Zombie apartments: The new face of inner-city living

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We’ve all heard of zombie businesses propped up by various government subsidies during the Covid-19 pandemic that might already be unviable. Our memories might have faded a little, but post the 2007-08 global financial crisis, zombie economics – the blind belief in market liberalism – came to the fore in the guise of zombie neoliberalism. Dead ideas that refuse to accept their end date and still walk among us.

The word “zombie” originated in Afro-Caribbean folklore but did not become mainstream until the 1920s. American filmmaker George A. Romero (1940-2017) popularised the zombie genre with a string of flicks beginning with the satirical horror classic Night of the Living Dead in 1968. Well beyond a consumer culture, people had begun consuming each other.

 Zombiism is alive and well

Zombie is defined in the Oxford Dictionary of English as “a hypothetical being that responds to stimulus as a person would but that does not experience consciousness”. To be sure, much of what we do is indeed zombielike; a mindless expression of our subconscious.

Building zombie apartments is no exception. Like other zombie ideas, they are most difficult to kill off.

We might view zombie apartments in three parts: zombie developers who continue to build apartments that don’t meet the needs of buyers; zombie buyers who continue to buy apartments that don’t meet their needs; and zombie policies that continue to incentivise zombie developers and zombie buyers to build and buy apartments that don’t meet their needs and they can’t afford. The outlier is the zombie investor.

Think of it as a kind of zombie Ponzi scheme. Ponzi schemes, perhaps the epitome of zombie ideas, entice new investors to pay profits to earlier investors. The investment is artificially kept alive only as long as new investors can be found. That is, first off-the-plan investors then on-sell to new investors on completion – but only if new investors are willing and able to enter the market.

The evil orchestrator in this is not some fraudulent entrepreneur, but negative gearing, or so it seems.

Negative gearing: the scourge of millennials

Negative gearing is at the vanguard of zombie housing policy and the go-to culprit for pricing millennials out of the market. Insofar as an investment property is either positively or negatively geared, the main benefit is that any net rental loss can be offset against other income earned, thereby reducing your tax bill.

Presumably, a positively geared property that produces capital gains –inclusive of deductions – is the preferred outcome. But this is dependent on finding someone to rent at a rate that covers costs, and a consistent stream of new investors willing to pay a premium when it comes time to sell.

From a government perspective, the idea behind negative gearing is that it increases housing stocks: increased supply should lead to a surplus and subsequently, greater affordability. But when the price of apartments and houses is artificially buoyed, by cushioning losses through negative gearing, it has no material effect on ameliorating affordability. In fact, it does the opposite.

That is, with no rental caps in place, landlords can push up rents then gear themselves into additional dwellings (borrow more via the cash flow from rents) while reaping the tax benefits if things don’t go exactly to plan.

But housing affordability is a consequence of more variables than just tax incentives. Pretty much all states and territories have adopted what’s called “urban consolidation”; which is in effect, an urban containment strategy designed to curtail urban sprawl. Delineating urban growth boundaries means restricting the land available for housing close to inner-city areas, which means higher prices all round.

Another variable is the timing and type of supply. Developers cannot accurately anticipate the strength of demand years before it happens. Similarly, they also cannot gear up in the short-term to respond to a changing demand. Acquiring the right site, and the time and complexity to gain development approval and arrange finance, can be a lengthy process.

Population drives demand: or does it?

Between 2014 and 2018, the mix of new housing in Australian changed dramatically. Apartments accounted for one-third of all new dwellings; an increase from 15 per cent in the previous decade. According to the Reserve Bank of Australia, most of the development was high-density apartment complexes in inner-city and middle and outer-ring suburbs.

Presumably, much of the demand for housing, inclusive of demand for apartments, has been population-driven. Immigration has played a significant role in this. Numbers have hovered around 170,000 to 190,000 places a year over the last decade.

A primary reason for this is Australia’s total fertility rate (TFR) which has been below replacement since 1976.  Around 2.1 babies per woman is necessary to replace herself and her spouse. The TFR in Australia in 2018 was 1.74, falling from 2.02 in 2008. In short: the sad statistics is that without immigration, or a sudden increase in the urge to reproduce, our population would eventually dwindle to zero.

Since 2010-11 China and India have been the primary source of permanent immigrants to Australia. China is a highly collectivist culture. India is also a collectivist culture but to a lesser extent. They are gregarious and have large extended families – the needs of the group take priority over the needs of the individual.

This suggests that we should build medium to high-density apartments close to metropolitan areas where the majority of jobs are, that require less travel time and thus reduce traffic congestion. A good quantity of these should have four to five bedrooms – culturally appropriate and built for families. 

The standard Western model: is it dead and buried?

But a quick informal survey of apartments for sale across Australia (14 July 2020) reveals that around 57 per cent have two bedrooms; 20 per cent were one-bedroom apartments; and 21 per cent were three-bedroom apartments. Four and five-bedroom apartments accounted for only 2 per cent of the total apartments for sale.

The TFR above indicates that two bedrooms might suffice – at least temporarily. But if we consider an average family of two parents and two children, one male and one female, as they get older, sharing a bedroom is totally off the cards. But it would be bizarre to blame our falling TFR on the availability of three-bedroom plus inner-city apartments; or would it? Indeed, that third child represents a very costly addition.

So, is the standard two-bedroom Western model of the residential inner-city apartment dead and buried? But like the zombie, it refuses to accept its obsolescence, and survives as the proverbial zombie apartment?

Evidence suggests not: the 2016 census found that families living in apartments were less likely to require an extra bedroom, but were more likely to have none spare, as opposed to detached houses (42 per cent compared with 13 per cent).

But is this a true reflection of demand? Families are constrained to living in accommodation that suits their needs and meets their budget. If they are unable to find such a dwelling, they simply compromise or move elsewhere.

We also know from many reports that residential towers in our most populous cities regularly experience an absence of occupants – termed “zombie apartment blocks”.

The 2016 census recorded 1,089,165 (11.2 per cent of total dwellings) as unoccupied. Research by CoreLogic suggests that about half of these (524,779) were unoccupied perhaps due to the property being on the market. Other reasons might include newly constructed homes, residents temporarily absent on census night, and properties being renovated or about to be demolished.

Another reason for keeping a dwelling vacant is because it makes it easier to enter into a quick sale, and it incurs no wear and tear. Much of this can be attributed to investors, particularly Chinese investors, paying cash for apartments, leaving them vacant with a view to cashing-in on capital gains at a later date.

Zombie apartments: built for profit not for people

Investors naturally aim to make money. But to what end? A 2017 report by the United Nations focused on the “financialisation of housing”, which it described as:

structural changes in housing and financial markets and global investment whereby housing is treated as a commodity, a means of accumulating wealth and often as security for financial instruments that are traded and sold on global markets. It refers to the way capital investment in housing increasingly disconnects housing from its social function of providing a place to live in security and dignity and hence undermines the realisation of housing as a human right. It refers to the way housing and financial markets are oblivious to people and communities, and the role housing plays in their wellbeing.

The hard truth of it is, Australians, for the most part, have viewed housing in this way for decades – as a “wealth accumulator” – and advertise accordingly: “Amazing investment opportunity available!”

In reality, the majority of apartments aren’t built for families or new immigrants to Australia. They aren’t even built for people. They are built for investors

In reality, the majority of apartments aren’t built for families or new immigrants to Australia. They aren’t even built for people. They are built for investors: for the most part, medium to high-end domestic investors and high-end foreign investors – they are often located on the coastal fringe of our major cities, expensive and luxurious.

Developers naturally aim to maximise their profit. They build what they think they can sell at an optimal price in the future, which means that the quality, quantity, and type of apartment might indeed be incorrect as the market unfolds. In this way, supply dictates demand, not the other way around – you can only buy what is made available to buy.

The safe bet for developers is to maintain the status quo and build mainly two-bedroom apartments for investors that will more or less hit the mark.

So, although the conventional nexus between demand and supply, interest rates and unemployment, a credit squeeze and a credit crunch, is well known, it’s not always relevant. Financial speculation and opportunism can influence markets, policy changes and tweaks can quickly impact sentiment, and a home, presumably to house people, can be transformed into a financial instrument.

Homeless people are still Australian citizens, even if they have met with misfortune.

Who’s to blame? The cities themselves have restricted housing supply by instituting urban containment strategies. This strategy, of course, is necessary to combat urban sprawl, but it cannot exist in isolation. Compensatory policies need to be enacted to ensure that unaffordable and unsuitable inner-city housing doesn’t force the average family further and further from the city and their place of work.

The city must also shoulder the blame for allowing homelessness to grow to obscene levels. Homeless people are still Australian citizens, even if they have met with misfortune.

The modus operandi of our politico-elites is to drive investment and use housing as vehicles to do this. A zombie Ponzi scheme that is pretty much accepted by all. It’s time local city councils, city planners, federal and state governments do their jobs and take responsibility for the gross misapplication of housing, inclusive of a lack of affordability, sustainability, and suitability, and the subsequent inequality that it has fostered.

The priority should be to build houses for people, and not merely for profit.

Stephen Dark has a PhD in Climate Change Policy and Science, and has lectured at Bond University in the Faculty of Society & Design teaching Sustainable Development and Sustainability Economics. He is a member of the Urban Development Institute of Australia and the author of the book Contemplating Climate Change: Mental Models and Human Reasoning.


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Comments

2 Responses to “Zombie apartments: The new face of inner-city living”

  • Emma Gyuris says:

    Your argument around immigration driven by the low fertility rate resulting in a depopulation of the country is weak. You must realize that there is a difference in keeping a population from declining via immigration and allowing immigration to cause rampant population GROWTH

  • chris johnson says:

    A whole stack of Baby Boomers, like myself and my wife, are moving out of the workforce and into retirement. Two bedroom apartments are ideal for this demographic and this releases large homes in the suburbs for families. With people living longer and still wanting to meet people over coffee nearby the 2 bed apartment in a bustling urban location makes a lot of sense.

    We also need family apartments and many developers are providing this with child care centres onsite as well as shared playgrounds and swimming pools. Sounds like a good lifestyle.

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