[+] Divided We Fall: East-West Split Adds to Sydney’s Housing Pain

As a housing crisis grips the nation, Sydney is adding another layer of pain—imbalances in planning, higher costs of construction and taxes are creating a development feasability divide between the city’s east and west. But it shouldn’t have to be a decision between feasibility and equity, says Urbis regional director for NSW Princess Ventura, on the heels of the launch of the company’s new Partnership for Prosperity report. The problems in NSW are bigger than one stakeholder can solve, Ventura says. &ldquo;The problems that are before us in New South Wales are really far bigger than for one stakeholder can solve it,&rdquo; Ventura says. --> “There has to be a paradigm shift in terms of how we look at the challenges and potential solutions to those challenges that are before us, rethinking how we consider solutions to those challenges rather than just treating it as business as usual.” West v East In recent months there has been a noticeable downturn in development applications for individual residential apartment buildings in Western Sydney. While there has been movement in far western housing developments such as Mirvac’s Glenmore Park and the 7000-home Lowes Creek Maryland Precinct , many apartment developments have focused on the east of the city, including Rose Bay , Bondi, and Cronulla, such as Central Element’s $180-million Neutral Bay development . The co-founder of Sydney integrated property developer and construction company, Perifa, Fabrizio Perilli says this is not a one-off trend. “There’s a formula,—construction costs plus contribution taxes and levies and existing development controls in Sydney equals either unaffordable development or no development,” Perilli says. “At the lower end, you’re delivering construction cost per home of somewhere around $550,000, but the average is more like $650,000 and it goes north from there. “With something like $65,000 in taxes on top of that, you’re at $700,000 to $800,000 per unit, without all the other costs incurred by the developer. ▲ Central Element’s Pienza is one of a host of developments geared towards the higher, luxury end of the market. “Where that gets us to in NSW is that you cannot deliver a project that is saleable and also meets the banks return requirements for less than an average cost of $1.2 million per apartment. “You physically can’t deliver a project at a cost that allows you to make the required margin to satisfy the financiers on and under that.” This has led to a rethink, he says. “So as a developer, you think, where are those places that can afford those homes? “As a result, we’ve been noticing a lot more boutique developments in the eastern suburbs and lower North Shore, rather than Western Sydney where they would be more affordable.” Hamid Savid of Orosi developments, which in October revealed $250-million plans for a newly amalgamated site at Rose Bay, says interest rates are also a key factor. “Due to the increasing interest rates, developers are focusing on areas with a downsizer demographic,” Savid says. “These buyers are less affected by interest rates and offer a safer investment option.” Finding a way out While construction costs cannot necessarily be forced down in the short term, the Urbis report put forward potential solutions to the housing problems facing the state, highlighting the Sydney Western Harbour Business Improvement District (BID) as a project that should be replicated. As a result of the success of that project, Transport for NSW is proposing a new policy to make it easier for BIDs to be set up in NSW. This top-level, holistic masterplanning happens at different levels in precinct planning, and mixed-use projects are already proving to be a balanced choice for liveability and feasibility. ▲ Cronulla has also received luxury high-end apartment developer interest over the last year. “But there are good and bad precincts,” Perilli says. “As cities mature—and Sydney is a maturing, established city—you’ll find that as risk diversification and minimisation of risk, mixed-use is probably going to be a predominant type of development in the urban areas, because that's what the community is demanding in that terms of mixed-use, residential, bit of retail. “We’re getting better with precinct masterplanning and development, but that’s definitely an area where the local governments can engage and be clear about what outcomes they would like to see, so the development industry can respond. “The other thing with precincts, whatever we develop today, in 10 years’ time we will need to change as well, as developing that base infrastructure, it can be changed.” Mixed-use precincts mean a more complex feasibility equation, but one that is perhaps more robust than single-use sites. “We need to get more mixed-use outcomes, we need to sweat assets more, especially in a time where we have budgetary constraints and are heading for difficult economic times,” says Urbis’s Ventura. “They have so many positive implications, and makes an area vibrant, encourages passive surveillance so it makes it safer, improves the amenities and the look and feel of a place. ▲ Developer Clutch has been greenlit for luxury Bondi apartments this year. “It also improves people’s livability outcomes: you don’t need to travel to so many places to do what you need to get done. If you save that time, you can spend it with family and friends.” End of adversarial relationships Partnership for Prosperity also suggests that “we need to shift the adversarial relationship between planning authorities, infrastructure and service agencies, developers and civil society to one of co-operation and joint accountability”. “There’s this common underlying theme that developers are making all this money at the expense of the purchaser or occupier of a building,” says Perilli. “It’s time that misapprehension is called out. Delivering appropriate developments and making a profit should not be mutually exclusive.” ▲ Orosi Developments has previously worked on luxury apartment developments including 18 villa-style apartments in Cronulla. Ventura suggests that holistic KPIs and equity-focused targets should be a collective effort. “One measure of success would be if we could have a more balanced conversation and a more balancd framework for assessing DAs,” Ventura says. “Our planning system implicitly assumes—and our investment decisions assume—that if we did not do anything then we would get to enjoy the lives we do today, but that’s not the truth. “Things will deteriorate if we don’t invest and approve developments quicker, deliver better developments, integrate and have more holistic outcomes. If we don’t, we’re not going to be able to continue to enjoy the lifestyles we enjoy in New South Wales.” An adaptable and holistic approach is necessary, Ventura says. “We measure what we value. In Singapore, for instance, their target is that median home price should not exceed five times the average household income. “Something I would like to see is that we treat equity outcomes with the same seriousness as with other macroeconomic factors and we change attitudes and our approach depending on those outcomes.” You are currently experiencing The Urban Developer Plus (TUD+), our premium membership for property professionals. Click here to learn more.

[+] Divided We Fall: East-West Split Adds to Sydney’s Housing Pain

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