Last week I was in Brisbane for work. There seem to be quite a few cranes around the city, including midrise apartment developments creeping along the riverfront to the west of the city centre. The Brisbane CBD proper is still quite sterile at night after all the office workers have left – it’s an absolute pain in the neck to try and find dinner. But it seems to be developing little live-work satellites along the side of the river.

Transportblog kept an occasional eye on development trends over in Australian cities as a sign of what could happen in Auckland. (If urban planning rules and the development sector were geared up for it.)

attached-proportions-Oz-NZ-2015

New data suggests that Australia’s apartment boom is paying off: Prices are levelling off and potentially even falling, and city centres are becoming increasingly vibrant around the clock due to an upsurge in residential population.

However, the odd thing is that this success story is being reported as a bad thing by Australian journalists.

First, Jonathan Pearlman (The Straits Times) warns that an “apartment glut looms in major Aussie cities“:

In the two largest cities of Sydney and Melbourne, high prices and strong demand for properties in the inner city or near railway stations have led to a dramatic shift away from houses to apartments.

The central bank and analysts have warned of a looming “apartment glut” which could deflate the nation’s soaring property market.

Economist Shane Oliver from AMP Capital told The Straits Times that apartment prices in parts of Sydney and Melbourne are likely to fall by about 15 to 20 per cent over the next two years.

The falls could cause a broader decline across the market, even though some areas, especially in Sydney, still have an undersupply of housing.

“We have a huge spike in supply of apartments over the next couple of years, often in fairly concentrated areas,” he said. “It will cause an indigestion problem.”

This seems like an excessively negative spin. Personally, I would describe this as “improving housing affordability” rather than an “indigestion problem”. But regardless of how you describe it, it does seem clear that building lots of apartments can improve affordability. (As it seems to have done in the Auckland city centre.)

Second, Michael Bleby and Nick Lenaghan (AFR) say that “things not so great when you go downtown” in Sydney and Melbourne. Again, this seems like a good-news story being spun as bad news:

Neither Sydney nor Melbourne is the old-fashioned post-5pm ghost town it once was – when Australia’s army of office workers deserted its day time environment en masse for homes in the suburbs.

The country’s two largest CBDs are now thriving residential centres. People walk their dogs, buy their groceries and exercise on streets that just decades ago were limited to suit-wearing, white collar employees.

“You couldn’t have envisaged this, given our suburban history and the fact that the city just died at night,” says Sydney Lord Mayor Clover Moore. “Australia’s grown up in the last couple of decades.”

That change in Sydney and also further south, in the Victorian capital, marks a huge turnaround. The problem is, it’s too successful. A city can’t thrive on residents alone. It needs workers – preferably highly paid ones – in industries that make the city a place people want to go to.

We’ve also seen this in Auckland. Unprecedented and unexpected growth in the city centre population has led to a downtown revival: More people, more restaurants, more street life. This is a basically good thing, as it means a city where people can get more of the things that they want.

city-centre-population-1996-2016

However, perhaps it’s possible that things can get out of whack – that development can tilt too far in one direction for a while, and “crowd out” other uses. The problem is that the “solutions” proposed in Melbourne and Sydney are likely to make the problem worse. Take this for instance:

In Melbourne, the state government has introduced plot ratios to rein in the extent of development on each site. In a bid to swing the balance back toward commercial space, developers can win additional height if they provide a “public benefit” which, oddly enough, these days includes office space.

[…] The sort of tenants that global cities are seeking to attract – the offices of global corporations that in part sell themselves to their own customers based on their prime global footprint – won’t just swap the CBD for somewhere nearby, Rawnsley says.

“If they can’t find a home in the Sydney CBD or the Melbourne CBD, they’re not going to go Box Hill or Parramatta, they’re going to Singapore or Shanghai or Tokyo or Seattle,” he says.

If a lack of office space in the city centre is driving economic growth and productive firms to locate in other cities instead of Melbourne, restricting the size of buildings in the Melbourne city centre will almost worsen the problem, not improve it.

What do you think of the news from Australian cities?

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34 comments

  1. Been following this too. It seems for headline writers the old adage; ‘if it bleeds; it leads’, means they try to turn every story into a disaster. It is quite common to have the same issue of a paper with one article saying dwelling prices are rising forever, AND there’s a glut and homeowners are losing their shirts at the same time.

    And yes, apartments, where they are enabled in good proximate locations are of course the solution to the supply side causes of unaffordability, as they can supply dwellings at scale, in desirable locations, with lower associated transport costs. There are also other issues like construction industry bottlenecks because of the scale and intensity of this boom, and the resultant inflation in this sector, be dwellings are being built.

    At least the absurd lie that Auckland’s won’t live in an attached dwelling has finally been put to bed (cf; Auckland’s ‘love their cars’)…

    1. Wouldn’t be surprised, actually. That lines up with my casual observations over the last 1-2 years.

      Of course, if you add up all US and Canadian cities you’ll get a different result, but on a per-capita basis Aus is still ahead.

        1. Here you go,

          Auckland

          ‘Auckland continues to be the crane hotspot in the country with 64 cranes, 55% of all cranes observed in the country.

          American cities

          The latest RLB Crane Index shows Auckland is streets ahead of the recent crane count in New York (28), Washington DC (29) and Los Angeles (40 cranes) in addition to other key US markets of San Francisco (24), Seattle (58), Chicago (26), Denver (21), Portland (22), Phoenix (10), Boston (14), and Honolulu (13).

          http://rlb.com/en/news/2016-11-10-auckland-trumps-new-york-washington-and-los-angeles/

        2. The cranes in Sydney are marching way out into the outer suburbs, let alone the ones in the CBD. The intensification around stations is staggering, also the new developments along the new transport corridors, Sydney Metro. Last time I read crane states Sydney was running second only to Dubai.

    2. That ‘fact’ was reached the old fashioned way: by counting cranes! It doesn’t necessarily reflect the number of dwelling units being built, e.g. the apartment buildings in the US might be larger on average (or smaller), but it’s a simple measure. Like the Big Mac index.

    3. I believe a major problem with the statistic is how divided US cities are. What we often think of as “a city” (eg New York/LA/Seattle) will consist of loads of little cities, perhaps even crossing state lines. The result is that US cities always seem quite small on paper. eg Chicago has a population of 2.7 million (as you’re only looking at a central area). But under the commonwealth model where suburbs and city are combined, you’d see a population more like 8-10 million.

      1. The US Census Bureau has developed some workarounds for this, including defining metropolitan statistical areas (MSAs) that can cross over city/county/state boundaries. However, when using statistics from the US it’s seldom immediately apparent what definitions have been used.

        In my experience, higher-density development *does* tend to be very concentrated in inner-city areas in the US. Zoning in neighbouring municipalities tends to be much tighter and hence there is less scope to build high-rise. So regardless of how RLB have defined cities, it probably won’t lead to a great deal of bias.

  2. The Melbourne office market has been characterised by an interesting trend over the last 10 years: the migration of suburban office jobs to the CBD. It would be interesting to try to replicate this in Auckland, perhaps achievable post city-rail link when businesses and office developers gain some faith that workers will actually be able to access the city.

  3. Peter, from an economics perspective would a massive apartment building programme in Auckland reduce the prices for (say) a 600m section in Sandringham, or are they completely different markets?
    I understand “better PT = faster driving commutes” but does “more apartments = cheaper housing stock of all types”

      1. Brilliant. I should like to strongly recommend a massive building programme of say 100,000 apartment units in the CBD and metro centres, as I’d really like a big section in Sandringham and this seems like the only way to afford it!

    1. Several markets presumably, first home buyers might not be hot on that 600m2 section in Sandringham (with a 120m2 house on it) if they can find a apartment in Kingsland or Newton of the same size and specification instead.

    2. Another way these markets are connected is the group of mostly young people looking for a place to live. Since in many areas there’s almost nothing smaller than a 5-bedroom house, a lot go flatting in one of these big houses.

      Some say that if we allow apartments to be built, the “development potential” will increase prices further.

      Or maybe the only reason the price of that section is so high is the “capital gain potential”. Land as just another generic investment asset which will you can buy and then sell next year for 15% more. Like some kind of bitcoins. Just too bad people actually need that land to build their home or their business (unlike bitcoins). Maybe I misunderstand economics.

    3. A similar question could be asked about housing developments in distant suburbs at the outer fringes of the urban area: do they have much effect on the prices in Epsom or Sandringham, or are they completely different markets?

      My guess is that the degree of market overlap is actually greater for city apartments. Most buyers have at least a rough idea what part of the city they’re considering; they don’t directly compare properties in suburbs 40km apart. But they might very well compare an apartment and a house in the same or nearby areas.

      1. Is there a domino effect?
        New developments in Manurewa = reduced prices in Mangere = reduced prices in Otahuhu = reduced prices in Onehunga = reduced prices in Royal Oak = reduced prices in Epsom

        1. Yes, I’m sure there is. But Auckland has reached a size where some of those domino chains are getting rather long – which leaves me wondering how much signal gets through (and how quickly) from one end to the other. By contrast, the connection to apartment markets in the same area seems relatively direct.

        2. Not really. The “demand” is for a house in a location, not a house anywhere. Hence only increasing supply of dwellings withing a reasonable radius will affect prices in central areas.

          A house in Pokeno is not a substitute for a house/apartment in Ellerslie and it’s ludicrous to suggest that they’re closely linked. It’s an argument the pro-sprawlers use to direct development away from their established neighbourhoods.

      2. And a subsequent question, how much do apartment developments in suburban centres affect new suburban subdivisions, and vice versa. Presumably the apartments going up in Albany have more market overlap with new houses in Long Bay, than apartments in the Centre.

    4. Late to the discussion, but others have covered the point pretty well. Apartments are a substitute for other types of dwellings – not a perfect one, but a reasonably good one. Kind of like how a house in Pokeno is a partial substitute for a house in Sandringham.

      The Australian example may teach us something about the degree to which they are substitutes – ie if we see falling apartment prices and rising house prices, it may indicate that they are weak substitutes. We will see.

  4. You can’t have everything. If a site is used for offices it won’t be used for apartments and vice versa. The fashion has been for large open offices in buildings with huge floor plates. That means big sites- usually outside the existing built up area. That has left the other sites free for apartments. Usually the market chooses one land use activity over the other at a site, as one activity is in the money and one isn’t. It is why mixed use, so favoured by planners, seldom works and if it is forced on a developer is eventually snuffed out by the market. Basically the efficient mix is almost always a boundary solution. If you want offices instead of apartments you might not get there by loading cost onto apartments. Instead you might not get anything built. If an office project doesn’t stack up nothing will make people build.them.

    1. Agree. And its why areas that allow for mixed uses are more effective than zoning for mixed uses. Generally speaking, developing an office building and a residential building side by side is more profitable than trying to accommodate two mixed use buildings. There are exceptions, of course, but they are not the rule.

    2. +1 Wynyard is a mixed use area (or will be soon) without a single mixed use building beyond ground floor retail on an office or apartment building.

    3. It’s more a problem of arbitrary limits on urban land. Picture a plot 20m by 80m. Or 1,600 sq m.

      Downtown that might support a building like 1 Parliament Street that supports 15 odd floors. Adding in circulation and such that might leave you with 16-20,000 sq m of residential, commercial, etc space to play with.

      Conversely you head just a few km further out and the law might limit you to building a couple of 300 sq m buildings with no more than 2 floors – just 1,800 sq m of residential, commercial, etc space!

      Auckland isn’t at the point where it needs to trade off between green space, commercial and residential. It just needs to let people make better use of the existing space (for the latter 2, can’t really do multistory green space haha!).

    4. Yes, that’s a great point. Certainly one of the reasons why the policy direction Melbourne is taking to preserve space for office uses is a bit worrying.

      That being said, if there’s significant uncertainty about how buildings (and areas) are going to be used in the future, it may be worth thinking about whether there are options to preserve flexibility at a relatively low cost. I’m not an architect, but it seems like there may be some things, like floor-to-ceiling heights, that would enable re-use for a range of purposes.

  5. In Sydney the night time activity is dying as a tightening attitude to licensed premise operating hours (lockout laws) based on post codes have had some strange effects, both moving where people go out and the times, which has some interesting effects on transit that supports the city.

    There is a school of thought that believes that Sydney is losing some of it’s attractiveness as an international destination and that has negative implications on attracting talent that is an important driver of competitiveness in the longer term.

    While not a direct urban form and apartment building consideration, it has effects on how the place is used and viewed.

  6. Transportblog kept an occasional eye on development trends over in Australian cities as a sign of what could happen in Auckland. (If urban planning rules and the development sector were geared up for it.)

    Yeah.

    Unfortunately the land costs in Auckland are too high, as our urban planners happily choke the life out of the apartment sector. So it is that whilst Australia has progressed from 30% to 50% apartment builds, New Zealand stagnates.

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