Long-term Tourism Changes the Nature of Demand for Apartments

Claims of an apartment oversupply tend to focus on population growth. It makes sense that permanent migrants and overseas visitors heavily influence the use of new apartments – many of these people are willing and able to pay a premium for living close to a workplace, university or desired retail strip.

This approach assumes that we are counting our population adequately (numbers of people), and in the right way (who they are). This is harder than it might appear. Our communities are experiencing large numbers of overseas visitors who are in Australia for long periods of time – students, workers, backpackers and business people.

When these visitors are in Australia for long enough (a specific ABS formula), they are included in the official population data. Our communities are becoming more porous. But perhaps the degree of porousness is being underestimated.

There is an emerging trend of growth in visitors’ length of stay in Australia with a  duration of between one and six months. The ABS data on the duration of stay by visitors is shown in the chart below. Over the year to May 2017, there were 1.5 million people in Australia who were here for between one and six months. Compare that number with 1.1 million people just five years earlier. That’s an extra 400,000 visitors are in Australia, making a stay of between 1 and 6 months.
Overseas visitors to Australia by duration of stay (national annual total)

                 Source: ABS
Most recently, the Federal Government has made it easier for residents of China to make frequent stays in Australia, with a ten-year visa allowing visits of up to 3 consecutive months. The visitor visa (subclass 600) frequent traveller stream was introduced in December 2016. The visa has been introduced as a trial and numbers are limited.

Growth in the number of visitors who make a long stay will be having a greater impact on the economy – and making for unusual patterns of use for our apartments. Their use of housing might be slated to staying in a spare room, or couch-surfing. A potential source of accommodation would be apartments owned by the visitors or a family member of the individuals.

It seems likely that the surge in long-term stays is contributing to greater use of apartments in some locations, such that they aren’t entering the standard rental market, and that this is limiting any supply blowout.

The benefits to retail spending and demand for services are substantial. An extra 500,000 people staying for three months has a similar aggregated duration of stay to an extra 3 million standard tourists staying for just 2 weeks, but with a spending profile that is closer to that of residents. Not surprisingly, ABS retail data shows that spending for cafes, restaurants and recreation services are recording far higher growth rates than for supermarkets and department stores.

The nature of apartment use by long-term visitors is becoming more blurred as Australia becomes more integrated with Asia. It is hard to be definite, and the Census data won’t help. We can draw on anecdotal evidence, where an inner-city apartment is used by family on an extended basis, with its use – by students, visitors, business travel and family friends – waxing and waning over time.

The source of the emerging trend of growth in the length of stay is likely to be founded on properties owned by permanent migrants, and dual citizens with properties in Australia and elsewhere who are choosing to spend time in more than one country.

These residents may be spending a few months of the year in Australia and the rest in their country of origin. As migrants age and their children become independent they may choose to spend more time Australia. Six-month stays are permissible within any 12-month period. An apartment that is available as a holiday home may become an attractive option for older people with children living permanently in Australia.

A key benefit of an apartment purchase is that hotels have become considerably more expensive over the past three years. Purchasing an apartment is more compelling as a substitute for hotel-stays by disparate members of an extended family.

Occupancy rates for hotel rooms have increased sharply over the past four financial years. Hotel room availability has increased, as has the number of nights that rooms have been occupied.

In Sydney, revenue per available room (RevPAR) has increased by 10% per annum over the past two years.
Occupancy rates for short term accommodation

                           Source: ABS, MacroPlan Dimasi
Hotel stays have become very expensive for repeat visits to Australia, such as those by business people. An apartment purchase can stack up as financially sound, if the number of business trips is large enough.

This behaviour is a more traditional form of the “sharing economy”. An apartment might be used by an extended family and also made available through an accommodation platform like Airbnb when convenient. The occupation modes become even more blurred.

The current market for apartments is moving away from the more traditional form of an apartment as the owner’s primary residence, or as an investment property that generated capital gain and rental income. If the vacancy rates for apartments in the standard rental market increase, it is expected that the underlying demand for new apartments will stabilise at a higher rate that observed in previous cycles.

Put simply, our need for apartments is shifting towards a broadening set of needs. Temporary use can support the number of visitors in Australia, and people staying for several months can generate amplified benefits for the wider economy.

About the author 

Jason Anderson is MacroPlan’s Chief Economist. Jason has considerable experience in the analysis and development of the residential development policy environment and has undertaken several major reports for a number of industry associations, designed to achieve productive policy reform.

Jason Anderson will be a panelist at our upcoming event in Sydney 'Defensive Development - How Developers and the Industry can Manage Risk and Create Opportunity in Uncertain Times'.