The upside to Melbourne’s high rise apartment slump

The only way must be up for building approvals on the Peninsula

Latest building approval statistics show a contraction, particularly in the high rise apartment sector. What does this mean for the property market on the Mornington Peninsula – can we benefit from Melbourne’s high-rise slump?

The first game of footy with Angus and Robbie

Tough questions

I’ve taken the boys to their first game of footy in Melbourne. Minutes before the final siren, I’m on the edge of my seat, gripped by the game. Robbie, the eldest, asks how far 50 metres is. It’s tempting to say “it’s 50 metres” instead of pointing out the white line on the ground. His younger brother Angus, playing with my binoculars asks “why are there so many cranes in Melbourne Dad, what are they building?” The quick answer was “not much, son” but a good question I thought, perhaps the property gene is stronger than football. Real estate is my job, and I love tough questions, but I baulked at answering the crane spotter. The fall in building approvals, foreign investment, oversupply and a combustible cladding crisis is hard to explain to a four-year-old, especially when scores are level in the final quarter.

Signs of construction slowing

“Melbourne’s residential sector has 148 cranes across 69 suburbs” -Q1 2019 RLB Crane Index

Seasonally adjusted figures from the ABS for private sector dwellings excluding houses – meaning apartments, units or townhouses – fell 39.3 per cent to June 2019. Apartment blocks four storeys or higher dropped the most. High rise developers are stuck with unfinished buildings, units they can’t sell off the plan, and a drop in confidence due to poor building standards. There’s an oversupply of apartments now, but new development has virtually stopped so there will be a shortage down the track. Weak land sales and the time lag between marketing, submission, approval and commencement means the building industry will take a big hit. But, people still need somewhere to live.

Looking beyond the city suburbs

“Luxury apartments [are] well placed to sustain mild capital growth, demand should remain quite strong given the trend towards downsizing.” –Tim Lawless, CoreLogic

Increasingly, Melbournians are looking beyond the suburban outskirts and towards regional hubs like Mornington for attractive and affordable alternatives. Population forecasts show an increase in younger families and babyboomer retirees migrating to the Peninsula. They’re looking for well-appointed, low maintenance properties with access to a city lifestyle and a beach vibe. Older people are moving in from the more rural and southern ends towards the hospitals, services and amenities offered in Mornington, Hastings, Rosebud and Rye. These demographic shifts are good for owners and developers with properties closer to transport hubs, schools, services and jobs.

Land in demand

“Mornington Peninsula Shire population is forecast to grow by 14.3% between 2015 and 2036. To accommodate this growth, 16,521 dwellings are forecast to be built” –

Lack of available land in low-density residential zones means future development on the Peninsula will be knockdown rebuilds, renovations or townhouses and units in low-rise buildings (max. 4 storeys). You may have already noticed the retirement villages, developments around the marina and beachside units under construction. Undeveloped land is hard to find; developers are constrained by zoning regulations which limit the number of dwellings that can be built. There’s a real need for existing stock and demand for re-development in the area.

Lag in building approvals

The Peninsula won’t ever have the same high rise, high-risk environment as the cities but Angus may see more cranes closer to home soon. The centre of Mornington will be the hot spot for higher density builds, but other centres along the Nepean also have the capacity. Hopefully, the Shire’s building approvals backlog will clear up in line with population growth and the rising demand for new or improved dwellings. Land values will rebound, and communities can benefit from the upsides of development on the local economy.

Written for Bowman & Company Real Estate.