This article is from the Australian Property Journal archive
MELBOURNE’S apartment market is extremely difficult, volatile, and uncertain, a new report says, and governments need to call in “emergency measures” to stimulate the market and help add supply, or rents and prices will continue to climb.
As vacancies across Melbourne sit at just 1.56%, only 2,100 apartments were launched for sale to the market in FY24, according to Charter Keck Cramer’s latest State of the Market – the lowest number of launches in more than 15 years.
At the same time, the number of construction commencements decreased for the sixth consecutive year, with construction commencing on only 3,400 apartments. This is the lowest number of apartment commencements recorded in more than 15 years also, and represents an 86% plunge from the peak levels recorded during FY2015, when there were 24,300 starts.
The sagging numbers come as the Victorian government embarks on its mission to deliver 800,000 dwellings over 10 years, while National Housing Accord obligations tally more than 306,300 homes.
Interest rate movements, changes to incentives and clarification of “prohibitive” taxes and charges, as well as the upcoming federal election, are the main metrics that will determine the timing of a recovery in Melbourne’s apartment market, according to Charter Keck Cramer national executive director, research, Richard Temlett.
“Government needs to act immediately. I don’t think that they should even be waiting for the next budget set-up that will be announced next year. They need to basically put in emergency measures to stimulate the market,” Temlett told Australian Property Journal.
“If they wait another six months, nine months, that means the housing market will take six or nine months more to start to recover, before things start to get built out. Prices will go up, rents will go up.
He said the government can “do a bunch of things” that are budget-neutral.
“They could change things like the C270 planning restrictions in the CBD, and allow greater height and greater density, and they could actually allow greater density across Melbourne. Getting density uplifts will mean that projects will be closer to actually being financially viable – and that doesn’t cost the government anything,” he said.
“Everything that does get built can actually increase revenue for the government and also increase jobs and supply.
“Most importantly, really, when I look at the built-to-sell market, is the need to bring back local and foreign investors, and that is through stamp duty exemptions or concessions. That’s absolutely critical to get the volume of dwellings pre-sold and then built out. We need those investors. They’re the ones that will buy off the plan.
“And especially in Melbourne, they make up about 65% to 75% of pre-sales in these big apartment projects. You absolutely need those. Otherwise, we’re not going to get the volume of buyers or the volume of money to then get the pre-sales to get these projects built out.”
For the market to return to equilibrium, interest rates will need to stabilise and then, ultimately, be cut.
“If you’re a developer or financier, if you know and you’ve got more certainty with where rates are, if you’ve got more certainty with definitions or with what’s happening with taxes and charges, you can then make your decisions. You can price the risk. It’s the same with actual buyers of apartments.
“But the government, both at the federal and the state level, actually needs to incentivise the market.”
“I believe it will be a federal election-defining issue. It’s the cost of living and then also housing supply. The federal government would be absolutely crazy not to seriously look at this.”
Build-to-rent “absolutely critical”
Temlett said the federal government could change concessions for the build-to-rent sector, which is “absolutely critical” to get supply mobilised in Melbourne.
“It’s clarifying things like managed investment trust (MIT) concessions with build-to-rent. It’s actually going further than that and changing GST, for example, allowing developers to claim back credits on build-to-rent, which they can’t do right now.”
In June, the Greens and the Coalition teamed up to vote to split tax changes out of Labor’s build-to-rent bill, which would lower the MIT withholding tax for build-to-rent assets to the same level as other asset classes. Affordable housing would need to make up 10% of projects, and the Greens made a last-minute demand that 100% of build-to-rent housing would be classed as affordable. The bill was sent to an inquiry as a result, with its findings imminent.
The Melbourne market has typically delivered around 13,400 apartments per annum over the last 10 years. Charter Keck Cramer’s projections suggest that over the next three years, annual completions will average approximately 8,000 apartments, with an equal split between build-to-rent and build-to-sell units. Melbourne is the only capital city which, over the next three to four years, will be more reliant on build-to-rent apartment supply than build-to-sell to deliver new higher density dwellings.
“It’s absolutely essential,” Temlett said.
“Melbourne is the epicentre of build-to-rent in Australia. It has been for a while. That’s because land values are a little bit lower and rents are a little bit higher. So the financial equation actually can almost stack up or in certain areas it can stack up.
“It doesn’t rely on pre-sales. So as long as they could actually sign up a builder, and signing up the builder is one issue, but also if those taxes and charges were clarified or removed, that would mean that a lot of those projects could have a much greater chance of actually stacking up. And then if you actually added in things like density bonuses, I genuinely believe that some of those projects could be financially viable and they could then proceed.”
