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The Re-Evolution of the Apartment

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High density living growing into local communities

Growth of Apartment Popularity

An insatiable buyer appetite for apartments has been a major driver behind the recent strength of  property markets across the country. The increased demand for off-the-plan units comes with many social and economic benefits, primarily from boosting Australia’s housing stock levels. The  associated growth in construction activity has also helped boost economic growth, fasttracked employment opportunities and created new jobs. It is also revolutionising the look and feel of our cities as  people’s perception and preference of apartment living evolves. This evolution has seen high density living grow into local communities for a diverse range of household types, cultures and social backgrounds.



Changes Over the Decades

The demand for more affordable housing options, across metropolitan areas of our capital cities, has grown in line with the rising cost and falling availability of developable land. The last census  conducted by the Australian Bureau of Statistics (ABS) in 2011 confirms the rise in popularity of apartment living. The data shows that detached houses accommodated 82% of the population in 1996 and fell a fraction to 81% in 2011. In comparison, the proportion of the population living in apartments went up from 8% in 1996 to 10% in 2011, equating to a growth of nearly 500,000 people. The popularity is even more defined if we look at our major capital cities where nearly 20% of people lived in apartments in 2011.

Property sales transaction data provides further evidence of this trend over the past three decades - in the 80’s unit sales made up just 19% of all sales transactions across the country. Fast forward to after the turn of the century where unit sales made up 29% of all transactions. This trend is expected continue at a faster pace over the next few years with the number of units and houses sold likely to break-even by the end of the current decade.



Why are Apartments so Popular

Amenity, facilities and a sense of community

High density living has evolved a long way from the small, single room, box shaped, two and three  storey walk up ‘flats’ of the 1940’s, 50’s and 60’s. These properties were predominantly designed and used as a low cost option for housing commission tenants.  These developments were then rolled out on a larger, higher density scale which in-time created their own social problems. These problems occurred due to the tenant mix combined with the lack of facilities and amenities which are needed to help create a sense of belonging and community.

If we fast forward to today’s developments, they are rarely done as a single residential apartment buildings. The majority are now mixed use properties that form part of a ‘precinct’ with ground floor retail outlets close to parks, childcare facilities and shopping centres. The majority of new apartment buildings now also include communal facilities such as concierge services, gyms, pools and roof top entertaining areas. These integrated developments have increased interaction between neighbours and enhanced the sense of community living.   



Low Maintenance Living Means More Leisure Time


In an era where we are supposed to be working smarter, not harder, it seems that we are all working longer. This trend has given rise to the notion of maximising leisure time with enjoyable activities, as opposed to spending the time on ‘chores’. ABS data backs this notion, showing the percentage of time that we dedicate to ‘free time’ has been slowly declining. This is especially true for those parents in a family household with children who on average only dedicate 15% of time to ‘free time’.

The scarcity of free time and the higher importance placed on ‘winding down’ has seen more people willing to sacrifice a ‘backyard’ and the associated upkeep for the low maintenance lifestyle of an apartment. Apartment living close to employment hubs also frees up time by reducing commuting times. Time spent, before or after work, traveling to and from shops, or the gym, has also been greatly reduced due to apartments being located close to these facilities.

In addition to these two key drivers there are three underlying attributes driving this evolution;

  • Location – Apartment developments are predominantly located close to existing employment precincts, transport hubs, retail centres and entertainment.
  • Affordability – The lower cost and price point of purchasing an apartment compared to a detached house, in the same area, is a key driver behind the appeal of apartments to many buyers.
  • Choice – There are many apartment types, sizes, and ages with a variety of facilities, services and amenities to choose from. This ensures apartments appeal to a wide range of buyer types.


Who's Driving Change


A major source of demand for apartments in recent years has been downsizers. These buyers, predominantly baby boomers, have taken advantage of the recent strong property price growth to sell their family homes and move into smaller, newer and more manageable properties. The increase in luxurious design and services which now form part of apartment buildings has also assisted the growth of downsizers. Apartments in an inner city location close to entertainment, medical and retail centres have been the property of choice for these buyers.


Strong interest and enquiry from domestic and offshore investors has driven demand for new and off-the-plan apartments over the past 12 to 18 months. Apartments in an inner city location close to train stations, shopping centres, universities and employment hubs are the property of choice for these buyers.

1. Domestic investors have been chiefly influenced by record low interest rates. This low rate environment has seen returns for other long term investment assets, like term deposits, remain low compared to the combined capital growth and rental return of residential property. This has seen mum and dad investors, self-managed super funds and large institutional investors re-weight their  nvestment portfolios with a higher proportion of direct property.

2. Offshore investors. A number of pull and push factors has led to Australia becoming a popular  choice for international buyers to purchase a property. These factors include;

  • Crown risk is a key consideration for investors when looking at investments in a foreign country, especially for buyers from Asia and the Middle East. Australia’s transparent legal system and  democratic government negates our sovereign risk making investing here a popular choice.
  • Education. Australian Trade Commission data shows there were 526,932 enrolments by fullfee paying international students in Australia during 2013. These students contributed nearly $14 billion to the national economy. The popularity of this industry has seen strong growth in demand for apartments surrounding these educational institutions. This demand has particularly come from Asia with families purchasing properties here for their children to reside in during their study period.
  • Price competitive compared to other global cities. Affordability has been a major talking point across the Australian housing market for some time. However, apartment prices in our capital cities are cheaper when compared with other global gateway cities. This is especially true for buyers from major Asian cities, such as Hong Kong and Singapore, where prices average around US$20,000 per square metre. This is also an attraction for investors from the US, UK and Europe looking for a change of lifestyle, or holiday home, in a warmer environment.


Global Apartment Price Comparison (Average US$ per SqM)



Apartments are Changing the Make up of the Construction Industry

The growth in the popularity of apartments has also shifted the focus of the construction industry. The increasing cost and scarcity of inner city vacant residential land has seen developers look to purchase old industrial and office buildings to convert into residential apartments. This is set to see increased residential construction across our CBD markets, a place which has previously been limited to commercial buildings.

Growth in the number of apartment developments has also shifted the make-up of residential construction. Looking back over the past 20 years, ABS data shows that in 1994 nearly 75 cents out of every dollar spent on new residential construction was for a new detached house and only 25 cents was for apartments. Today, it’s nearly even with 41 cents out of every dollar now spent on new apartment construction.



Apartment Construction Provides Economic Benefit

This surge in apartment construction activity benefits not just the property market but the economy as a whole. The economic impact has been, and will be, instrumental in helping rebalance the economy away from its reliance on the mining and resource sector. The two other benefits of the growth in apartment construction are that it boosts housing stock levels and supports employment across the country.

Boosting dwelling stock levels

Ongoing strong population growth and an undersupply of new dwellings have driven capital city price growth over recent years. The growth in demand for new and off-the-plan apartments has assisted in kicking off a new construction cycle which will help reduce this undersupply. Increased apartment construction and the prevalence of investors to purchase these properties also helps to boost the supply of rental properties. The provision of more properties for rent reduces the rate of rental growth and assists rental affordability levels.

Apartment construction supports employment

Building activity has a substantial effect on employment with construction being one of the most labour intensive industries in Australia. Master Builders Australia estimates that “one million dollars of extra demand results in five direct jobs and 14 jobs in total”. By using this estimate and construction work done data from the ABS, the impact apartment construction has had on the market over the past 12 months can be viewed in more detail. ABS data shows that more than $17 billion worth of unit (apartments and townhouses) construction was completed between Q1 2013 and Q1 2014. Applying the job multiplier to this figure suggests 85,000 direct jobs and 238,000 jobs in total were potentially supported and/or created over the construction period of these projects - a positive result in light of recent major job cut  announcements in other industries.


Apartment Construction Forecast to Boost Employment

Forward looking indicators provide confidence that this construction activity will remain in place over the next 12 to 18 months. In particular, new apartment approval data continues to remain strong with the gap between apartment and house approval numbers narrowing.

These approvals will have a marked effect on the growth of construction employment, as these projects move through the planning process into the construction phase. By using our jobs multiplier and applying it to this forward looking construction indicator, building approvals, we can assess the potential impact of future residential construction activity in terms of employment.

ABS data shows that, so far this year, more than $5 billion worth of apartment approvals have been granted across the country. Applying our job multiplier to these figures shows, if all these apartment developments proceed to the construction phase, they will support and / or create more than 25,000 directs jobs and more than 70,000 jobs in total.



Positive Outlook for Apartments

The demand and popularity of apartments is set to continue thanks to population growth, ongoing dwelling supply issues, affordability and lifestyle choices which see people preference inner city localities close to amenities, entertainment and services. According to the ABS, Australia’s population is projected to double to 46 million people over the next 50 years. This sustained growth, combined with ongoing supply issues, is expected to see higher density zoning introduced across the majority of metropolitan areas. The cost of providing and running infrastructure such as public transport, roads, medical and education services will see state governments preferring to increase density and infill development in order to maximise the efficiency and usage of existing  infrastructure.


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