COVID19: Impact on Apartment Market

In recent years there has been a trend by investors ‘away’ from apartment buying, driven in part by some oversupply issues, and some poor workmanship/corner-cutting (highlighted in media reports by some builders), and other contributing factors; along with the belief that a house is generally a better long-term investment when it comes to capital growth.

As a result, in the past few years, houses have outperformed apartments in our capital cities; and in the past decade house values have risen at more than twice the rate of units, and this current boom is already widening the gap.

In the midst of the pandemic the demand for apartments by tenants has dwindled in comparison to the demand for housing; this is partly due to the halt in international migration and international students, who make up a significant portion of the tenant pool in the many new apartment towers scattered around our capital cities.

However, it must be noted some apartments, especially family-friendly low-rise apartments in lifestyle neighbourhoods have still performed well and are likely to remain in continuous strong demand.

Moving forward, surging land prices will force more of Aussies away from detached houses and back into apartments, triggering a boost in new apartment construction over the next four years according to the Australian Construction Industry Forum’s May 2021 forecasts.

According to the Australian Bureau of Statistics (ABS), prior to the pandemic in 2016, more Australians than ever were taking up apartment living, whether out of preference, convenience, or for other reasons, including: the increase in young couples delaying having a family, the lifestyle-oriented boomers downsizing and an increasing number of single-person households across the country.

Since the pandemic, things have changed somewhat and in 2020, the collapse in overseas migrants and students, along with a significant shift from cities to urban and regional areas by people reassessing their priorities and now able to work from home, and therefore live further away from the office – drove up the number of empty apartments, mainly in the inner cities.

The legacy of lockdowns and the work-from-home movement has made many Australians re-evaluate what exactly they want in a home – and a recent study by Westpac found that ‘more space’ is a top priority.

Prior to COVID-19 more Australians were trading space for place and were embracing apartment living, trading their backyards for balconies and courtyards in inner-city locations. But now everything is different.  Now we want more space – a zoom room, a bigger yard, and a garage that can be converted to a gym.

However, whilst we do not know how long we will be living with sporadic lockdowns and COVID restrictions pertaining to international travel etc., there is light at the end of the tunnel, especially as our vaccination program continues to roll out – one day things will be back to ‘normal’, and this will bode well again for the apartment market, as over the next year to two years it’s likely that affordability and land shortages will drive a resumed demand for apartments.