Build It Higher

How will Australia’s cities look in the future? Will it be a Pleasantville-like oasis of low-rise housing where people will commute to work with their electric cars and everyone will own their own block of land? Or will we be a city of high rises like something out of the movie The Fifth Element. Looking at current data it seems like we are moving towards a milder form of a high-rise city where the majority of the population will live in low–medium-rise apartments.

Unfortunately, due to the high price of land and a government perception of urban sprawl being evil, Australia’s cities will eventually turn into an apartment metropolis as urban planners try to consolidate the population around existing infrastructure to decrease the need to build costly new services.

Looking at the ABS’s most current data to February 2013, housing approvals across the nation are at recessionary levels, while unit approvals continue towards an all time high. Unit and apartment approvals currently account for 40% of total approvals, which is a very large number considering that unit and apartment approvals only represented 20% of them 20 years ago.

What is more interesting is that 20% of total approvals are for apartment blocks that are four storeys or more. Again, this is a large increase compared to 10 years ago, when four storey approvals accounted for only 10%. This exponential growth towards apartment living can be attributed to the demand for low-cost living accommodation that is close to services and amenities.

So what does this mean for long-term property investors? It means that the micro-location will become a very important factor over the long term. What we are seeing is a consolidation of prices in cities where suburbs are only 5-10 km apart but are achieving similar prices for almost identical properties. The underlying difference will be ease of access to amenities, which will determine the price of and rent achievable on the property. A unit in a suburb further out from the CBD but which has access by foot to transport, lifestyle amenities, schools and shops will perform better than a unit closer to the CBD that requires a car to access necessary infrastructure and amenities. Speculating on a location will not yield a great result for your investment if you fail to take into account the ‘liveability’ of the area.

Looking at current trends and government policies, unit and apartment approvals are set to overtake housing approvals in the near future. Buying a unit in the right area close to amenities is now more important than ever in the current property cycle into which Australia is moving.

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