10% 21%
Adelaide City 83% 12% 19%
North Adelaide 57% 20% 11%

10 suburbs with the highest price growth differential shown, sorted highest to lowest. 

Darwin

Median house price (May 2009) Median house price (May 2019) Average annual growth rate (10YE May 2019) Cumulative capital growth rate (10YE May 2019)
$430,000 $490,000 1.3% 14%

Simon says:

While Adelaide’s property market follows a similar pattern to Brisbane, Darwin’s has followed Perth’s over much of the last decade.

“Over the last 16 calendar years, 51% of all new dwellings approved in Darwin were apartments,” he said.

“Whilst Darwin’s median house price produced growth of 14% over the 10-years ending May 2019, there are 10 suburbs wherein the median apartment price is lower today than 10 years ago.

“The suburb of Bayview had the highest price growth differential (Darwin houses increased by 14% while Bayview apartments declined by 19%).”

The numbers:

Suburb High-density suburbs (apartments/houses ratio) Apartment capital growth rate (10YE May 2019) Price growth differential
(house v apartment)
Bayview 57% -19% 33%
Coconut Grove 77% -18% 32%
Woolner 75% -15% 29%
Parap 67% -14% 28%
Marrara 55% -13% 27%
Leanyer 29% -13% 27%
Fannie Bay 61% -12% 26%
Darwin City 95% -5% 19%
Rapid Creek 59% -5% 19%
Milner 48% -2% 16%

10 suburbs with the highest price growth differential shown, sorted highest to lowest. 

Central Coast

Median house price (May 2009) Median house price (May 2019) Average annual growth rate (10YE May 2019) Cumulative capital growth rate (10YE May 2019)
$323,000 $635,000 6.8% 96%

Simon says:

Apartment construction in the Central Coast region is higher than a few capital cities at 41% of all new dwellings built in the past 16 years.

“Affordability pressures and congestion continue to force some Sydney residents out of the harbour city to neighbouring regional locations like the New South Wales Central Coast,” Mr Pressley said.

“A ripple effect from Sydney’s last booming property market generated a 96% increase in Central Coast’s median house price over the 10-years ending May 2019.

“While this also lifted the median apartment values across the region, the table below (once again) shows that apartment values didn’t appreciate anywhere near as much as detached houses.”

The numbers:

Suburb High-density suburbs (apartments/houses ratio) Apartment capital growth rate (10YE May 2019) Price growth differential
(house v apartment)
Avoca Beach 24% 38% 58%
Terrigal 36% 56% 40%
Entrance North 47% 57% 39%
West Gosford 69% 59% 37%
East Gosford 55% 63% 33%
Gosford City 92% 69% 27%
Woy Woy 31% 78% 18%
Long Jetty 36% 78% 18%
North Gosford 37% 79% 17%
Point Frederick 62% 93% 3%

10 suburbs with the highest price growth differential shown, sorted highest to lowest. 

Newcastle

Median house price (May 2009) Median house price (May 2019) Average annual growth rate (10YE May 2019) Cumulative capital growth rate (10YE May 2019)
$325,000 $610,000 6.5% 87%

Simon says:

Between 64% and 82% of all new dwellings approved in Newcastle in each of the last four calendar years were apartments.

“The port city’s housing density is rapidly intensifying,” he said.

“Existing Newcastle apartment owners and prospective real estate buyers would be wise to learn the valuable lessons from several capital cities and understand the downside concerns which come from high-density apartment ownership.”

The numbers:

Suburb High-density suburbs (apartments/houses ratio) Apartment capital growth rate (10YE May 2019) Price growth differential
(house v apartment)
Wickham 65% 0% 87%
Jesmond 43% 35% 52%
Fingal Bay 28% 38% 49%
Beresfield 39% 48%
Newcastle East 48% 39%
Wallsend 17% 52% 35%
Hamilton 27% 58% 29%
Cooks Hill 48% 62% 25%
Newcastle City 95% 64% 23%
Adamstown 29% 67% 20%

10 suburbs with the highest price growth differential shown, sorted highest to lowest. 

Wollongong

Median house price (May 2009) Median house price (May 2019) Average annual growth rate (10YE May 2019) Cumulative capital growth rate (10YE May 2019)
$369,000 $720,000 6.9% 95%

Simon says:

Mr Pressley said 48% of all new dwellings approved in Wollongong over the past 16 years are apartments, making it a denser city than Brisbane and Perth.

“Like its regional neighbours, Newcastle and Central Coast, Wollongong’s property market rode on the back of Sydney’s last boom and is now in a downturn. 95% price growth in median house prices over the last decade is an outstanding result.”

“Generally speaking, a modern Wollongong apartment might have increased in value by (say) 60% over the 10-years ending May 2019 while detached house prices doubled.

“Moving forward, unless there is another boom during the next decade, there must be some concern for asset value declines for Wollongong apartment within modern high-density buildings.”

Source: Propertyology

The numbers:

Suburb High-density suburbs (apartments/houses ratio) Apartment capital growth rate (10YE May 2019) Price growth differential
(house v apartment)
Austinmer 24% 15% 80%
Bellambi 35% 79% 16%

10 suburbs with the highest price growth differential shown, sorted highest to lowest. 

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William Jolly
William Jolly joined Savings.com.au as a Financial Journalist in 2018, after spending two years at financial research firm Canstar. In William's articles, you're likely to find complex financial topics and products broken down into everyday language. He is deeply passionate about improving the financial literacy of Australians and providing them with resources on how to save money in their everyday lives.
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