None of us need reminding that 2018 will soon be assigned to history at a time when the residential property market looks at best choppy and at worst chaotic. From my point of view this is not surprising, and twelve months ago I started a similar commentary by suggesting that markets were already at a turning point and that 2018 will not be business as usual.
That has certainly proved to be true and across my next two posts I’m going to go back and reflect on the key points that I suggested would shape the market and the hurdles we might face in 2018.
Looking forward to 2018, I suggested there would not be an abrupt or sharp turn in the residential market but, that some key elements including the following would; finance, demand, supply, prices and planning.
Big Picture Issues
As last year ended I recall a list of ‘big-picture’ issues that include:
- The continued impact of technology
- Housing affordability including built-to-rent is an urgent issue
- All aspects of finance
- Tax policy will be important and how investors might be impacted
- Planning delays, red-tape, the management and cost of infrastructure delivery
- Prices in a potentially more fractured market
- The rise of mixed-use developments
- Environment and sustainability
These topics can be neatly combined into two groups, and this will make it straightforward to help review how 2018 actually evolved.
Firstly, this week I’ll look at the physical side of the market including; technology, planning, infrastructure, mixed-use developments, environment and sustainability.
Then next week critical factors that surround finance; affordability, access to finance, taxation policy and prices or more exactly how all of these areas have impacted residential property prices.
With so many big issues occupying our attention during 2018, technology may have slipped from top of mind however, it’s a key factor in any market.
Considering property, technology continues to impact marketing and tougher markets may well increase the pace of change. Technology is also being used to manage real estate transactions with the arrival of PEXA and finance is also being impact as more data-matching is encountered by anyone seeking finance and technology is also spreading into apartment designs.
Concentrating on marketing two key trends that emerged strongly during 2018 included the wider use Chatbots, like Siri and Echo these are making voice recognition software the fastest growing means of digital search.
There are already intelligent personal assistants being developed for real estate applications and we may soon see conversations with Siri happening before buyers contact any marketing agents.
The second trend covers data analytics in real estate which, has also become more widespread as more data and pattern specialist software is being used to unlock insights into the market to help planning marketing and product development.
Urban planning is always a hot-button issue because it impacts every part of the market from supply, to the delivery of infrastructure to how the end product of developments looks and feels.
According to The Guardian ‘From its earliest days, Sydney has wrestled with its history as an “unplanned” but naturally blessed city, where unchecked development competes with liveability and beauty.’
Sydney is also on a path to nearly double its population of 4.8 million by 2056; by contrast London and New York are expected to grow by 30% over the same period.
This growth is creating a lot of debate and remains a critical issue even as the State Government is suggesting a policy to limit growth by cutting the number of immigrants who come to Sydney. Although such polices of forced re-settlement have never been a great success.
A key planning initiative is to split Sydney into three core areas to help better manage planning and deliver more facilities and housing. These would be the East including Manly, Bondi, Sydney Airport and the Sydney CBD. The second area would be Central with key centres of Blacktown, Parramatta and Olympic Park and the third Western taking in Penrith, Liverpool, Badgerys Creek and Campbelltown and with each, taking in the surrounding suburbs, all of them productive, liveable and sustainable.
According to Greater Sydney Commission’s Chief Commissioner Lucy Turnbull. “Together, we can reimagine our city.”
“Greater Sydney is a mosaic of great places, and we’ve collaborated with the community, peak interest groups, businesses, and all levels of government to build concrete plans to make those places greater.”
“Our ambition is for Greater Sydney to be the kind of global city that is home to a mix and variety of places we want to live, work, study, play and visit – places that are close to those essentials like housing choices, smart jobs, great schools, health care, open spaces and facilities.”
Planning was a topic almost never out of the media this year and that looks set to continue, as progress looks painfully slow.
In 2017 many parts of Sydney look like a war-zone and continued development created employment and drove housing demand.
However, while infrastructure investment is boosting employment and making some areas more attractive for development, some projects are a mess and the delivery of quality infrastructure looks a very hard task.
Infrastructure Australia’s 2017–18 Annual Report details the identification of a $55 billion investment pipeline with the 2018 Infrastructure Priority List.
The acting CEO commented recently: “Over the next 30 years, close to 80% of Australia’s population growth will be concentrated in our five largest cities—Sydney, Melbourne, Brisbane, Perth and Adelaide.
“Today, close to half of the population of these cities live in the outer suburbs. However, new research from Infrastructure Australia shows that people living in these areas experience lower levels of service and access to public transport, poor service frequencies and longer travel times compared to inner city residents.”
While there was progress in 2017 project delivery and cost controls were both problems anticipated that unfortunately did, in some instances, turn out to be the reality as many communities faced continued delays and disruption.
One key trend during 2018 has seen buyers focus on quality and there has been a rise in the demand for more 2 and 3-bedroom apartments in smaller and more boutique configurations and in mixed-use developments.
Established and right-size buyers have been attracted to mixed-use buildings with a good level of local amenity and integrated planning. For many owner-occupiers, very tall buildings lost support during 2018 not so much in Sydney as was experienced in Melbourne and Brisbane.
The record levels of new residential construction did slow as predicted in 2018, however there remains a pipeline of developments still under construction. Most newly completed stock sold off the plan, is being settled in an orderly manner although, the new stock did peak in 2018.
Poorly located, inferior quality apartments are now struggling to meet market prices and find buyers, the distinction between quality and ‘so-so’ became much sharper during 2018.
Environment & Sustainability
This year the reality of much higher energy prices and the reliability of supply became big issues. Energy use and conservation in new and existing apartment buildings is attracting greater buyer attention with government and developers responding to a new range of environmental targets.
Apartment living is going to continue to grow in all major cities and apartment buildings are often seen as more sustainable than single houses, given the proximity to transport and services.
However, at a building level the utility consumption per person is more in high-rise apartments than low-rise apartments and detached houses. Up to 60% of an apartment building’s total energy can be used in common areas.
This is particularly high in buildings with centralised plant and equipment, and underground car parks. Water use inside apartments is often high and residents in apartments recycle much less than residents in houses do.
The environmental impact of this sector is already changing design and planning requirements and for new buildings, the environmental performance and improved cost-effectively will be issues into the future to improve performance and encourage innovation in sustainable design and construction of new apartment developments.
As awareness of these issues become more visible, buyers are realising the broad range of benefits that better environmental performance in apartment buildings helps deliver, impacting the value of their investments.
During 2018 affordability, while still an issue, gave way in part to general market concerns, relating directly to finance and tax reform. In prime locations, well-conceived buildings still attracted buyers, but retaining quality was essential.
Buyers did not compromise in 2018, as supply and prices were starting to shift and cheap and readily accessible finance dried-up the market moved into a more competitive phase, the bearing of finance was central along with other key factors, discussion on these topics to follow in next week’s post.