The housing mix is changing in Australia, land of the fabled family home on a quarter-acre (1000-square-metre) block, as increasing unaffordability and a desire to stay close to centres of activity and employment caused more people than ever to move into apartments, pushing up the number of high-rise apartment buildings under construction.
In the four years to February, monthly approvals of detached houses fell from almost three-quarters of the 10,746 dwelling units approved to just over half (55.5 percent) of the 17073 monthly dwelling approvals. The trend is most visible in NSW, where the proportion of dwellings other than detached houses could rise as high as 57 percent over the next decade, compared with a national average of 37 percent, according to Macromonitor, another research company.
It’s not just NSW, however. Ten years ago, Victorian large contractor LU Simon Builders had an even split of high-rise residential and commercial work, but now the proportion is 90:10 in favour of residential, managing director Peter Devitt says.
“It’s the high-rise residential in the CBD or close to the CBD that is underpinning commercial construction,” Mr Devitt tells The Australian Financial Review. “There’s very little commercial building going on. The high-rise is the thing that’s keeping us going.”
High-rise apartments, multi-residential dwellings as they are sometimes called, take longer to build than detached houses. A free-standing house can be completed within six months of development approval; residential apartments are more complex structures and take much longer – as long as three years. One consequence of a more high-rise residential is that the building cycle is being lengthened, says Kim Hawtrey, an associate director of forecasting firm BIS Shrapnel.
“Because more of them are for apartments, the surge in approvals will leave a longer “vapour trail” in this cycle,” Dr Hawtrey says. “We expect the usual lags in the home-building completion cycle to lengthen over coming quarters.
“The economic benefits will last longer than usual.”
VIEWS DIFFER ON APARTMENT OVERSUPPLY
Views differ on whether the country has an oversupply of apartments. Dr Hawtrey says Melbourne, along with Adelaide and Canberra, has too many; Mr Devitt says the city’s continued population growth will keep driving demand. But one consequence of the change is being felt by building materials suppliers: in a longer cycle, the benefits of the housing boom take longer to kick in, even though they last longer and the peaks and troughs are moderated.
Last year, reporting a profit for the half-year to September, CSR said it was yet to see a “noticeable lift” in sales of building products and glass from the increasing proportion of multi-residential dwellings because of the longer lag from approval to the time it meant cladding products like glass were actually ordered for use on-site.
Speaking weeks ahead of the company’s full-year announcements, managing director Rob Sindel is reluctant to give much detail, but says things have changed in the second half.
“You can see generally there’s been a pickup in demand,” he tells the Financial Review.
The move to more apartments is pushing other changes in the supply chain. CSR and Boral have entered into a joint venture to sell bricks, in part because of the shrinking demand for bricks, a staple of detached homes that doesn’t feature in high-rise buildings.
Others are changing their business models, too. Products supplier Fletcher Building, which in Australia specialises in concrete pipes used in land subdivisions, doesn’t have a product mix that caters to the growing demand for high-rise buildings. In response, over the past 12 months, it has developed a sales team focused on selling Laminex products for kitchen bench tops and cupboards.
“They would target specifically the volume apartment-builder, with packages around what can we do for them, in the kitchen, bathroom space?” says Philip King, Fletcher Building’s group general manager for investor relations and capital markets. “Can we get a package together which is appropriate in that market?” It is still early days and there are no figures to show how the venture is going, Mr King says.
A lengthening cycle is not by itself new. Michael Kerr, a director of quantity surveying firm Rider Levett Bucknall, says the construction cycle has grown to between seven and nine years from the four-to-five in the early 1980s, as a consequence of more high-rise residential and commercial buildings.
WILL IT CONTINUE?
But will the boom in high-rise residential continue? Most commentators say no: it will ease and the main basis of residential growth will come from low and medium-rise apartments in established suburbs. But for now, high-rise buildings still dominate the housing mix. In February, of all the approvals for dwellings other than detached houses, just 28 percent were for semi-detached, one-, two- and three-storey dwellings.
Nearly three-quarters were for dwellings four or more storeys high.
Still, this will change, Mr Kerr says.
“More and more it is going to be a result of the low-med-rise project now starting to occur on a significant basis, even in the outer suburbs,” he says.
With low- and medium-rise housing being more like detached houses than high-rise apartments – having a much shorter completion time from the point of approval – the overall cycle is likely to shorten again.
“This is probably best viewed as a two-year special episode where we’ve got an apartment led recovery with houses following,” Dr Hawtrey says. “That’s unusual. We’ve got an extreme number of apartments relative to houses. That’s unusual as well. I wouldn’t expect it to continue as quite the extreme it is forever.”