{"id":175470,"date":"2024-11-02T17:30:44","date_gmt":"2024-11-02T06:30:44","guid":{"rendered":"https:\/\/propertyupdate.com.au\/?p=175470"},"modified":"2025-02-15T05:35:55","modified_gmt":"2025-02-14T18:35:55","slug":"no-we-cant-address-affordability-by-building-lots-more-apartments","status":"publish","type":"post","link":"https:\/\/propertyupdate.com.au\/no-we-cant-address-affordability-by-building-lots-more-apartments\/","title":{"rendered":"No, we can\u2019t address affordability by building lots more apartments"},"content":{"rendered":"

One of the (many) furphies that get aired (frequently) in discussions around housing affordability is that we can build ourselves out of the problem by building a lot more high-density housing units rather than typical detached suburban houses.<\/span><\/p>\n

In fact, the opposite is likely to happen should we attempt this course of action.<\/p>\n

Here\u2019s why.<\/p>\n

\"Construction<\/p>\n

Construction economics and cost comparisons<\/span><\/h2>\n

First, the reality of construction economics is such that every square metre of space in a high-rise apartment building is more expensive \u2013 roughly double or more than the same square metre of space built in a detached single-level home.<\/p>\n

The traditional \u201csticks and bricks on slab\u201d construction of detached suburban housing have been incredibly efficient over a very long period of time.<\/p>\n

As a building form, it lacks complexity (despite recent moves to introduce it via new standards).<\/p>\n

It\u2019s even been said that in post-World War II Sydney, as many as a third of the new suburban homes\u00a0were by owner-builders.<\/p>\n

Despite recent and rapid cost escalations, the\u00a0build cost per square metre<\/a>\u00a0of a low-set detached suburban house is still around $1700 for the modest spec home.<\/p>\n

Not including the land, you can still find\u00a0project home builders<\/a> who will give you the keys to a brand new three-bedroom, two-bathroom house from around $220,000 to $300,000 \u2013 and that\u2019s for roughly 200m2 under the roof.<\/p>\n

It\u2019s a different story for multi-storey apartments<\/span><\/h2>\n
<\/div>\n

These are more complex structures, with a good deal more going into them \u2013 more than just concrete and steel that will go into construction<\/span><\/a> (which are themselves more expensive than timber frames or bricks for a low-set house).<\/p>\n

There are also lifts, fire systems, standby generators, deep foundations and excavations for basement car parks\u2026 it\u2019s quite a list.<\/p>\n

Building them also takes a lot longer than a standard house and involves at least one tower crane, sometimes more.<\/p>\n

All of this means each square metre of floor space in that high-rise unit tower is going to cost around $4,000\/m2 for a structure of the basic design.<\/p>\n

This applies to the whole floor of course \u2013 corridors and common areas included.<\/p>\n

The cost per metre for the actual living space, developers and QS\u2019s tell me, is closer to $5,000 per square metre.<\/p>\n

So a unit of 120 square metres will cost around $600,000 just to build.<\/p>\n

Not including the land or other development costs.<\/p>\n

This is around half the size but twice the cost of our detached new stick-and-brick example above \u2013 which includes the builder margin.<\/p>\n

\"Market\"<\/p>\n

Market prices need to factor in land and other development costs.<\/p>\n

The new low-set detached house and<\/em> land package will set you back from around $500,000 to $700,000, depending on location (this is the discount end of the market of course).<\/p>\n

New home units however are well above this.<\/p>\n

Try finding a new three-bedroom apartment for $700,000 in Brisbane.<\/p>\n

Many are priced at $1m or more, even those well away from the urban core (spend a little while searching on realestate.com.au and see for yourself!).<\/p>\n

What\u2019s happening to the theory that we can solve affordability by building more apartments?<\/p>\n

It doesn\u2019t stack up.<\/p>\n

You can\u2019t \u201csolve\u201d affordability by building more of the most expensive building types.<\/p>\n

It gets worse.<\/p>\n

Developers will know that, given base build costs plus land, infrastructure levies, and other costs (including allowing for a margin), they will have a minimum retail price they can deliver apartments for.<\/p>\n

\"Housing<\/p>\n

The build cost is virtually the same in the middle and outer suburbs as in the inner city (land being the only differentiator).<\/p>\n

But in middle and outer suburban markets, the price points that people will pay are below the cost at which the product can be delivered.<\/p>\n

So it\u2019s not worth doing.<\/p>\n

Instead, they will turn their attention to locations that can support higher purchase prices \u2013 and already well-off inner-city locations tick that box.<\/p>\n