"Better Apartments" should be retitled "More Expensive Apartments"

On the surface, the Victorian Government’s “Better Apartments” discussion paper seeks to confirm what every apartment occupier would want to hear: mandating bigger, brighter, cross-ventilated apartments with great outlooks. What it fails to address is that this comes at significant cost.

The Government is using this discussion paper as a pre-emptive move to bring Sydney’s SEPP 65 strict planning rules to Melbourne. If this transpires, the industry will be faced with:

  • Massive job losses in the construction industry.
  • The cost per apartment will immediately increase by upwards of $150,000.
  • Rent will increase 10 percent per apartment.
  • The ability for inner-city sites to house our population growth will be reduced by 45% percent.
  • Development will be pushed to the fringe where infrastructure costs are greater.
  • A lack of new development due to diminished feasibility; a typical two-storey office building in an activity centre will be worth more than the site as an apartment development. Therefore it will not be developed.

In essence, supply of dwellings will drop dramatically, and we will be faced with a host of irreversible changes that will affect the industry and the end-user alike.

However, this situation is not a new one…Sydney’s apartment market stopped dead in its tracks for ten years after SEPP 65 was introduced. The market is only just starting to recover now, not because of any reversal of the planning regulations, but because the lack of supply has driven property prices so high that large one-bedroom apartments are fetching upwards of $700,000.

These inflated prices are the only reason why developers can now afford to develop projects which are in line with Sydney’s stringent rules and still offer viable financial returns. Basically, this means that without the inflated prices, developers could simply not afford to develop apartment projects under the planning laws, which has only further perpetuated the cycle of undersupply and market inflation.

Make no mistake – the implementation of design guidelines will remove your right to an affordable apartment in the area you want to live.

Some simple questions the paper fails to address:

Who is complaining that their rent is too low?

Who is asking for apartments to be more expensive?

We need to give apartment buyers a choice. If purchasers want a large one-bedroom apartment there are certainly plenty available. But if purchasers don't have the funds to afford a large apartment, by all means allow them the opportunity to purchase a home; don’t price them out of the market because they can’t afford what the Government is suggesting to mandate. At the end of the day, let the market determine what is desirable and what is a fair price for that dwelling.

In 2014, ‘The Commons’ apartment building in Melbourne was awarded by the National Architecture Awards as the “exemplar of apartment living”.

This project is a fabulous building, where 50 per cent of the apartments are south facing. If south facing apartments are deemed to be so undesirable, why did the project win the industry’s highest architectural award?

Without south facing apartments, anyone who wishes to live north of the city and desires a city-facing view, will simply not be provided the opportunity to do so.

And too bad if you want a view of our stunning bay - it is positioned to the south. If you purchase in a new development, you simply won’t be allowed to face it.

The last government turned off supply of medium density housing in our suburbs, leaving us with a deficit of 6000 much-needed new dwellings per year. If this government brings in minimum design standards they will all but shut down the apartment market in our regeneration and inner-urban areas. And with the projected population estimated to grow to 7.7 million by 2051, supply needs to increase, not diminish, in order to keep up with demand.

The new guidelines want to make you pay $10,000 more so your walk to the lift is 10m shorter.

Let’s not forget, this discussion paper has been drafted in a way that poses a series of loaded questions. Simply asking people if they would prefer a larger kitchen, or more internal space in their living room, is an irresponsible approach by the Government as it fails to address that these lifestyle choices come at a cost.

Larger apartments cost more money to build and they also decrease a project’s overall yield meaning these costs will all be passed on to the end user. Why don’t we ask legitimate questions that will force purchasers to think about their circumstances – questions such as ‘would you be prepared to pay $100 more in rent per week for a larger living room?’ is likely to illicit a more accurate response than simply ‘would you like to live in a larger apartment?’

The existing planning scheme in Melbourne rewards good design through discretionary height controls. It is a great system that has produced some fabulous buildings: ranging from high-end penthouses to affordable compact apartments.

On the other hand, Sydney’s planning scheme is overly prescriptive and complicated. The outcome has delivered large apartments, yes, but you need to be a millionaire to afford one. There is no such thing as an affordable apartment in Sydney.

The beauty of Melbourne’s market is the availability of choice, and the ability to allow most, if not all, professionals earning a modest wage, to one day own their own home. Let’s not take that opportunity away from Victorians just in the pursuit of short-sighted guidelines that will create more problems than it will fix.

Craig Yelland is a Director of Plus Architecture - an Urban Melbourne Industry Hub member. With offices in Sydney, Melbourne, Brisbane and Christchurch, Plus Architecture is considered one of the leading architectural firms in multi-unit residential development. He lives in a south facing apartment with his wife and two children.


Bilby's picture

This is an inadequate economic assessment. "The market" is not a static entity - nor are building / project delivery costs absolute. So it is not correct to argue in the way that you do, Craig - in fact, you present the reader with a false dilemma - smaller apartments, or higher purchase costs.

It could also be argued that other factors are more important to the cost of apartments than project yield or building costs - e.g. developer margins, planning regulations (and other regulatory frameworks), taxes and certain market conditions, such as supply / scarcity of particular types of property. If, for example, three bedroom properties in desirable inner city locations become scarce, as a percentage of overall properties available, then the market will create a premium on such properties. This in turn pushes prices up for this style of property when, all things being equal, if larger properties were more commonly available, we would in fact see lower prices paid for two or three bedroom apartments.

So the situation is nowhere near as impartial as you make out - effectively, developer preference for small, one bedroom apartments is pushing up the price of accommodation for a large percentage of end users, who would otherwise wish to live in well located areas, but can't because they need more room. Mandated standards might therefore raise the price of some types of accommodation, and lower it for others (say larger two bedroom units).

In addition, by focusing on the market, you avoid discussion of the role developers can play in helping to produce a diverse, more affordable housing infrastructure in Melbourne. Some developers elect to set a lower profit margin in order to produce a more affordable, high quality product. Some further exploration of this idea is warranted before we defer to the market in setting the agenda for liveability in Melbourne, I would think.

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Mark Baljak's picture

The article focuses on one particular implication of the discussion paper which I happen to agree with: affordability issues.

Land prices continue to rise as do construction costs; implementing a minimum apartment size (for example) will take affordability further out of reach for an increased percentage of the population by bumping up the pricing for the cheapest apartments available.

This leads to another discussion topic: what can be done to provide increased amounts of affordable housing to inner-city Melbourne. A topic for another day though.

Regardless Craig's piece is the first in a series of articles to appear on Urban Melbourne in the next few weeks on the Government's discussion paper.

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Bilby's picture

You didn't really address the substance of what I was saying, Mark. I assume you agree that 2 and 3 bedroom apartments have had their prices pushed up by developer preferences for small 1 bedrooms, then?

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Mark Baljak's picture

It wasn't necessarily my aim to address it, more so to convey that Craig's is one of many views on the topic, and that there'll be additional editorials to follow from industry players presenting their own opinions.

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Bilby's picture

Fair enough. Nevertheless, Craig's arguments deserve analysis - opinions in themselves are worth nothing without well structured argument, evidence or preferably both, For example, he says: "Sydney’s apartment market stopped dead in its tracks for ten years after SEPP 65 was introduced". The implied conclusion here is that the slowdown in the apartment market was caused by SEPP 65. Was it? Unit approvals in Sydney over the period 2002-2006 were more or less mirrored in Melbourne - albeit with Melbourne having fewer approvals in the period overall. If SEPP was to blame for the lower approval rates in Sydney, why did Melbourne (without the SEPP 65) follow exactly the same trend? In addition, why did approvals soar after the financial crisis in both Melbourne and Sydney? (see graph below) If anything, Sydney's boom has been just as strong as Melbourne's since 2009, regardless of the dreaded apartment standards. In other words, the article is deeply flawed in its analysis, and hardly worth printing unless the author can supply something more substantial than a post hoc argument linking apartment standards with falling approvals or rising apartment prices.

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johnproctor's picture

your comments Bilby are to me a case of when someone has a little bit of information and can throw around a few buzz words about greedy developers that are easily bought by the public potentially dangerously swaying a debate about an important issue.

The premise of the article is not intended to be a detailed, peer reviewed economic analysis of the effects of Sepp65 in Sydney or the potential effects of this policy in Melbourne. But the broad trends of limited supply in central Sydney and excessive house prices have been evident since the early 2000's.

Re: your property observer link - well done in complaining about someone else's blanket statements by using one chart to characterise the housing market of two cities of 4 million + people.

The capital city unit approvals need to be considered in the context that Melbourne outer suburban housing approvals are consistently and significantly higher than Sydneys (including say this June 2000 bulding approvals table). The high housing approvals in Melbourne has for a long time hindered apartment approvals because its been easier and cheaper to developer in Berwick or Epping than in the centre of the city. Now that the choice is Mernda or Pakenham and with the renaissance in the CBD Melbourne's apartment market boomed and played 'catch up' with Sydney in the 2009-2014 period. Your graph includes greater Sydney (and Melbourne) unit approvals though as well which means that all the apartments in St Leonards, Chatswood, Parramatta are included in those spaces along with much higher general suburban density that would get counted into 'cap city unit approvals'. Where as Melbourne aside from the last 5-6 years has barely had an inner city new apartment market (now has many through Forest Hill, Richmond, Fitzroy etc. as documented on this site), still doesn't have a suburban centre apartment market and even in the middle suburbs is still capable of battle axe or other subdivisions that wouldn't fall into the unit approvals category.

I'll take the opinion of an industry professional over a single graph posted by an anonymous caller.

(link to ABS data for example purposes... dataset for last 15+ years available on ABS website)$File/87310_jun%202000.pdf

The article points out what any trained researcher (or sensible impartial observer) could tell you about the very flawed questionaire/discussion paper which in a leading manner implies to the respondent that they can have their cake and eat it too. The questionaire buys into the ideas of the wowsers (elements of the 'design set' and baby boomers 'concerned about development') who put this together who are either prepared to pay more for (their idea of) good design or who would never live in an apartment anyway but want to thrust their standards on everyone else.

The article also notes that you can have good (and even great) design that is completely contrary to many of the items in the discussion paper or Sepp65.

Re: your points about 2 and 3 bedroom apartments and the design guidelines leading potentially to more supply. A developer will still chase the money that is available to them where they can post guidelines. If 1 bedroom apartments are most profitable now they are likely to still be after the guidelines and so will still be pursued by development... 2 and 3 bedroom apartments are also just as likely to get caught up in additional expenses because they could hypothetically no longer be allowed to be south facing, or have to be closer to a lift, significantly altering the yields and/or layouts available in developments and the viability of apartment towers supplying those apartment types.

These standards strike a real chord with me because as I've said before my partner and I lived in a 36m2, 1 bedroom, no balcony, ensuite off the bedroom, south and west facing apartment for 5 years. We were very happy there.

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Bilby's picture

Johnproctor, you missed most of the point of what I said, and also didn't directly address my comments. The fact is, the writer provided no evidence to support his claims. You have given limited evidence to support yours, with some interesting analysis, but relying significantly on your own experience in a (presumably well designed) small 1 bedroom apartment. That's a sample of one (+ your partner - so 2, if we accept your comments on their behalf). Are you saying the graph I posted has incorrect data? If not, what are you trying to say about the original line of argument in the article?

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ford wong's picture

Free Market depends on supply and demand. Developer will not build any units that nobody buys. It is also no use to build apartments that people cannot afford. We should let the market to decide.

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Geoff's picture

There is a misconception of SEPP65 / the Residential Flat Design Code used in NSW. SEPP65 is fairly simplistic in its aims. It sets out 10 design quality principles to achieve better residential developments. The Residential Flat Design Code is then simply a descriptive outline of how to achieve the 10 principles of the SEPP.
If as a designer you can prove that you can meet the 10 design quality principles via different methods than those outlined in the "Residential Flat Design Code" you could still achieve compliance with SEPP65. The Residential Flat Design Code is a means of assessing compliance, a "bench mark" for how compliance can be assessed by designers and approval authorities.

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Bilby's picture

Ford, the "Free Market" you speak of is a myth. If I wanted to buy a factory in an industrial zone and live in it, I couldn't. Why not? There are government and council regulations that prohibit this sort of use. Likewise, I couldn't build a residence in an industrial zone or subdivide my one bedroom apartment into a 4 "bedroom" apartment with shower screens dividing the "rooms". That would be prohibited under the current regulations. If the government saw fit to introduce minimum apartment standards, then, likewise, certain types of dwellings would be prohibited, and certain regulations would be enacted to prevent the construction of dwellings that don't meet the standards. But then, that's not much different to how the building code works now - I can't design a building that overlook a neighbour's private open space in a residential zone, even if that means less profit / higher building costs due to the need to erect screen walls, etc. I also can't elect to leave a stair or balcony without an appropriate balustrade (in other countries I could, however). In other words, we already have a broadly mandated set of regulations that "raise the cost" of construction in Victoria. Would the free marketeers like to see these kinds of regulations removed too? Or should we allow the 'market' to decide whether it wants balustrading or not?

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Simon wxtre's picture

I would agree with Bilby. This article assumes that substandard apartments are sold for less, which is not always the case. Developers need to provide quality housing and building codes need to be in place. Otherwise poor standards as shown with the recent Docklands Lacrosse fire, has put peoples lives at risk. Also insulation issues, walls that have good insulative properties such as concrete, brick and stone, so as apartments are energy efficient. Regarding environmental issues which saves on energy costs and as people are not using heaters and air-conditioners as often. Other issues are developer contributions to transport infrastructure such as underground trains and other infrastructure that is needed with highrise development.

There is a good article I read yesterday about non-complaint building materials being used in construction. People may want to read this.

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Simon wxtre's picture

Defects are the biggest concern for Australian apartment owners: report

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Craig Yelland's picture

Do you agree that if we could provide apartments for $200k less in Sydney that there would be an enormous amount of people that would say “Thank-you”. This would enable teachers, council workers and even architects to buy or rent in desirable suburbs.

Here are a couple of hard facts. I hope you agree they are undisputable.

  1. Government costs are ultimately passed onto the purchasers or projects don’t happen.
  2. A higher ratio of lifts per apartment adds to the construction cost.
  3. Single loaded corridors (ie no south facing apartments) are less efficient than double loaded corridors. Increasing construction cost.
  4. Less south facing apartments means less apartments per floor. Less apartments on a site equals more land component costs per site.
  5. Developers prefer whatever apartment type the purchasers want. It is easier to sell something that people want.
  6. If development sites are harder to make a profit there will be fewer developments. Less supply becomes more demand becomes more cost.
  7. Larger apartments cost more to build.

If you agree with these points then you agree with the fundamental point of my argument. If SEPP65 is brought to Melbourne we can say goodbye to affordability.

Director of Plus Architecture

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Geoff's picture

One of the main points everyone seems to be ignoring is that collectively as architects & designers we have brought this on ourselves. There are some good example around ie. the commons, but having 1 or 2 examplar buildings with 25 apartments of a good quality doesn't make up for the thousands of poorer quality.

The argument shouldn't be over the size of apartments but the quality of the design. The government, and rightly so, have looked at the greater percentage of small apartments and found them to be substandard. If we as architects, had designed these properly than there would be no need for a version of SEPP65 to be introduced in victoria.

The government are trying to raise the quality of what was the bottom end of the market (but it has actually grown to be a good percentage of apartments in all developments). Rightly or wrongly, they have decided that to do this they need a set of minimum standards (size, orientation, floor plate depth etc). This is not because you need all of these to achieve a good design outcome, but because if there aren't any standards set we end up with what we are getting at the moment, some really well designed apartments but a much higher percentage of badly designed apartments.

So unfortunately because architects have been designing a high percentage of bad small apartments we may loose them all together.

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Bilby's picture

These points are not as simple as agree / disagree, Craig, and certainly are disputable.

- Premise 4 assumes a certain size and shape of development (typically greater than 16m in depth).
- Premise 5 is undefined. If we define "what people want" as what sells (or rents), we have something of a circular argument.
P1. Apartments that sell are what people want..
P2.The apartments built by a certain developer sell.
C. Developer concludes that the sold apartments are "what people want".

However, given a lack of options, people will buy a less preferred product to what they otherwise would have bought, had it been available.

In Melbourne right now, almost everything is selling fairly quickly. How do we know that there is no demand for larger apartments when those that are being built tend to sell just as quickly as smaller apartments?

Point 7 is likewise contentious. With an SEPP 65 style code, combined with performance bonuses for larger, better designed apartments, one might find that this premise is false too. In other words, (all things being equal) if a developer had the right to develop a 500m2 site to 15 storeys under a set of minimum standards, but was given the option to develop to 20 storeys if larger apartment sizes were included as part of the proposal, the increased construction cost could be factored in against the opportunity cost of foregoing an additional 2500m2 of buildable space (or 25 apartments).

Hence, your conclusion about SEPP65 cannot necessarily be correct based on the several false dilemmas presented in your argument.

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johnproctor's picture

Bilby I think I directly addressed the question of whether your graph is correct... It is beyond simplistic of you to summarise the entire housing market of australian capital cities in one graph. Posting a graph on unit approvals and saying sydney had lots of units approved therefore sepp65 didn't affect approvals completely ignores the overall dynamics of the broader housing market. As I said in my post Sydney's overall dwelling approvals are much more reliant on unit approvals than Melbournes so by volume it has high unit approvals... It doesn't mean it wouldn't have been higher without the standards.

Meanwhile in your reply to Craig your comment on premise 4 that it assumes a depth greater than 16m is absolutely correct! How many sites in southbank, st Kilda road, Fishermans bend, parkville, Arden, richmond, collingwood would have a greater than 16m depth? for arguments sake say it's 25% of development sites... What Craig is saying with respect to premise 4 is that these apartment guidelines would therefore be limiting development on 25% of sites due to the south facing proposal with no reference to people's willingness to live in South facing apartments. In some cases the willingness is actually a preference as noted in the article or an earlier comment re: south facing bay, river. Park,city views etc.

The market already regulates many of the things that we are talking about. If South facing apartments didn't sell then the developers would have already shifted to sites where South facing apartments didn't need to be incorporated into the development.

I do agree that the market does not deal well with encouraging developers to build larger 2-3-4 bedroom apartments but if that is what you are really interested in then you don't need apartment guidelines for that you need rules around the minimum number of apartments of 2-3-4 bedrooms in developments.

All these guidelines will do is see developers build more 1 bed apartments that meet the guidelines because that is how they will continue to make the most money and how they'll continue to move the most product because it is where the owner occupier and investor demand is.

having said that from my watching of the apartment market I recent years developers are left with the multi-bedroom products as the last to sell. And the more generous (luxury) apartment towers have been the slowest to sell to the point where say the previous incarnation of Capitol South yarra was pulled from sales and reworked 2 years later while what you may consider to be 'dog boxes' in other forest hill developments continued to sell like hot cakes and get cranes on the horizon there. Similarly the 'avenue?' Development on corner of chapel and Alexandra was pulled from sales when it had generous apartment sizes and was reworked to more affordable (smaller and less bedrooms) product.

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johnproctor's picture

Also I might add that the block I lived in in richmond was all 40m2 or less without balconies etc and has very low turnover of residents with 3 other apartments I nthe block of 10 occupied by the same people for the entire 5 years I was there 3 more having log term residents who moved on in that 5 year period and now 3 years later other long term residents in some apartments...
Given the majority have varied professional employment this doesn't indicate to me a high level of dissatisfaction with those apartments that wouldn't meet these standards on many fronts.

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Bilby's picture

Craig, I take it from the tumbleweeds blowing across this comments thread, that you agree with the substance of my comments ...

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Alastair Taylor's picture

Bilby, there are 50,000+ visitors to this site every month and they don't all visit at the same time as you nor are they able to post comments when you desire.

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Bilby's picture

Craig is the author of the article, Alastair (not a random 'visitor' to the site) - but yes, perhaps I am mistaken that the author would monitor the thread as frequently as I do, though. Since we're both posting on this topic, though, what do you think about the performance criteria argument I put, re: cost of larger vs smaller apartments where performance bonuses for developers offer additional build able floor area against certain (e.g. size) standards met?

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Riddlz's picture

"He didn't reply to my comments, therefore he agrees with me and I win the debate!"

That's not how it works bilby...

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Bilby's picture

Well, perhaps, Riddlz. In any case, Craig's previous (detailed) comment was that his series of points were "undisputable". I demonstrated that this, at least, was untrue, and that many of his arguments were flawed. Since then, there has been no follow up / "tumbleweeds". Which is fine - I was being a little tongue in cheek!

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Bilby's picture

"Scrap developers" for better and cheaper apartments ... ?

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