Apartment Prices Surge Amid Rising Building Costs

Apartment prices are climbing fast across major Australian cities as construction costs rise and buyer preferences shift, but the trend risks deepening housing affordability concerns. Average apartment prices jumped by 24% in the December quarter, hitting over $19,000 per square metre, as developers struggle to meet demand without pushing out middle-income buyers. In Brisbane, pressure is especially acute, where prices surged 33% in just one quarter to $23,000 per square metre.

The intense rise in apartment prices reflects multiple pressures on the housing market. Developers are building fewer low-cost units, instead focusing on high-end or owner-occupier-grade stock to absorb increasing costs. These costs, fuelled by shortages in labour and materials, combined with a smaller pool of affordable units, are changing the makeup of buyers. Many developments are now targeted more towards downsizers with property equity, rather than first-home buyers or investors.

Projects currently underway highlight this market shift. A $240 million, 140-unit tower in Melbourne’s Albert Park and a 100-unit tower on the Gold Coast are pricing apartments between $18,000 and $20,000 per square metre. Developers say anything cheaper is no longer financially viable. A marked jump in sales to owner-occupiers, now sitting at 55% of pre-construction sales, compared to just 43% in 2018 - underscores this shift.

While recent policy announcements aim to help first home buyers borrow more easily by relaxing serviceability tests, experts caution the move could push prices even higher without also increasing housing supply. Encouragingly, the latest data shows some signs of growth in building approvals. Australia recorded nearly 66,800 approvals for apartments, townhouses, and duplexes over 12 months, up 7.5% year-on-year. Sydney approvals alone rose almost 39% in the past quarter, suggesting developers may be slowly regaining confidence.

Still, affordability remains a challenge, particularly in entry-level and mid-market housing. Some projects have started to list units below $1 million, a potentially encouraging signal for broader affordability. Yet, ongoing cost pressures and the need for financial feasibility mean this trend may not take hold quickly. Developer expectations of 2-5% cost increases over the next year suggest pricing pressures are far from over.

Source: Australian Financial Review, Azura Financial, Real Estate