New Research says apartment could be the key to housing supply crisis

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New Research says apartment could be the key to housing supply crisis

UDIA NSW released a significant piece of research on the NSW apartment market, revealing that without a NSW Government intervention, the home ownership rate will continue to fall, and we will see more people living in poverty.

The UDIA NSW Apartment Supply Pipeline Report 2021 reveals that apartments represent two thirds of the new housing market, and therefore play a critical role for those who are trying to get onto the housing ladder as well as those on lower incomes who are unable to afford the escalating purchase prices.

Based on the long-term demand identified in the NSW Intergenerational Report and the historical dwelling type development ratio, at least 20,500 new apartments are needed in Sydney each year, however, apartment completions estimated by UDIA NSW, are forecast to collapse to just 6,850 new dwellings in FY22.

“Given the severe lack of new apartments coming online, we expect this to put further upward pressure on rents and prices, exacerbating housing affordability issues,” said Steve Mann, CEO, UDIA NSW.

The Productivity Commission White Paper 2021, identified a backlog of 40,000 dwellings of unsatisfied demand. Assuming all currently forecast apartment projects were to be completed without delays, supply would still fall short of the estimated increases in demand between now and mid-2026, with cumulative unmet demand estimated to reach at least 60,000 units.

If this backlog of unmet demand is to be reduced, we need to see supply completions in excess of new demand, meaning new starts of 25,000 to 35,000 apartments per annum would be needed over a number of years.  The UDIA NSW survey highlighted three key issues that need to be tackled if we are to provide that apartment supply:

Issue 1 – Reducing barriers to construction finance.

Issue 2 – Removing barriers to feasibility.

Issue 3 – Improving the VPA process.

Key risks to Apartment market supply:
Based on a UDIA survey of development members, 72% of apartments that are expected to be completed as part of large projects in NSW by the end of FY26 are facing constraints impacting whether developers will proceed with these projects. UDIA estimates that without intervention, up to 13,000 units in the project pipeline risk being deferred or abandoned. See graph below:

If the NSW Government followed our recommendations and rents fell closer to the rates seen in Melbourne, the average renter in Sydney would save between $4,000 and $5,000 per annum, a huge reduction for those on the lowest incomes.

About the research:

The aim of UDIA’s Apartment Supply Pipeline Report 2021 was to identify issues and propose solutions to improve apartment affordability and investigate the extent to which the expected increase in demand for apartments can be met by the current pipeline of apartment construction projects.


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