Australians Priced Out of Dream Swap Backyards for Balconies

Anja Leszinksy’s budget of A$420,000 ($442,470) would buy two houses in Chicago or three in Dallas. In Sydney, the most unaffordable housing market in the English- speaking world, it gets her a nondescript one-bedroom apartment about four miles from the town center or a run-down home on the city’s outskirts.

She’s opting for proximity to downtown.

“I knew properties were expensive, but I’m getting disappointed because they all seem to sell for a lot more than the price indication,” said Leszinksy, a 25-year-old medical device sales representative who’s seen about 18 apartments since September and is still searching. “I want to be close to the city. The size of the place is less important.”

Apartment ownership is on the rise as the Great Australian Dream of a house in the suburbs fades for buyers priced out of the market. Apartments and townhouses accounted for 35 percent of new housing construction in the three months ended in Sept. 30, compared with 29 percent five years earlier and 21 percent 20 years ago, according to the federal statistics bureau. About 13.7 percent of Australians lived in their own apartments and townhouses according to the 2011 census, compared with 12.4 percent in 2006.

The shift is giving a boost to multifamily-property developers. Apartment prices rose 0.5 percent in 2012, compared with a 0.5 percent decline for houses, according to research firm RP Data.

Apartments Focus

Leighton Properties, the real estate arm of Leighton Holdings Ltd. (LEI), is now focused almost entirely on apartments. Its property division reported a loss that narrowed to A$17 million in the six months ended June 30 from A$80 million a year earlier.

Stockland (SGP), the nation’s biggest listed housing developer, had a 35 percent drop in profit in the year ended June 30, and last month forecast an earnings decline of as much as 15 percent in fiscal year 2013, citing sluggish housing conditions. The company said in 2010 it would exit its apartments business.

Stockland shares fell 5.6 percent in the two years through Jan. 15, compared with a 21 percent jump in shares of Mirvac (MGR) Group, whose profit more than doubled in the year to June 30. While Mirvac’s mix of units and detached houses fluctuates, the company is building one of Sydney’s biggest apartment projects.

“When you look at the future of residential living in Australia, apartments will be a big component of it,” John Kim, head of Australian property research at CLSA Asia-Pacific Markets, said in a telephone interview. Developers of only detached houses “would have to seriously consider getting into apartments.”

Limiting Sprawl

Efforts by Australian cities to limit sprawl are also helping boost demand for apartments closer to city centers. Sydney spans about 4,064 square kilometers (1,569 square miles), five times the size of New York City. With an average of 991 people per square kilometer -- compared with 10,425 in New York, 3,124 in Los Angeles and 5,199 in London -- the city is seeking to locate at least 70 percent of future growth in existing urban areas, as its population is forecast to jump to 5 million people by the 2020s from 4.2 million now.

Melbourne, with an urban area spread across 5,679 square kilometers and a population density of 678 people per square kilometer, expects as many as 620,000 extra households in the next 30 years. It is seeking to become more compact by locating most new housing near existing services and transport.

Australian state authorities are restricting land releases on city fringes and demanding that developers help pay for roads, transport and other amenities when building outside the limits.

Doubling Debt

The Great Australian Dream is the country’s take on the American Dream, which equates prosperity and freedom with land ownership. In Australia, it encapsulates an idealized suburban lifestyle with grassy backyards, swimming pools and barbecues.

In its pursuit, households doubled their debt load in the past 15 years. Debt as a proportion of disposable income climbed to 147.8 percent in the quarter ended Sept. 30, compared with 76.5 percent 15 years earlier, according to the Reserve Bank of Australia.

“We’re in an economy where people are more conservative, wanting to borrow less, and an apartment is much more affordable than a house,” said David Milton, Sydney-based managing director for residential projects at broker CBRE Group Inc.

The number of loans granted to build or buy houses and apartments fell 0.5 percent in November from the prior month, when they rose 0.1 percent, statistics bureau data showed yesterday.

Apartment Affordability

The RBA has cut its benchmark rate by 1.75 percentage points since the beginning of November 2011. Traders are pricing in a 61 percent chance the bank will hold the rate at a half century-low of 3 percent at its meeting next month, and UBS AG, Commonwealth Bank of Australia and Barclays Plc forecast the RBA won’t cut rates this year.

Homes in Australia cost 6.7 times the gross annual median household income as of the third quarter of 2011, according to the latest report by Belleville, Illinois-based consulting company Demographia. That compared with 3.1 times in the U.S. and 5 times in the U.K., it said.

Economists have said a shortage of homes helped Australia avoid a U.S.-style crash and keeps prices high, though findings from the 2011 census point to a smaller shortage than initially thought. The Pacific nation had 7.8 million households in 2011, compared with estimates of about 8.9 million used by the National Housing Supply Council to forecast a shortfall of about 369,000 homes by 2016.

Cheaper Suburbs

In the U.S., Sydney apartment buyer Leszinsky’s budget of A$420,000 would allow her to buy more than two homes in Chicago, where the median price is $161,300 (A$152,775), or more than three in Dallas-Fort Worth, which has a median home price of $126,800. That compares with Sydney’s median dwelling price of A$580,246 as of Dec. 31.

To find a Sydney suburb within Leszinsky’s price range a buyer would have to look at least 25 kilometers (16 miles) west of the city center in Merrylands West, Old Guildford or Villawood, figures from researcher Australian Property Monitors show.

Those suburbs are all in or near the Fairfield-Liverpool area, with an unemployment rate of 7.2 percent as of November, the fourth-highest of New South Wales state’s 21 regions, and a labor participation rate of 57.7 percent, the fourth lowest, according to government statistics. The region has also seen a spate of shootings over the past two years, according to a map compiled by the Sydney Morning Herald newspaper.

‘Lower Maintenance’

Steve Dimopoulos, 39, bought a 1960s-built one-bedroom apartment in a block of six in East St. Kilda, a suburb six kilometers southeast of Melbourne’s center, in 2011 for A$350,000.

“I wouldn’t have put in a bid if it had been in an outer suburb, and I wasn’t in the market for a house,” Dimopoulos, who works in Victoria’s department of justice, said in a telephone interview. “I haven’t got a family at this stage, and I wanted something that was lower maintenance, like an apartment with a courtyard or large balcony. Houses are a bit of a waste.”

Harold Park

Mirvac is building the A$1 billion Harold Park project in Glebe, a suburb 2.5 kilometers from Sydney’s center known for its cafes and boutique stores. About 35 percent of the site will be set aside as parkland, John Carfi, Mirvac’s chief executive officer for apartments and commercial properties, said in a telephone interview.

Adjacent to the Jubilee Park light-rail station, it includes 1,250 townhouses and apartments, starting at A$499,000 for a studio apartment to more than A$1.8 million for a townhouse. The first stage is expected to be completed in mid- 2014, according to Mirvac.

“People are time-poor now,” Carfi said. “Apartments allow them to access the lifestyle, the infrastructure that’s all already there close to the city.”

Buyer demand is strongest for new inner-city, low-rise apartments and townhouses, and is expected to strengthen for high-rise apartments in city centers and inner-ring suburbs in the next 12 months, an October survey of residential property investors, developers and brokers by National Australia Bank Ltd. found.

New Apartments

The number of apartments and townhouses started in the past five years has climbed 22 percent, while housing starts have fallen 19 percent, statistics bureau data show. Approvals for apartments and renovations jumped 10.1 percent in November from the previous month, while permits for private houses dropped 0.3 percent, according to government figures.

Leighton Properties is developing the Erko apartment project in Erskineville, less than five kilometers south of Sydney’s center. Erko’s 302 apartments, starting at A$430,000, all have garden courtyards or balconies, and the closest train station is an eight-minute walk away.

“People increasingly want accessibility, they want to be able to get in and out of their workplaces reasonably easily and quickly,” Gavin Tonnet, national head of Leighton’s residential division, said in a telephone interview. “Our capital investment is likely to be a lot better placed in those markets where we see continued growth, so we’re more than 99 percent in apartments.”

Billionaire Harry Triguboff’s Meriton Pty develops only multifamily properties. Closely held Meriton was the biggest homebuilder in New South Wales in the year ended June 30 with 1,167 apartment starts, according to the Housing Industry Association. The Sydney-based company is also building two of Brisbane’s biggest residential towers, adding more than 1,000 apartments in 2012 and 2013.

Triguboff, who plans to start about 2,000 apartments in 2013, is betting a lack of conveniently located land for detached houses will drive demand for his properties.

“Cities are growing, so as they grow, it’s more difficult to get cottages in the right places,” Triguboff said in an interview in Sydney. “So apartments will keep growing. And there will be more, others, who’ll want to build them.”

To contact the reporter on this story: Nichola Saminather in Sydney at nsaminather1@bloomberg.net

To contact the editor responsible for this story: Andreea Papuc at apapuc1@bloomberg.net

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