A diminished pipeline of new homes targeted to investors will put further pressure on an already stretched rental market in Australia, according to Knight Frank.
A new survey found 56% of surveyed developers said owner-occupiers were the main intended buyers for their last project, compared to just 11% focused on investors and 33% being a balance between the two buyer types.
Knight Frank, which surveyed 70 developers at the end of last year, found 31% of developers had built townhouses and terrace homes over the past three years, compared to 18% for standalone houses and a total of 46% for apartments.
Moving forward, there will be a growing focus on owner-occupiers, with 58% respondents indicating they would target owner-occupiers for their next project, with only 8% targeting investors solely, while 34% would be balanced.
Knight Frank Partner, Head of Residential Erin van Tuil said more developers were opting for a balanced buyer pool or homes designed purely for an owner-occupier.
“Many owner-occupiers are looking to move from a standalone house to a townhouse or terrace home to downsize or rightsize,” she said.
“COVID put the spotlight on how we are living as being stuck at home during lockdown gave people the time to reflect on their lifestyles, with these downsizing or rightsizing buyers now looking for more generously sized townhouses or apartments, but with impressive amenities to provide convenience and luxury.”
Knight Frank Partner, Head of Residential Research Michelle Ciesielski said the supply of new homes continued to be constrained for most Australian capital cities, which was directly impacting the current low rental vacancy rates and leading to high rental growth.
“There will continue to be significant pressure for the rental market with fewer new dwellings being designed for investor buyers to add to the rental pool, coupled with other issues for investors such as recent higher investor mortgage lending rates,” Ciesielski said.
“Aside from developers exploring a hybrid, build-to-rent model for responding to the rental crisis, the incentive for developers to build more investor stock is limited. There is also the further challenge with affordability, with 52% of developers surveyed saying the cost of living crisis is having a significant impact overall on buyer sentiment.
“However, as migration picks up the pace over the next two years, there will be more demand for rental stock, which will lead to a greater undersupply, pushing up rents even further.”
The survey found the construction pipeline for apartments in particular would fall over the coming two years in the three main capitals of Sydney, Melbourne and Brisbane.
The overwhelming majority of respondents flagged concerns around the availability of suitable development land for the future, with 79% of developers surveyed saying land was ‘limited’ or ‘very limited’.
Nine in 10 developers also said the impact from planning regulations was causing a barrier for the delivery of future housing supply, with half the respondents now believing a site with development approval is ideal for their next purchase.
However, planning delays were expected to be the big challenge this year, with 15% of developers naming this as the number one issue expected to have an impact on residential development in 2023.
This was followed by buyer sentiment, material costs and availability, labour costs, the local economic outlook, construction delays, availability of land, viability of development finance, skills and labour availability and mortgage availability and cost.