The Apartment Shortage | RBA Report | August 2020

The Reserve Bank of Australia (RBA) has released a report called The Apartment Shortage outlining the underlying cause of apartment shortages across Sydney, Melbourne and Brisbane. 

Report highlights:

  •  Australian cities face a shortage of apartments. The severity of this shortage can be gauged by the difference between what home buyers will pay for an apartment and what it costs to supply. For example, we estimate that the average new apartment in Sydney sells for $873,000 but only costs $519,000 to supply, a difference of $355,000 or 68 per cent of costs. The wedge is 20 per cent of costs in Melbourne and 2 per cent in Brisbane. Why don’t builders and developers exploit these profitable opportunities? The standard answer is that planning regulations stop them.  
  • Our second objective is to examine how the shortage of apartments varies across time, location and building types. We find that, over the past decade, the excess demand for apartments has increased substantially in Sydney, fluctuated without trend in Melbourne and declined in Brisbane. In Sydney the excess demand is most severe in inner suburbs 
  • Strikingly, newly completed apartment buildings have been shorter than the lowest cost height in almost every area. The gap is most pronounced in central regions of Sydney: the Inner City, North Sydney, Eastern Suburbs and Leichhardt would reduce average apartment costs by increasing building heights by about 20 storeys. 

Read the RBA report here.