Will the push for higher density impact property investors and prices?

Australia’s governments are in agreement: the age of suburban sprawl is over.

To cope with a growing population, Australia’s cities need to build up, not spread out.

If this reorientation of urban planning comes to pass it will prove a landmark change. But what effect will it have on property prices?

Let’s take a look at what is being proposed.

The need for urban consolidation

Melbourne and Sydney are headed for populations of 6.1 million by 2033, according to the Treasury’s Centre for Population.

It’s projections like this which have spurred state governments into action.

In Melbourne, the government’s plan is to develop around a million new homes in established suburbs.

In New South Wales, the state has identified target areas for development focused mostly around train stations.

In Brisbane, Lord Mayor Adrian Schrinner is planning to build 115,000 homes to accommodate population growth.

The Western Australian State Government has a published target of 49 per cent infill development under the Perth and Peel @ 3.5 million frameworks.

The reason governments are rejigging guidelines is suburban sprawl comes with real costs.

Building the infrastructure to serve new suburbs on the fringe (greenfield development) costs taxpayers between three to eight times what it does in established suburbs.

And that spending is put into light when we consider how big (geographically) Australian cities are.

Melbourne is Australia’s largest urban area and the 32nd largest in the world at 2,453 square kilometres. Its metro area currently houses around 5 million people. Compare that to the London metro area, which is around the same size but home to 14.8 million people.

Sydney is 43rd in terms of its footprint of 2,037 square kilometres. While its 1,900 people per square kilometre looks tight in Australian eyes, it’s one of the least densely populated cities in the world, with just 59 per cent of the density of the Los Angeles metro area.

Perth now holds the dubious distinction of being the world’s longest city, with its north to south range stretching 150km along the coast from Two Rocks in the north to Mandurah in the south.

Plan before building

Most urban planners blame sprawl on governments who have followed a ‘hands-off, let the market’ decide approach for the last 50 years.

The result is something like 70 per cent of new metro homes being built on the urban fringe. In the CBD and inner city, it’s high-rise towers that often provide small ‘dog box’ apartments.

Marcus Spiller, of SGS Economics and Planning, puts it this way.

“In other jurisdictions, namely in Europe, the government plays a much more proactive role in consolidating land, getting it development-ready, organising the infrastructure, master-planning it, and then wholesaling it to the development sector to provide the housing.”

“If you just rely on the ad hoc, opportunistic approach, as we have done until now, I think it is very problematic.”

The Australian approach has mirrored that of many North American cities. The urban pattern entails a CBD sporting huge towers surrounded by a small fringe of middle-sized buildings in a sea of low-rise, detached housing.

So, will it now be be high-rise everywhere?

Yes, you will have to suffer through screaming headlines when (if) these changes to urban planning get underway.

But they won’t be sky-high towers as they typically don’t deliver greater overall density.

For instance, the Spanish city of Barcelona has a higher density than Manhattan despite its lower height profile.

In Australia, the new approach is aimed at providing what planners describe as the ‘missing middle’. Rather than soaring towers in the suburbs, it will be about creating complexes ranging between four to 10 storeys in established suburbs, focused around transport and shopping strips

In Victoria, the state will take over the decision-making powers of local councils for major developments in zones close to public transport, such as along the proposed Suburban Rail Loop.

Ten activity centres have been designated for higher density: Broadmeadows, Camberwell Junction, Chadstone, Epping, Frankston, Moorabbin, Niddrie, Essendon North, Preston and Ringwood.

These add to existing priority precincts: Arden, Docklands, Fishermans Bend, Footscray, East Werribee, Parkville and Sunshine.

In New South Wales, the state’s proposal will deliver increased density near transport hubs across 39 precincts.

The new approach will start with a temporary approval pathway in eight Transport Orientated Development (TOD) Accelerated Precincts: Bankstown, Bays West, Bella Vista, Crows Nest, Homebush, Hornsby, Kellyville and Macquarie Park.

In Brisbane, the city council has nominated its priority areas as South Brisbane, Carindale, Indooroopilly, Chermside, Garden City (Mount Gravatt), Toowong and Toombul in Nundah.

Urban density, done well

Typical of the thinking behind the new approach is the “Urban density, done well” concept pioneered by Canadian planner, Brent Toderian.

The aim is to create culturally vibrant, less car dependent communities. Housing comes in multiple forms; mid-rise apartment towers, duplexes and triplexes, and small cottages fronted onto alleyways and back streets.

According to Mr Toderian, this approach has a number of benefits, including walkable neighbourhoods, lower per-capita energy consumption and a big economic saving for governments.

What’s the bottom line for property investors?

For investors, the important thing to remember is these plans stretch over the next two to three decades with a lot of the volume coming some years off.

But even then, the impact on property prices should be minimal.

If a new eight storey tower is built right next door, then it will have an impact in the short term.

But a large portion of these homes will be built over underused commercial and industrial zones (known as brownfield development), unlikely to abut established, low-rise housing.

There’s also a positive impact: purchases by developers add to demand in a location, feeding into land prices.

As an investor focused on the long term, I would take into account where a property is relative to new housing zones, especially if a new complex will overshadow the property or outdoor areas.

But mostly, I would expect sensible development to be a positive on local prices with new residents encouraging more cafes, shops and all the other services that make urban living attractive.