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Amid the ongoing housing crisis, residential developers continue to grapple with feasibility issues on apartment projects. The sector is struggling to deliver volumes of new stock, and approval rates are slowing down, writes Nigel Farquhar, head of development at Ellipse Property.
Despite recent government housing reforms, Australia’s development sector faces an uphill battle with challenges around feasibility, finance, and planning.
These are the top three issues facing our development sector:
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Pre-sales and feasibilities drive Baby Boomer stock
Private credit and pre-sale commitment hurdles have created a market dominated by large three- and four-bedroom luxury apartments. These cater to the groundswell of downsizing Baby Boomers. Smaller, more affordable units are now in increasingly limited supply.
The costs of land, labour, and materials have combined to put the squeeze on feasibility of new residential projects, creating caution among lenders. Increasing reliance on private credit and its additional costs has put further pressure on project budgets.
Feasibility is now skewed towards higher-priced residential developments that target empty nesters and downsizers, who make up around 25 per cent of Sydney’s population.
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Third-Party builders decline as builder-developer model thrives
A sharp decline in third-party builders has also contributed to dwindling supply. New apartment dwelling commencements have now trended downward for years.
This is particularly noticeable in NSW, in response to increasing compliance with higher building standards driven by the introduction of iCIRT (independent construction industry rating tool).
Many developers and builders have also flocked to more attractive cap rates and less complex builds and regulation associated with booming property sectors like industrial and logistics.
Amid these challenges, the builder-developer model has surged ahead over the last five to seven years. Battling project feasibilities, tighter compliance controls and increasing borrowing costs, the builder-developer model presents a solution that derisks residential projects and optimises profit.
Most of Sydney’s active residential developments are being delivered by builder-developers. Dominant builder-developers include Billbergia, Deicorp, Coronation, Mirvac, Meriton, DASCO, TQM and Ellipse Property.
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New planning pathways deliver new roadblocks
Land use regulations and the planning system remain another significant barrier to the delivery of new housing. The impact of state government initiatives and policy reforms is yet to be seen.
The state significant development (SSD) pathway must be adequately resourced to meet the influx in applications, without burdening local councils or the NSW Land and Environment Court.
Momentum has gathered pace with increasing expression of interest (EOI) submissions to the Housing Delivery Authority (HDA). But assessment time frames have doubled from six to 12 weeks. It’s now taking even longer to get to the starting line, with the government issuing a SEARs (secretary’s environmental assessment requirements) list and commencing the 270-day NSW planning assessment target approval period.
There will be further delivery challenges ahead for the LMR (low-mid rise housing policy) zoned land planning pathway, particularly around approval speed.
Our industry has a way to go towards dealing with the housing crisis, and there is no “one size fits all” solution. A holistic pathway must be developed with a multidisciplinary approach and greater collaboration between lenders, policymakers, and developers to ensure the right balance of new stock is delivered to market with reasonable pace.
Nigel Farquhar is the head of development at Ellipse Property.
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