17 May 2023
Charter Keck Cramer's Richard Temlett, Director of Research, sat down with Veronica Morgan and Chris Bates of the Elephant In The Room podcast to discuss the state of the Build to Sell (BTS) and Build to Rent (BTR) apartment markets across Australia.
A key topic discussed was Net Overseas Migration (NOM). In light of the recent Federal Budget announcements and forecasts this month, this issue has become even more important. Following the Federal Budget announcements, some further key issues for the industry to consider include:
- NOM is now forecast to be 400,000 people this financial year and 315,000 people next financial year with 1.5M people anticipated to come to Australia over the next 5 years. NOM over the next two years will be the highest ever recorded in Australia and will drive significant demand into the housing markets.
- Around 70% of this NOM is anticipated to come to Sydney and Melbourne. Using Charter Keck Cramer’s various proprietary datasets, and based on the Government’s NOM forecasts, a (conservative) estimate is that Sydney needs to build 250,000 BTS and BTR apartments over the next decade (25,000 / year) whilst Melbourne needs to build 175,000 BTS and BTR apartments over the next decade (17,500 / year).
- The Managed Investment Trust (MIT) and capital works tax deduction (depreciation) changes for BTR are very welcome and the Government is commended for making this change. Based on EY’s recent work, this could deliver 150,000 BTR apartments over the next decade. Government must however understand that BTR is only part of the solution and that this level of supply is nowhere near the scale of what actually needs to be delivered over the next decade across Australia’s capital cities.
The Federal and respective State Governments must appreciate the dynamics of the housing market and just how hard conditions are for the development, finance and construction industries at present. Demand can be turned on relative quickly (i.e. is elastic) however supply needs 2-4+ years to be mobilized (i.e. is inelastic) and takes time to be delivered.
It is Charter Keck Cramer’s view that Federal, State and Local Governments need to not only assist and incentivize but also support the industry over the next 12-18+ months. Some of the ways this can be achieved include:
- BTR Apartments. More needs to be done to incentivize foreign investment into this space. Changes to GST and further changes to land tax are essential. Changes to planning schemes (i.e. fast approvals and fast rezoning of land) in areas with high levels of amenity and infrastructure are also absolutely critical.
- BTS Apartments. The BTS apartment market is at a very different point in the market cycle compared to 2017. Foreign and local investors need to be incentivized back into the off the plan (OTP) market. This could be achieved through the reintroduction of OTP stamp duty concessions for investors as well as the removal of various additional taxes and charges levied on foreign investors. Changes to the planning schemes (i.e. fast approvals and fast rezoning of land) in areas with high levels of amenity and infrastructure are also absolutely critical.
- Construction industry. Builders are going to continue to be under significant pressure over the next 12-18+ months. This will be both from costs, cashflow and labour availability perspectives. The Government needs to work with the building industry to support them as they have a critical role to play in the delivery of new BTS and BTR apartment supply.
Adding new supply to the housing market will start to place downward pressure on house prices and weekly rents. This in turn will make housing more affordable for many households and age groups. Furthermore, the delivery of this new supply will create jobs as well as various sources of revenue for Government which can be invested back into the respective cities.
To conclude, decisions made by Government today will impact where the market is at tomorrow. The entire industry needs to work together to get through the next 12-18+ months so that Australia’s cities remain attractive and liveable locations in the world.