A roof over their head is a basic right that Brisbane residents are struggling to find. With significant population growth of 3.1% over the past year, boosted by interstate and overseas migration, Brisbane property prices increased by 14.8% year-on-year to January 2024 (ABS, 2024).
With a median price tag of $899,474 purchasing a home seems much more achievable for residents from the southern capitals who have flocked in numbers to the Sunshine State and will continue to do so with Queensland’s population forecasted to grow by more than 16% by the 2032 Olympics.
Although there still is a demand to sell at these inflated prices, with listings across the city growing minorly, there is a bottleneck of stock where there are a lot of people who want to move but have nowhere to buy or rent in the short term (ABC, 2024). This is evident by Brisbane's 0.9% residential vacancy rate and median rent at $717 per week (Domain, 2024).
Both private and institutional investors want to ramp up their exposure to the living sector, and the solutions lie in purpose-built accommodation.
Land availability
Affordable land is scarce in the CDB, and converting office space into residential apartments is a potential solution. This is a popular model in some Asian and European markets. However, to financially succeed, assets need to be heavily discounted as the cost to convert is significant. This is also unlikely to play out as strong tenant demand is coming back into the office sector.
Instead, more affordable land in inner-city locations such as Spring Hill and Fortitude Valley, as well as prime locations at the bookends of the cross-river rail in Bowen Hills and Woolloongabba, function as perfect development sites for new residential projects, with value boosted due to the location of new infrastructure and amenities.
A prime example of new residential stock in these inner-city locations is Lendlease and QuadReal’s new BTR under construction in Bowen Hill, which will bring 443 apartments by the end of 2025.
Government acquiring assets, there are better solutions
To cover the shortfall of public housing in Brisbane, the Queensland Government spent:
- $33.99 million on the Park Hotel (551 Wickham Terrace)
- $27 million on the Menso Hotel (68 Cordelia Street)
- $44 million on a vacant residential village in Tanah Merah to be repurposed for public housing, and
- $9.4 million on an old retirement village at 51 Norman Parade Clayfield
These repurposed lots will have 94, 66, 124, and 30 rooms, respectively, boosting the housing supply for the cities struggling (ABC, 2023).
These assets may meet some demand for immediate housing. However, to reduce the overspending of taxpayer dollars, the Government should move to relax financial and physical parameters to help private and institutional investors ramp up their exposure in the living sector. Steps have already been taken to boost BTR construction, subject to qualifying criteria:
- Reduction in management investment trust (MIT) withholding tax coming into effect on July 1st.
- A reduction in land tax of up to 50% for up to 20 years for BTR developments that feature at least 10% of rental homes as affordable housing; and
- A full exemption for the 2% foreign investor land tax surcharge for up to 20 years
Additionally, the Government could adopt an asset-light model via a public-private partnership (PPP), supplying debt funding agreements and guaranteeing rental income on the finished product.
In addition to fast-tracking development approvals, providing developers with affordable housing benefits and re-zoning select inner city sites provides flexible structures for developers, helping to ease the burden of high construction costs and producing more affordable housing.
Purposed built
Purpose-built housing seems to be the beacon of light and a way forward to keep up with residential demand.
Purpose-built student accommodation (PBSA) proves to be an attractive option for both institutional investors and students alike. There is enormous demand for centrally located student housing, which is being met by a huge influx of developments around the Brisbane CBD.
Currently, there are 3,172 beds in the city and city fringe, which receive a premium weekly rent, most often on a 52-week lock-in contract. These include three prominent Student One’s, Iglu, UniLodge, and Scape facilities. In addition, there are well over 2,000 more beds in the pipeline; some of the major pipeline projects are Brookfield’s student accommodation under construction at 240 Margret Street and Marquette's proposed conversion of Mineral House into student accommodation.
Build-to-rent (BTR) proposals are booming in popularity to offset the fall in Build-to-Sell (BTS) projects. These projects provide a steady income stream for developers while also offering capital leveraging in a challenging lending market.
Prime examples of these in the city fringe area are MIRVAC LIV Anura in Newstead and Frasers' development on Brunswick Street. However, many BTR projects have slowed constriction or acquired DA approval but are not breaking ground yet. Why is this the case?
With rising construction costs and tightening lending rates, margins are too thin, and these projects do not appear as attractive as they did during the pandemic.
The affordable housing crisis is in the media spotlight. With the Queensland general election scheduled for October this year and campaigning kicking off, we are likely to hear from our leaders about significant funding promises and creative solutions to deal with the crisis. Watch this space.
Disclaimer: The information provided in this blog is for general informational purposes only and does not constitute legal, financial, or professional advice. While we strive for accuracy, we make no guarantees regarding the completeness or timeliness of the content. Always seek independent advice before making any financial or real estate decisions. We are not liable for any loss or damages arising from your reliance on the information provided.
Liability Limited by a Scheme approved under Professional Standards Legislation