Revealed: Why you are overpaying $355,000 for an apartment near the city - as the young are priced out of buying their own home in our major cities
- Inner-city apartments near the middle of Sydney are overpriced by $355,000
- Reserve Bank blamed height rules in eastern suburbs, inner-west, North Sydney
- In Melbourne, there's a $97,000 gap between building costs and market values
- Unlike Melbourne and Brisbane, Sydney's high-rise units are further from city
Inner-city apartments are vastly overpriced with Sydney units typically selling for $355,000 above construction costs because of planning rules.
Units near central Sydney cost an average of $873,000 to buy but only cost $519,000 to build, a Reserve Bank of Australia study found.
While Sydney was the worst, Melbourne and Brisbane were also overpriced.
The gap in Sydney between building costs and real estate prices was particularly pronounced in the eastern suburbs, North Sydney and at Leichhardt in the inner-west where a shortage of properties mean units sell at a premium.
Apartments near the city are typically overpriced by up to $355,000 because of planning restrictions. Units a shortage distance from the centre of Sydney typically cost $873,000 but only cost $519,000 to build, a Reserve Bank of Australia analysis found. Pictured are more expensive apartments
The gap between building cost and sales prices was a remarkable $700,900 in the eastern suburbs where harbourside units at Watsons Bay have a median price of $1.3million going by CoreLogic data.
The poor value for money was blamed largely on local government height restrictions for buildings near the city, which prevent supply keeping up with demand.
'The large gaps are sustained by planning restrictions,' the paper by Keaton Jenner and Peter Tulip said.
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'The shortage of apartments is most severe in the inner suburbs of Sydney, where height limits prevent more construction.'
Height restrictions in Sydney were small on the outskirts of the city, moderate in middle-ring suburbs and large near the city centre.
In Melbourne, apartments are typically sell for $97,000 more than the supply cost while in Brisbane, buyers are paying $10,000 more than the construction expenses.
While Sydney's apartment prices were typically $355,000 above construction costs, that gap rose to $700,900 in the eastern suburbs where harbour units at Watsons Bay have a median price of $1.3million going by CoreLogic data
Unlike Sydney, Melbourne and Brisbane have more high-rise apartments closer to the CBD.
'Apartment building in Brisbane and Melbourne has been concentrated in the centre, whereas most of Sydney's apartments have been built in middle-ring suburbs,' the paper said.
'A large location premium, as in inner Sydney, can only be sustained with supply restrictions.'
The Reserve Bank was critical of inner-city councils that failed to allow low-density unit blocks to be demolished and replaced with high-rise apartment towers.
In Melbourne, apartments are typically sell for $97,000 more than the supply cost
In Melbourne, the poorest value for money was found in apartments at Williamstown and Altona in the inner-west, and the eastern bayside suburbs from St Kilda to Beaumaris.
For Brisbane, the highest prices relative to construction cost were the inner suburbs from East Brisbane to Morningside and up to Bulimba.
'High-rise apartments are a much less costly means of supplying extra housing than the medium-density housing that some planners favour,' it said.
In Brisbane, buyers are paying $10,000 more than the construction expenses
Nonetheless, middle-distance suburbs in Sydney have been home to faulty apartment towers.
The 34-storey Opal Tower at Sydney Olympic Park was evacuated on Christmas Eve in 2018 after residents reported hearing cracking sounds, that were later revealed to be cracks the foundations.
Suburbs where renters are the majority of residents have also seen a fall in real estate values, even accounting for the boom times before the COVID-19 crisis and the 2017 downturn sparked by stricter lending rules for investor loans.
High-rise apartments in Sydney were more likely to be found in middle-ring suburbs like Sydney Olympic Park, the home of the cracking 34-storey Opal Tower
At Sydney Olympic Park, in the city's west, where 66 per cent of residents are renters, median unit prices have fallen from $721,192 in 2014 to $719,516.
A similar phenomenon occurred at Bowen Hills, in Brisbane's inner north, where 80 per cent of residents are renters, going by Census data.
Median unit prices there plunged 13 per cent in five years, have dropped from $504,666 in 2014 to $438,482.
