A Property blog by Paul Bennion.
A recent study by the Housing Industry Association (HIA) has highlighted a quiet revolution in new housing construction that has occurred over the past two decades.
It has revealed a major shift from detached new home construction toward multi-unit dwellings. In particular, the HIA research found that ‘multi-unit’ dwellings represent the most significant part of the new home building market than at any other point in Australia’s history.
The HIA research found that 20 years ago the medium/high density component of multi-unit commencements (units of three storeys or more) accounted for around 5 per cent of total housing commencements. This proportion of multi-unit commencements has gradually increased over the past two decades and has accelerated over the last four years so that by 2014 this share reached around 25 per cent.
The HIA research identified a number of key reasons for this acceleration in the construction of multi-unit dwellings:
Government are encouraging great higher density construction, especially in near city area to reduce the cost of urban sprawl. Various planning strategies have been implemented, and with infill sites predominantly accommodating mid and higher density dwellings, the policy focus has enabled the supply of multi-unit dwellings to greatly expand.
There is a greater concentration of employment opportunities in urban areas that in the past and this is encouraging more people to live in inner and near city areas. Also, people want to live close to amenities with a higher level of this social infrastructure that is generally found in the inner city.
Families are generally getting smaller so they are requiring low maintenance housing such as apartments rather than detached homes on large lots. Baby boomers who are entering their retirement years also want to stay in their local area but in low maintenance homes and this trend is also encourage higher density living.
For some households, multi-unit dwellings represent a more affordable option to detached houses. Housing affordability pressures, principally related to the price of serviceable residential land, have forced the market to make more intensive use of available land. This financial pressure has resulted in more dwellings in a given area than there has been in the past.
This movement towards higher density living is particularly significant for property investors because over the coming years they will be purchasing this type of product as it becomes even more popular with consumers.
Investors who are planning to purchase a higher density home such as an apartment should consider the significant tax depreciation benefits associated with this type of property purchase.
While there are many issues concerning the depreciation entitlements on properties, in most cases, strata style homes such as new apartments provide a higher rate of depreciation than houses – all being equal.
Buying a new apartment, for example, can provide a taxpayer with considerable depreciation benefits because of the significant tax benefits they offer through depreciation.
Some DEPPRO clients are achieving that tax benefits obtained through depreciation can be equivalent to 60% of the total purchase price of the property. In some cases these tax benefits can total $300,000 based on a purchase price of $500,000
A key part of ensuring that the investor obtains their full tax benefits is to have a professional depreciation professional prepare a comprehensive depreciation schedule. Even an older style apartment can also qualify for substantial tax depreciation benefits if a depreciation schedule is undertaken for the property.