07 Sep A boost for apartment values
You may have seen the press over the weekend about new laws limiting the size of new apartment buildings in Melbourne’s CBD. Read it here. These interim planning laws limit the size and setbacks of new buildings and came into effect on Friday. Over the next 12 months “permanent” planning rules and the approval process will be debated and formed up. It’s hard to argue against anything that improves the amenity of living, but it is interesting to look at the impact it will have.
The most obvious effect is the drop in value of CBD development sites. The next issue is the reduction in future supply of apartments which will cause upward pressure in capital and rental values. This will be exacerbated by 12 months of uncertainty about exactly what the new planning laws will be. How do you evaluate the development capacity of a site, and therefore site value, if you don’t know what the planning rules will allow. Uncertainty will cause inaction in any market, so regardless of what the rules will be, the lack of planning progress will delay future apartment supply.
The next issue is that while the change in planning rules are predicated on improving amenity, the building mass is only part of the equation. Issues such as apartment size, natural light, fresh air ventilation, outdoor area or balcony size, and ceiling heights, are all more meaningful topics in the amenity debate for apartment residents. Building bulk is more about the amenity of someone walking around the streets and less about the occupiers.
The third issue is the flow on effect for inner suburbs surrounding the city. Developers look for certainty of planning rules, and for the next 12 months they will be reluctant to buy in Melbourne’s CBD. Our growing population have to live somewhere and the cap on development size in the CBD will mean increased pressure for new developments in nearby suburbs. Areas like Richmond, South Yarra, Port Melbourne, Carlton etc will all attract increased attention from developers.
Strategic Planning in Greater Melbourne should provide consistency and certainty but it seems to change as the government of the day changes. We have just got through Plan Melbourne and before that we had Melbourne 2030. Strategic Town Planning needs a fully integrated approach with robust processes for unforeseen circumstances, like our current population explosion and appetite for inner city living.