Below is a schematic of current apartment development in a small area of Melbourne just north of the City Centre, next to the Victorian Markets. These are pretty tall; one already under construction is 88 stories.
And here is a blog post from our Melbourne friends OhYesMelbourne on another City Centre adjacent development site; Docklands. And I thought Auckland is experiencing a building boom. Well it is, and this growth is impressive, but of course Auckland is a small city by global standards, and the current boom is well in proportion. Across the world it looks like we are in a phase that is concentrating development pressure in primary cities. So while urbanisation is widespread it seems to be especially concentrated in the cities that dominate their regions, like the Australian State capitals and Auckland in the South Pacific. It’s not just in the new world either; that classic primary city; London, is building up at a new rate too.
Aside from issues of about the balance of this growth from a nationwide perspective or architectural style [blingy is the term that springs to my mind], what is the likely impact of this kind of additional dwelling supply coming onto the market in these cities? Currently Melbourne is getting about 1500 new residents a week [1838 per week last calendar year, in fact]; which at current household sizes means there is fresh demand for about 500-1000 new residences each and every week; pretty hard work to satisfy that demand you’d think?
Well think again; the boffins at the Reserve Bank of Australia are worried about oversupply according to this report from Business Insider. Here’s the recent apartment supply growth:
So while the RBA couches this situation as a warning to financial stability, or at least risk to property developers loosing their shirts in a saturated market, isn’t this exactly the sort of quantity of new supply that overheating urban property markets need, like Auckland?
Price growth is already slowing for inner city apartments in Melbourne and Brisbane, and there are signs that activity in the Sydney property market is beginning to slow after two years of breakneck activity. Supply and demand in all three regions appears to be nearing equilibrium, with significant more supply scheduled to come. It’s clear that downside risks to prices are building.
It seems there is a lesson from the cities across the Tasman that supply/demand equilibrium in cities can be achieved most effectively by building up, although at the risk of supply overshoot. But then isn’t that always the case in any attempt to rebalance a market? So what are the barriers to this sort of solution occurring in Auckland? Is it even possible? One problem is inner city land supply, is there that much available space? Melbourne certainly has a lot of city proximate available land. Auckland is likely to need this sort of growth to also occur in metropolitan centres as well as the Central City simply from a space perspective; given how tightly bound our City centre is. But in that case we will also need to complete the Rapid Transit Network in a timely fashion to make that model function properly. But then we have to do this however we grow; or we are just planning traffic gridlock.
Then there are our planning regulations, especially height restrictions and view shafts, limiting spatial efficiency, and Minimum Parking Regulations adding unnecessary cost to construction [as well as feeding traffic congestion]. I’m sure some will argue that Aucklanders won’t live in apartments, but recent growth in inner city living shows that we have yet to find the limit of those happy to make that choice. It seems likely that out of 1.5+ million there still more willing to live this way, especially as the quality of city amenities and distractions improve [especially public transport, the cycling and pedestrian realm, street quality and waterfront spaces]:
And this is even more likely to be the case if new supply is sufficiently scaled to affect property price growth; then these dwellings will become even more attractive; more affordable as well as proximate. Perhaps, if the RBA’s handwringing is prescient, at the cost of one or two over-ambitious property developers’ businesses…?
Is it happening already? Certainly all the growth in dwelling supply in the last couple of years has been in attached structures: Stand alone houses used to completely dominate Auckland’s housing supply; at three-quarters of the market four years ago to around half now.
The evidence from these nearby cities suggests that ‘up’ may well be a more immediately effective solution to rampant dwelling inflation in Auckland than distant, hard to service, and slow to deliver detached houses out on the periphery. Certainly in as much as it is a supply-side issue.