New home developers are increasingly focusing on the luxury apartment market as the cost of construction continues to rise.
Over the past twelve months, input prices to house construction rose 4.4%, primarily driven by high fuel and energy costs, making products more expensive to make and transport.
The labour shortage is also a major issue, particularly for finishing trades, which include painters, tilers, and plasterers, and this is increasing demand and pushing prices up further.
The increasing costs of building materials that began at the start of the pandemic have resulted in developers changing the type of apartments and houses that they are making.
In the past 12 months, the number of 1-bed apartments on the market has decreased by 16%, whereas the number of 4-bed apartments has increased by 76%.
Additionally, the number of apartments under $500k has decreased by 40%, and the number of listings in the higher bands, such as $2-$3m and $3m plus, have increased by 34% and 41%, respectively.
As the cost of construction is so high, it is hard to make a profit on smaller, cheaper properties and therefore, fewer are being built, and more expensive properties that provide a better yield are replacing them.
In October, the highest volume of apartment development listings on realestate.com.au were 3-bedroom properties priced between $1-$2 million, closely followed by 2-bedroom units within the same price range.
There is an increasing market for high-end apartments, as cashed-up couples with no children and downsizers want to live a low-hassle lifestyle without foregoing luxury.
To cater to these cohorts, developers are creating developments with hotel-style concierge services to manage dry cleaning and dog walking and adding amenities such as home cinemas, wine cellars and restaurants.
This is unwelcome news for first-home buyers trying to get on the property ladder but can't find anything within their price range.
New-build houses are more reasonably priced; however, most new houses are built in greenfield areas further out of the city, where median prices are lower than in the inner ring, and they still cost more than an established property in the same suburb.
35% of new house development listings on realestate.com.au are 4-bedroom properties within the $500-$750k price range, which may still be out of reach for many first-home buyers or those on lower incomes.
Based on enquiry data for new build properties on realestate.com.au, it is clear that the developers understand their market.
The top 5 property types with the largest year-on-year increase in enquiries for new apartments are all more than $1 million, with 4-bed apartments priced over $2 million, racking up the most enquiries per listing.
Now that most apartments are out of reach to first-home buyers, there is an increase in demand for medium-priced houses.
Enquiries for 2-bed houses between $500-$700k have increased by 2.8 times higher than last year.
Houses are the best option for first-home buyers, but it does mean living slightly further out of the cities.
The most in-demand new apartment development in October was Panorama, in Bowen Hills, Brisbane, where a 1-bed property starts at $495,000.
Apartments in South Australia are in higher demand than elsewhere in the country due to the record low levels of available properties to buy in the state.
In October, there were, on average, 41 enquiries per listing in the state.
The most in-demand house and land developments are mainly in South Australia and Queensland and one in New South Wales.
Both Queensland and South Australia have the most enquiries per listing, at 35 and 34, respectively.
The residential building industry has suffered many setbacks in the past five years, with skyrocketing costs and significant project delays.
According to ASIC, 2,117 construction companies went into liquidation in the last financial year, which will have an ongoing effect on the volume of new approvals.
The changing landscape has meant that developers have had to change the types of properties they are building.
The downside to this is that many new developments are out of reach to first-home buyers during a time when the lack of affordable housing in Australia is at an all-time low.
This will continue until building costs decrease enough that developers can return to building cheaper properties to meet the needs of first-home buyers.