Apartment growth ‘a slow burn’

Growth in Western Australia’s apartment market will be a “slow burn”, Scyne Advisory chief economist Amy Auster says.

Speaking at a Property Council of Australia WA Division lunch today, Ms Auster said demand for apartments in WA was not as high as Sydney and Melbourne.

“For Perth, my suspicion is that (apartment uptake) is going to be a really slow burn,” she said.

“What’s driving the uptake of apartments on the east coast is land supply and cost of land, because the demand for accommodation close to the city centre is so high.

“Perth just doesn’t have that amount of density pushing in that direction.”

In WA, just three apartment developments got off the ground last year, compared with 13 projects in 2022.

Rising construction prices and labour and material constraints were among the factors that led to this decrease.

Ms Auster said construction of apartments in WA would come as demand increased.

SEC Newgate research partner David Stolper, who released details of a survey into Australians about housing confidence at the event, said community sentiment was also slowing apartment supply.

He said some parts of the community viewed apartments as “future slums”.

“That’s the view you often get when you’re talking to people in focus groups and you talk about the issue of how do you feel about high rises in your area and those who oppose it, that’s typically what they would express,” Mr Stolper said.

“A concern that they’ll end up with high-rise, decreped areas [and] poverty.”

He added that communities preferred the idea of high-quality density surrounded by good infrastructure over cheap units that have been put in places that were out of character.

CoreLogic head of Australian research Eliza Owen said there was a gradual take-up of apartments, particularly among homebuyers.

“There is a gradual acquiescence to the unit market, just because a lot of first homebuyers don’t have a choice,” she said.

Ms Owen referred to national Australian Bureau of Statistics figures, which showed that, in 2009-10, about 12 per cent of first homebuyers were purchasing apartments.

This compares with about 17 per cent in 2019-20.

“I think it just comes with time,” Ms Owen said.

“Detached houses will always retain their value [but] as our cities change it (apartment uptake) is just inevitable.”

She said WA’s relative undersupply of apartments contributed to its price growth outpacing other capitals since COVID.  

“WA’s levels relative to the overall dwelling market are quite small, but if you look at cities like Sydney and Melbourne where dwelling stock comprises a much higher portion of stock and an investment boom in the 2010s drove a lot of unit supply, it has kept unit values a lot lower over time,” Ms Owen said.

"Growth in Perth unit values since the onset of the pandemic to January 2024 was 32.5 per cent. In the same period, capital city unit values rose just 11.2 per cent.  

“Through the pandemic period, units across Perth, even though they’ve grown less than houses, they’ve really outperformed unit stock across most of the country.”

Ms Auster added that Australia’s bias towards home ownership was also holding back apartment supply.  

“We do have a cultural inclination towards home ownership and property ownership, and in many other jurisdictions around the world including European countries … there are people who rent there their entire lives, and the focus on home ownership isn’t as strong,” she said.

“Also, we seem to be fixated on this idea that the owners of apartments should be individual investors, which is also very unusual when you look at pretty much any other market around the world.

“It really limits our supply, because individual investors are so beholden to economic trends.”

She said if we could start to chip away at these factors, particularly tax policy that encouraged individual ownership of properties, it would help boost supply.