There is a lot that can be said about real estate cycles, particularly when they don’t come around very often. This has been the case for Brisbane’s apartment market which has remained stable in both price and volumes, fluctuating very little over the last decade. Even the investment boom in the middle of the last decade was an improvement on volumes but not necessarily price. Of course there are always exceptions to the rule and many new projects have continued to push the barriers in both design and locational attributes which has been rewarded with strong retail prices and industry awards.

In real terms, the broader Brisbane apartment market has gone backwards over the last twelve years if price alone is considered. Whilst Sydney and Melbourne have experienced incremental growth related to generally stronger real estate conditions, this was driven by stronger population growth from overseas migration combined with a tightness in supply. Essentially these were demand led economies where the gaps between housing and apartment prices had diverged but not as considerably as Brisbane.

By contrast, Queensland’s population growth had been mediocre at best for interstate migration and international migration accounted for just circa 12.5% of the National volume. Enter Covid-19 in 2020 and whilst there was some market hesitancy, Brisbane and Queensland again started to come into their own. However, the development industry was caught off guard by the sharp turn around where demand outstripped the housing supply quickly and councils appeared to be struggling with the volume of development applications. Combined with this was the realization the Queensland Government’s monitoring of land supply was arguably of the belief that five years of supply existed which was clearly not right in many SEQ corridors.

As a result, the demand for detached housing escalated to a point that the open houses and auctions just about needed security for crowd control. Whilst this was being felt strongly in Brisbane; Sydney and Melbourne were also experiencing house price growth that exceeded their cyclical highs in 2017. Government stimulus, supply pipeline issues and a return of the investment community has again got APRA looking to take some of the heat out of the residential sector. This may come at the expense of the first home buyer who is unlikely to be able to save at a rate fast enough for their deposit to keep growing at the same rate that the housing sector has. First home buyer grants typically only apply to new housing which is invariably located on the urban fringe or as an infill destination that is well outside most budgets.

So what does this mean for Apartments in Brisbane? The graph below highlights the significant and widening gap between the median apartment and house price. Currently that gap sits at circa $425,000 which is starting to get in the vicinity of two apartments for the price of a house.

The most likely outcomes of this differential have three themes;

1. Good quality new apartments should experience a lift in volumes as the increase in house price means that more of the market can afford the larger apartments. Those that were borderline twelve months ago, are more likely to be in a far superior financial position with the growth in their detached dwelling value. For those looking to right size, it probably doesn’t get to look a lot better than right now.

2. Those buyers that are considering a house could start to see a greater value proposition in the apartment market, particularly as the economy opens up around higher vaccination rates with the chances of a full lock down becoming more remote. Many of those established apartments are below the cost of construction which makes them highly attractive. It also starts the potential to keep it as an investment property should the individual decide to purchase a house at a later date. This is particularly relevant for many entry level buyers.

3. The gap between the new and established apartment prices will likely narrow lifting the market share in favour of the new product in due course. Cranes on the horizon will be a very good indicator of when this part of the cycle gains momentum.

The residential market can’t continue to operate at two speeds. At some point in the near future, the value proposition for apartments has to become so strong that particular demographic cohorts won’t be able to turn their back on it. Whilst land supply remains constrained, migration numbers continue to favour Queensland, and the vaccination rates improve so that the life as we used to know it returns, the case for a resurgence in apartment living will only get stronger. Watch this space.

Matthew Gross | Director | mgross@nprco.com.au

Brisbane apartments, time to shine

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