Sydney residents were evacuated from their Mascot Towers homes in June after cracks appeared in their walls, in an incident that echoed Christmas Eve’s Opal Tower evacuation in Sydney’s Olympic Park area.
The images of confused residents milling outside the troubled towers with pets and belongings in their arms have come to represent New South Wales’ high-rise housing crisis.
Nearly all (97 per cent) of new high-rise apartment buildings in NSW have some form of structural defect, a report from Deakin University released in June found.
It’s a situation executive officer of the Owners Corporation Network Karen Stiles described as a “quiet haemorrhaging”.
And according to realestate.com.au chief economist Nerida Conisbee, one that will have long reaching implications.
“It is a really big unknown, because we don't really know whether the issues can be resolved,” she told Yahoo Finance.
“There's a reputation issue in terms of people's view about buying off-the-plan, and we have seen a big drop off in activity in that space.”
Additionally, such widespread flaws - and widely publicised evacuations - have the power to dent confidence.
“If people lose a lot of confidence in this type of housing, what does that mean for us? If people are showing a distinct preference for single dwellings, do we continue to just expand the boundaries of our city because people lose confidence?” Conisbee said.
“Longer term, we do need more housing in Australia.”
According to RiskWise Property Research CEO Doron Peleg, the uncertainty around cladding problems - alleged to have caused the Grenfell Tower fire in London which killed dozens - in addition to broader building defects could cost “billions and billions of dollars”.
He warned that the high-profile Mascot and Opal Towers issues have caused significant reputational damage across the entire industry, and that it is “highly likely” that demand for units will “well and truly” drop.
“The typical buyers often struggle to understand the quality of the development and might chose instead of avoid exposure to such investments,” she said.
“If you combine these recent quality issues with financial losses from investment in high-rise units, this could amount to a permanent structural change in this demand for units in high-rise buildings.”
“We already have significantly reduced levels of demand due to restrictions on foreign investors, credit restrictions, banks refusing to loan to self-managed super funds and local investors looking elsewhere.”
“Add to that the high level of unit oversupply and it’s possible to see how structural changes could occur in a sense that the overall demand for off-the-plan dwellings will shift from units to house-and-land packages.”
Accessing finance could also become more tricky as lenders clamp down on risky apartment dwellings, and according to the Housing Industry Association, sales for off-the-plan properties were already down 16.4 per cent in the three months to January than they were the previous year.
Conisbee suspects there will be two responses to the high-rise challenges.
While some people will be drawn away from purchasing prices, many will still be unable to purchase typically more expensive standalone houses. This group of people may, in turn, begin seeking properties further outside the city, although this will also be curtailed by lifestyle difficulties that may come with living far outside the city.
“I think there's a lot of competing factors that will change pricing, but ultimately with house prices, the biggest factor that influences house prices is supply,” she said.
“If you don't get the levels of supply at a point which matches the number of people that are choosing to live in Sydney or Melbourne, then that's when we really start to see price pressure.”
The latest housing figures from CoreLogic show dwelling values in Sydney and Melbourne in June increased by 0.1 per cent and 0.2 per cent respectively - the first monthly increases in values since 2017.
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