- 8% of new projects are being built with investors in mind, down from 11% for current projects.
- Aside from a hybrid BTR model, the incentive for developers to build more investor stock is limited.
- 90% of developers said planning regulations were a barrier to the delivery of future housing supply.
A lack of new developments targeting the investor market is likely to put further pressure on an already stretched rental market, according to new research.
A Knight Frank survey found that only 8 per cent of new development projects are being built with investors in mind, down from 11 per cent for current projects.
The proportion of new developments targeting the owner-occupier market will increase from 56 per cent to 58 per cent for new projects, while a balanced approach has also increased from 33 per cent to 34 per cent.
Knight Frank Partner, Head of Residential Erin van Tuil said more developers were opting for a balanced buyer pool, or homes designed purely for an owner-occupier.
Ms van Tuil said, “Many owner-occupiers are looking to move from a standalone house to a townhouse or terrace home to downsize or rightsize.
“COVID put the spotlight on how we are living as being stuck at home during lockdown gave people the time to reflect on their lifestyles, with these downsizing or rightsizing buyers now looking for more generously sized townhouses or apartments, but with impressive amenities to provide convenience and luxury.”
Knight Frank Partner, Head of Residential Research Michelle Ciesielski said the supply of new homes continued to be constrained for most Australian capital cities, which was directly impacting the current low rental vacancy rates and leading to high rental growth.
Ms Ciesielski said, “There will continue to be significant pressure for the rental market with fewer new dwellings being designed for investor buyers to add to the rental pool, coupled with other issues for investors such as recent higher investor mortgage lending rates.
“Aside from developers exploring a hybrid, build-to-rent model for responding to the rental crisis, the incentive for developers to build more investor stock is limited.
“There is also the further challenge with affordability, with 52 per cent of developers surveyed saying the cost of living crisis is having a significant impact overall on buyer sentiment.
“However, as migration picks up the pace over the next two years, there will be more demand for rental stock, which will lead to a greater undersupply, pushing up rents even further.”
Apartment construction pipeline to fall
The survey of 70 developers found the construction pipeline for apartments would fall over the coming two years in the three main capitals of Sydney, Melbourne and Brisbane.
The overwhelming majority of respondents to the survey flagged concerns around the availability of suitable development land for the future, with 79 per cent of developers surveyed saying land was ‘limited’ or ‘very limited’.
Nine in 10 developers also said the impact of planning regulations was causing a barrier to the delivery of future housing supply, with half the respondents now believing a site with development approval is ideal for their next purchase.
However, planning delays are expected to be the big challenge this year, with 15 per cent of developers naming this as the number one issue expected to have an impact on residential development in 2023.
While other key concerns raised by developers include weak buyer sentiment, higher material costs and availability, labour costs, the local economic outlook, construction delays, availability of land, viability of development finance, skills and labour availability and mortgage availability and cost.
