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NEWS - PLANNING
Less rental demand
11/22/2001
Sydney is running out of renters and Melbourne and Brisbane investors should take note. The demographic analysis that underpins the sweeping claim applies to every city in the country.
Rental demand has weakened considerably in Sydney this year, with the number of vacant apartments rising and rents falling. Melbourne is showing signs of softening, though Brisbane's rental demand is strong.
Sydney's weakness has been blamed on a dramatic increase in the number of apartments becoming available in the post-Olympic letdown, and on the first-home owners' scheme and low interest rates turning many renters into buyers.
But Sydney property adviser Landsburys has just produced a report that looks beyond those short-term factors.
Ultimately, property is about people and Landsburys' head of research, Mr Rory McLeod, found a fundamental mismatch between the supply of new apartments in Sydney and the number of people who will occupy them.
On Australian Bureau of Statistics forecasts, the number of 20-24 year olds the trad itional renters and presumably the target market for allthose investment-grade units - will actually drop in Sydney by about 30,000 between 1999 and 2004.
It's a statistic that could leave some investors caught short, particularly in locations, such as South Sydney, that are experiencing a dramatic increase in apartments aimed largely at younger renters and buyers.
Nationally, the picture is much the same. On his analysis of the ABS figures, KPMG Consulting director Mr Bernard Salt says the number of 20-29 year olds - those who traditionally fuel the nation's rental and first-home owners markets - will grow by an almost insignificant 8,000 in the years 2001 to 2006.
Of course, the numbers don't tell the full story. Housing choices are changing and increasing numbers of people appear to be staying longer in the rental market, either as an option or by necessity.
At the National Housing Conference in Brisbane last month, Dr Scott Baum and associate Professor Maryanne Wulff delivered a paper that looked at attitudes of 20-35 year olds to a range of issues including home ownership.
Dr Baum said many shared their parents' aspirations for financial security and home ownership but a group - far larger than in the 1970s or 1980s - felt home ownership was "not the thing for me at the moment".
One group values greater employment mobility, marrying later, having children later and seeking better investments than home ownership.
Another group, burdened by the Higher Education Contribution Scheme or part-time employment, either can't raise the deposit or can't meet the commitments of home ownership.
Still, that group is unlikely to rent a high-priced apartment in South Sydney. Ultimately, many investment apartments targeted at the 20-29-year-old bracket will struggle, both for renters and for capital gain.
At the same time, demand is soaring for apartments targeted at cashed-up older buyers in locations that suit their lifestyle.
On Landsburys' analysis, the number of 55-59 year olds in Sydney - the so-called empty-nesters - will jump by more than 60,000 from 1999 to 2004. On KPMG Consulting's figures, the number of people in their 50s cashed up and downsizing will leap by 153,000 between 2001 and 2006.
The trouble is, too many of the new apartments are in places where those empty-nesters don't want to live. And too many apartments are designed with the 20-something renters in mind and not the requirements of those in their 50s.
According to Landsburys, the strongest growth in Sydney's empty-nester demand is in places like Baulkham Hills Shire or Sutherland Shire or the North Shore, but in many of those locations, political resistance to medium density is putting a tight constraint on supply.
It's a logjam that will result in strong price growth, says Mr McLeod.
So what are the empty-nesters looking for? It's the same thing all around the country. Mr McLeod says most want to be close to where they have lived for most of their life. "People have their comfort zones, they have their neighbourhood in which they have grown up."
And the apartment designs need to reflect their needs. They generally need three bedrooms, two car spaces, good storage and living spaces that can accommodate loved furniture. It will cost more to develop but Mr McLeod says those projects that have achieved the right mix of location and design have generally sold at prices that more than justify the additional expense.
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