The future of housing in Australia is apartments. Lots and lots of apartments

Australia’s big cities have lots of apartments and are getting even more.

Sydney is now just 56% separate homes, according to the most recent data. That is down from 63% in 2001. Most other big capitals are on the same trajectory, as the next chart shows.

Meanwhile, the latest building approvals data shows we plan to build more apartments still.

In Sydney and the ACT a majority of approvals are for dwellings other than separate homes, suggesting that before long Sydney will have separate homes as a minority. Canberra is further from that eventuality but rushing there quickly.

As the next chart shows, 46% of new building approvals in Sydney are for separate homes. That’s unusually high for Sydney, where as much as two-thirds of approvals have been for townhouses and apartments in recent history. Post-2017, and especially since COVID, we are in a little apartment backlash. But it is unlikely to last.

The big cities in Australia are approving lots of apartments and changing their housing mix. (The exceptions are Adelaide and Perth, where they’re approving a higher share of separate houses than exist in the current housing stock. In Perth this is being achieved by just building endless houses along the roads up the coast to the north.)

The increasing abundance of apartments can be seen as good news: houses are getting crazy expensive; people need places to live; building apartments and townhouses means there are homes people might be able to afford to live in. And as we continue to build lightly populated outlying suburbs, we can never reach them all with good frequent public transport, and so our cities become more car-dependent. Even EVs are not as good for the environment as catching a train or walking.

Your author lives in a townhouse whose address features a backslash, indicating that multiple homes have been shoe-horned into a lot that once accommodated only one. Choosing to do so has let me live much closer to a train station than I would otherwise have been able to.

Dwelling prices

But the rise in apartments also means we should cast a very sceptical eye on dwelling price data.

When they say that the average dwelling in Australia once cost $90,000 and now costs $900,000, we need to bear in mind the change in mix. We’re not comparing like with like. 

In fact, the price of actual separate houses has risen far in excess of the price of dwellings. That’s not because the actual dwelling on it is appreciating. They don’t: roofs cave in, bricks crack, weatherboards rot, kitchens get outdated and daggy. You need to spend a lot on maintenance and renovations to keep the house itself valuable. No, what appreciates is land.

Land is more in demand now. But land in our cities changes in value because of what’s around it, i.e. cities have changed a lot too. Buy a house in 1985 in Melbourne, you’re buying in a small sleepy city in a country with a ho-hum economy. Today you’re buying in a large, dense, cosmopolitan city, and what used to be the urban fringe is now very much the middle ring of suburbs.

So what we’re buying has changed in two ways. The homes themselves are more likely to be apartments, but the cities they are in have enlarged. Figuring out how that shakes out is a challenge. Are our homes a ripoff that must come crashing down?

The fact land prices keep rising suggests maybe not. But one reason land prices rise is that if you can get at the land under a house you can build multiple dwellings on it. The potential value of land you can subdivide or redevelop is high.

Another reason is that as houses become rarer they are reserved for wealthier people. If the whole income distribution lives in houses, then there are cheaper and more expensive ones. But as houses — especially houses in established suburbs — become rarer, they aren’t so much for students or unemployed people or single parents.

You may have noticed the share house is over; students live in apartments now and their old, falling-down digs have been renovated into a large family home. Competition for that family home comes from families with a pair of income earners and a strong ability to borrow.

This is also why I have come to doubt the idea that house price appreciation will stop any time soon. As long as population growth continues, there will be people looking for somewhere to live. And as long as there’s demand, there will be pressure to turn large blocks of land into multiple homes. That will mean house prices (i.e. land prices) will shoot up. And house prices really are about land.

It’s a cycle where house prices rise under a bidding war from developers and wealthy families, making apartments a more and more realistic option for more people, making sure houses in the established suburbs are under more and more pressure to be redeveloped.

This isn’t a process we can stop by refusing to redevelop: that will only make housing more unaffordable. Given our strong rate of population growth, we are going to need to fit a higher number of people into our existing cities. That’s assuming we don’t go down the Brasilia/Canberra path of creating new centrally planned cities in the middle of a paddock, which would be very environmentally costly and slow to make much difference.

Of course, unaffordable housing is the goal for some people, who see it as their only tool to control population growth. If Australians perceived they had more say in population growth, opposition to development may not be so widespread.

What do you make of the current housing market? Does Australia need to build more apartments to keep up with demand? Let us know your thoughts by writing to letters@crikey.com.au. Please include your full name to be considered for publication. We reserve the right to edit for length and clarity.