The new allure of medium density housing
4th October 2007
Home buyers are swapping their house-and-land dreams for medium-density alternatives, writes Chris Vedelago.
Mention living in the inner suburbs and people think of classic Victorian terrace homes, quaint old cottages and converted stone warehouses. What they don't consider is the existence of a vibrant apartment market that is too often overlooked - or casually dismissed - in Melbourne's love affair with buildings of a bygone area.
There's now a flourishing medium-density housing sector in the inner suburbs - driven by affordability issues, demographic shifts and changing buyer expectations - that's a far cry from the low-end, low-rent options people remember from 15 to 20 years ago.
"People today are much more willing to live in a medium-density development in the near city suburbs," says Enzo Raimondo, chief executive officer of the Real Estate Institute of Victoria. "That's a reflection of how far they have come and what they have to offer."
Spiralling house prices, gentrification and the public's never-ending lust for space in the city fringe areas have jump-started an inner-suburban apartment renaissance in some areas, with the number of apartments available increasing by 22 per cent for Brunswick and Carlton in the past five years.
And those buying in are pretty much who you'd expect. The profile of an inner-suburban apartment dweller isn't all that different from those living in the high-density towers of the CBD, Docklands or Southbank - they're typically young, upwardly mobile, white-collar singles and couples who want to live close to where they work and play.
The major difference, agents say, is that those renting and buying in the inner suburbs don't want most of what's on offer in the city centre.
"They don't respond to generic apartments, which is what I think the CBD has suffered from," says Roland Paterson, a partner at Nelson Alexander.
Medium-density apartment complexes are typically between two and 10 storeys, with stringent design requirements placed on developers to ensure they don't unduly alter the character or aesthetic of the neighbourhood. This often means they avoid the uniformity and blandness that defines much of the city's apartment towers.
Playing no small part in the growing demand is a changing attitude towards home ownership driven by the affordability crisis, generational demographics and the recognition that fulfilling the Australian dream may involve something other than a traditional house-and-land package.
"Generation Y is more likely to rent or buy a smaller apartment closer to the city than to purchase a McMansion in the suburbs," says Michael McNamara, general manager for Australian Property Monitors. "Baby boomers are also downsizing their bigger suburban homes for a smaller, high-quality apartment in a signature building close to the action where they can enjoy the lifestyle the inner city brings."
Then there is the all-important issue of cost. With the inner-suburban median house price now topping $650,000, most people can't afford to buy in the area, no matter how desperately they may want to live there.
"With the inner city area now out of reach, for a lot of people an apartment is a valid alternative," says Keith Bayliss, director of Melbourne Inner City Management.
"The only other option is to go to the outer suburbs and the fringe locations."
The apartment market is really the last bastion of affordability in the inner suburbs, where a buyer willing to pay the median house price of $305,000 in Caroline Springs can still pick up an apartment for much less in Footscray ($220,000), a little more in Carlton ($290,000) and more again in Brunswick ($321,000).
The median apartment price for the inner suburbs is now $397,000 - an increase of 13.1 per cent on last year - which won't even buy an unrenovated, rough-as-guts terrace home in popular locales like Fitzroy.
"The next step down (in the area) is a two-bedroom apartment," says Paul Markovic of Peter Markovic real estate. "For a good, modern two-bedroom, about $370,000 to mid-$400,000 is the norm."
Admittedly, that price is still fairly steep for first-home buyers, but there are plenty of other inner suburbs with offerings in the low-$300,000 range.
The market, consequently, has seen a lot of activity. REIV reports that 6485 apartments were sold in the city and inner suburbs in the June quarter, with 2700 sales in the area four to 10 kilometres out - an increase of 23 per cent on the year before.
Analysts say the buying spree is being driven by investors, who have recognised the rental income and capital growth this market can offer.
"Investors who buy an apartment for $450,000 rather than spending $650,000 on a terrace house are still getting a rental return of $380-$400 per week," Mr Markovic says. "They also don't want to be in apartment blocks in the CBD and Docklands because the capital growth is minimal . . . They understand that the city fringe is where the capital growth is."
Increasing interest from owner-occupiers and investors has created a tightness in stock and level of competition that was virtually inconceivable just a few years ago.
"When these properties come up they are now very much sought after in the same way that terraces were," Mr Bayliss says.
But while demand is projected to grow, whether the interest can be met is another question.
The Melbourne 2030 development plan is very much about encouraging medium-density housing options as an alternative to the city's continuing sprawl.
"The State Government has recognised the need to build and rezone in areas where people actually do want to live," says Mr McNamara. "You've got to create the supply where the demand is."
But envisioning a particular suburb as an activity zone and putting the plan into action has been far more problematic, with the 2006 census revealing that some inner suburbs have actually lost apartments.
"There's certainly an undersupply for quality, contemporary apartments," Mr Paterson says. "But there has been a bit of stalling with offerings because of the complications and timing of the planning process."
The same thing that attracts people to the inner suburbs (character, history and exclusivity) often makes it difficult, and sometimes impossible, for developers to launch new medium-density projects.
Residents in these communities regularly fight fierce, drawn-out battles to halt or modify these developments, which are often viewed as intrusions or even corruptions of the local aesthetic.
Several prominent projects in Fitzroy and Camberwell have stalled or experienced costly delays due to community or council opposition that has resulted in heated public disputes with developers and lengthy appeals to the Victorian Civil and Administrative Tribunal.
"It's a very, very sensitive issue," Mr Paterson says. "You need to ensure the developer is sympathetic to the environment, especially in a place like Fitzroy, which is Melbourne's first suburb."
Ironically, not too long ago, the problem was that developers didn't see a strong enough market for apartments in the inner suburbs, so they didn't build.
"Developers need a certain price point to make a (project) feasible but it wasn't always obtainable because there was such a distinct difference between the value of an apartment versus existing traditional housing," says Tim Storey, managing director of Colliers PRD. "The increasing value of apartments is now encouraging new projects."
Analysts say meeting the obvious demand - and the goals of Melbourne 2030 - will require a new flexibility on the part of the state government, councils and residents, as well as a recognition from developers that they have to be sensible in what they propose.
"We're not seeing hideous developments, we're seeing good-quality, attractive facades that work in with the streetscape, which is a requirement in any heritage street," Mr Markovic says.
"The goal is to strike a balance between what everybody wants and needs."
Lifestyle change or solid investment, it's win-win
Tony St Clair likes North Melbourne, there's no doubt about that. So much so that he recently bought three off-the-plan warehouse-style apartments in a new development at 101 Leveson Street, the Leveson Apartments.
"I'm a great believer that North Melbourne, and that whole area through to Kensington, is one of the most undervalued and underestimated patches in Melbourne," says Mr St Clair, a consultant to the trade/agriculture/food safety industry (he was previously chief executive of Federated Farmers in New Zealand and executive director with the Victorian Farmers Federation).
"Leveson is a quiet street, yet within walking distance to the CBD and not far from access to the highway.
"There's also a great local village nearby with shopping, restaurants, everything you could want."
Now Mr St Clair has a decision to make. Two of the apartments - a one-bedroom ($320,000) and a two-bedroom ($450,000) - will be occupied by his sons when the development is finished in late 2008.
But he hasn't yet decided whether to rent out or move in to the other two-bedroom apartment, leaving the family home in Kensington that he has owned since the early 1990s.
"We may ultimately decide we like what the place offers enough to make a lifestyle change," Mr St Clair said.
The median apartment price in North Melbourne is $355,000, up 4 per cent since last year and 7 per cent annually over the past five years.