A recent study by the Housing Industry Association has highlighted a quiet revolution in new housing construction over the past two decades.
The study reveals a major shift from detached new home construction towards multi-unit dwellings. In particular, the HIA research found that multi-unit dwellings represent the most significant part of the new home building market than at any other point in Australia's history.
The HIA research found that 20 years ago, the medium-high density component of multi-unit commencements (units of three storeys or more) accounted for about 5 per cent of total housing starts. This proportion of multi-unit commencements has gradually increased over 20 years – and has accelerated over the past four years – so that by 2014 this share reached about 25 per cent.
The study identifies several key reasons for this acceleration.
Governments are encouraging great high-density construction, especially in and near cities, to reduce the cost of urban sprawl. Various planning strategies have been implemented, and with infill sites predominantly accommodating mid- and higher-density dwellings, the policy focus has enabled the supply of multi-unit dwellings to expand greatly.
There is a greater concentration of employment opportunities in urban areas than in the past and this is encouraging more people to live closer to cities. Also, people want to live close to amenities and the social infrastructure that is generally found in the inner city.
Families are getting smaller, so they seek low-maintenance housing such as apartments rather than detached homes on large lots. Baby boomers who are entering their retirement years also want to stay in their local area, but in low-maintenance homes, which also encourages higher-density living.
For some households, multi-unit dwellings represent a more affordable option to detached houses. Housing affordability pressures, principally related to the price of serviceable residential land, have forced the market to make more intensive use of available land. This financial pressure has resulted in more dwellings in a given area than before.
This movement towards higher-density living is particularly significant for property investors, because over coming years they will be purchasing this type of product as it becomes even more popular.
Investors who plan to buy a higher-density home such as an apartment should consider the significant tax depreciation benefits associated with this type of property purchase.
In most cases, strata-style homes such as new apartments provide a higher rate of depreciation than houses, all things being equal.
Buying a new apartment, for example, can provide tax benefits through depreciation equivalent to 60 per cent of the total purchase price of the property, representing $300,000 on a purchase price of $500,000.
Paul Bennion is the managing director of DEPPRO tax depreciation specialists. DEPPRO is Australia’s leading property depreciation company, specialising solely in the preparation of tax depreciation reports for residential, commercial, industrial and leisure investment properties.