The surprising effect on house prices of building 1000 new apartments

The recent study conducted by the e61 Institute has revealed an unexpected dynamic in Sydney's real estate market, challenging long-held assumptions about how housing supply affects property values. According to the findings, while the construction of thousands of new high-rise apartments did not significantly curb the rapid increase in apartment prices, it paradoxically contributed to a sharper rise in detached house prices in certain neighborhoods. This phenomenon suggests that the impact of housing supply varies depending on the type of housing developed and the specific characteristics of the local market.

The research, titled When Housing Supply Hits the Market: Apartment Presales And Sydney Price Trends, analyzed data spanning from 2012 to 2017, a period marked by significant fluctuations in Sydney's housing market. During this time, house prices surged by 76 percent before declining by 11 percent. Apartment completions reached their peak in 2018–19, coinciding with a downturn in prices. However, much of the apartment supply had already been sold off-the-plan during the previous price surge, which occurred between 2014 and 2015. This timing suggests that the availability of new apartments did not directly influence the subsequent price drop, casting doubt on the notion that a lack of high-density housing alone drove the initial price increases.

Dr. Nick Garvin, the lead researcher from the e61 Institute, emphasized that the relationship between housing supply and price growth is complex. He noted that while the addition of new apartments helped meet demand in the apartment sector, it did little to alleviate pressure on the detached housing market. Suburbs with more than 1000 new apartments saw a 91 percent increase in median detached house prices, whereas areas with fewer than 100 new apartments experienced a more modest 69 percent rise. This discrepancy indicates that the presence of high-rise developments may have indirectly fueled demand for single-family homes, possibly due to perceptions of exclusivity or lifestyle preferences among buyers.

Garvin further pointed out that the diversity of housing options plays a crucial role in addressing affordability issues. While high-rise apartments can provide affordable housing for some residents, they may not adequately serve the broader population. Medium-density housing, including townhouses and mid-rise buildings, offers a potential middle ground. These properties often come at a lower cost per square meter and require less complex infrastructure, making them more accessible to a wider range of buyers. Additionally, they can be constructed by a larger pool of developers, contributing to increased supply without the high costs associated with large-scale high-rise projects.

Terry Rawnsley, a KPMG expert in planning and infrastructure economics, echoed these sentiments. He argued that medium-density housing could play a vital role in improving affordability by offering more flexible and cost-effective alternatives. His comments highlight the need for policymakers to consider a diversified approach to urban development, balancing the benefits of high-rise construction with the practical advantages of mixed-use and semi-detached housing.

As the conversation around housing affordability continues, the findings of this study underscore the importance of strategic planning and policy-making. While the current focus remains on expanding supply, particularly in high-density areas, the research suggests that a more comprehensive strategy—one that includes a variety of housing types—may yield better results. With ongoing demographic shifts and rising demand for housing, the challenge lies in creating a sustainable and inclusive housing market that meets the needs of all segments of society.