The Apartment Shortage - ONLINE ONLY

The Apartment Shortage by Keaton Jenner and Peter Tulip

Abstract: This paper measures the excess demand for apartments in Australia's largest cities. We estimate that home buyers will pay an average of $873,000 for a new apartment in Sydney though it only costs $519,000 to supply, a gap of $355,000 (68 per cent of costs). There are smaller gaps of $97,000 (20 per cent of costs) in Melbourne and $10,000 (2 per cent of costs) in Brisbane. The large gaps are sustained by planning restrictions. The shortage of apartments is most severe in the inner suburbs of Sydney, where height limits prevent more construction. Elsewhere, restrictions on converting low-density housing to apartments are important. High-rise apartments are a much less costly means of supplying extra housing than the medium-density housing that some planners favour.

Peter Tulip is Chief Economist at the Centre for Independent Studies.  He previously worked in the Research Department of the Reserve Bank of Australia and before that at the US Federal Reserve Board of Governors, the OECD and the Federal Treasury.  He is the author of several recent papers on the Australian housing market, focussing on the effect of planning restrictions.  He has a PhD from the University of Pennsylvania.

Keaton Jenner is a Research Economist in the Economic Research Department at the Reserve Bank of Australia. Prior to this, he was an analyst in the Financial Stability, Economic Analysis and Note Issue Departments. His research interests include housing markets and firm behaviour. He holds a Bachelor of Economics (Hons) from the University of Queensland.

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