Sydney apartment buyers are paying an average of $355,000 too much on their properties because of zoning restrictions with new research suggesting developers should be able to add 20 storeys to their unit blocks across the inner city and eastern suburbs.
The average new apartment in the harbour city sells for $873,000 but the cost could be reduced to $519,000 if planning restrictions were lifted, Reserve Bank of Australia research released on Wednesday (Aug 4th) shows.
This 68 per cent difference in cost eclipses a 20 per cent gap in Melbourne of $97,000, and a 2 per cent gap in Brisbane worth $10,000.
RBA economists Keaton Jenner and Peter Tulip further estimated doubling the rate of high-density homes built in a year would result in property prices falling 5 per cent. In 2018, development increased the total national housing pool by 1 per cent or 98,000 homes.
However, property prices have started tumbling in Sydney and Melbourne without planning changes due to the coronavirus pandemic’s impact on the economy and jobs. Sydney house prices dropped 1 per cent in July on CoreLogic data released on Monday, while apartment prices fell 0.7 per cent. House prices in Melbourne dropped 1.4 per cent over the month and apartment values declined 0.7 per cent.
Rents and vacancy rates have also been affected in both cities, with more than one in 10 Sydney CBD apartments without a tenant and similar figures in inner-Melbourne areas like Docklands.
Sydney rents fell 1.1 per cent for houses and 3.2 per cent for units in July, with Melbourne down 0.7 per cent for houses and 3.1 per cent for apartments.
A significant shortage of homes in Sydney is likely to be eased though not erased by slower population growth due to the pandemic, the RBA research found. Allowing developers to build taller apartment blocks or build on more land would also ease the shortage.
As a result, up to $900,000 in the cost of units in Sydney’s eastern suburbs, $700,000 in Leichhardt and around $500,000 in North Sydney could be attributed to a shortage of apartments due to planning restrictions, the report found. The impact was small on the outskirts of the city, moderate in the middle-ring suburbs and most significant in the inner areas.
“In contrast, prices near the centre of Melbourne and Brisbane are close to costs – even though relative travel times and amenities are comparable to inner Sydney … These differences seem to reflect differences in building patterns,” the report says.
While Melbourne’s high-density homes are particularly concentrated in the centre of the city, Sydney’s apartment development boom was concentrated in the middle-ring suburbs as there were more restrictions in the inner suburbs.
“Tall buildings are a substantially less costly way of increasing supply than the ‘missing middle’ of medium density in middle-ring suburbs promoted by some planners.”
However, buyers were found to be willing to pay a $55,000 premium to live in buildings with fewer than 10 homes but the report also pointed to “puzzling features” in the values that mean the estimates should be treated with caution. This included no boost in price due to proximity to train stations and light rail stops, and a reduction in value due to proximity to swimming pools and education facilities.
Source: The Sydney Morning Herald