Sydney's housing market made international news this Christmas, but for different reasons this time: it was all about a new apartment tower which moved by two millimetres!
Yep, instead of soaring prices, the main story over the past week related to possible building defects in a 38-storey tower in Olympic Park, leading to an evacuation of residents and some predictably wild internet extrapolation (who knew Australia had so many budding structural engineers? And every one of them posts on Reddit!).
I only go to Olympic Park biennially on average to watch the Chooks or rock bands, so if you came here looking for dramatic on-the-ground insights I'm afraid you'll go away disappointed.
Instead, here are a few thoughts on the unique construction cycle that we've just experienced.
Chinese investment boom
Whenever there are stories about potential losses on new apartments I find myself involuntarily drawn to my database to browse through the sales and transaction data, invariably arriving at the same conclusion: it's hard to overstate the influence of Chinese capital on this construction cycle. So many Chinese surnames!
A derived and secondary point is that many of the new skyscraper blocks are largely funded by sales to landlords, which can bring its own challenges in terms of ongoing maintenance and liveability (it also contradicts the argument that investors only buy established properties).
For years Australia struggled to build enough dwellings due to a range of factors, but since 2012 a unique combination of very low interest rates, rising unit prices, and an unexpected wave of interest from mainland Chinese capital saw an unprecedented burst of foreign real estate investment.
And the increase in the number of proposals (if not the value) was all about the residential market.
More specifically, there were lots and lots - and lots! - of new apartments built and purchased.
Queensland featured prominently, particularly so for new apartment towers in inner-city Brisbane, but overall this boom was mainly experienced in Melbourne and Sydney.
Most interestingly, the increase in activity was overwhelmingly a Chinese phenomenon.
As is quite clear from all of the available figures, since FY2017 the numbers in the residential sector have dropped off dramatically, with Chinese investors sawn off at the knees by punitive taxes and surcharges.
Some commentary initially argued that the decline in residential approvals was due to process and rule changes, which was partly true but also hasn't been borne out by experience, with new apartment sales now having slowed to a crawl, in turn heralding an abrupt end to the cycle.
Australia's population growth lifted very strongly through the mining boom, these days tracking at about 400,000 per annum at the last count.
Construction lifted too since 2012, and the record growth in this cycle has been all about higher-density apartment projects.
New dwelling supply looks set to slow sharply now, and although Sydney is still working through its pipeline it looks as though residential vacancy rates ex-Sydney could be at multi-year lows by the end of Q1 2019.
While we shouldn't generalise too much, on average new apartments in tower blocks haven't been great investments - the land value of each apartment tends to comprise just a few per cent of the total value per unit, and almost by definition there isn't much scarcity in the product.
When buying apartments in the big cities, I've been drawn to the boutique developments: more attractive to owner-occupiers, higher land value content, more scarcity, and more difficult to replace n landlocked suburbs.
It's true that the capital cities are maturing and are populated more by Asian migrants, perhaps more comfortable with the notion of high-rise living, but it does raise the question of who will buy new high-rise units and sustain supply if the surcharges for foreign investors remain in place.
Labor thinks that limiting negative gearing to new dwellings will do the trick, but this does create a two-tier market and makes the viability of buying a new investment for capital growth questionable.
Pie in the sky
Pie in the sky
A valid question to ask is whether recent events in Sydney and London might also curtail demand for living high up in a tower block more generally (I've never particularly liked the idea, all the more so since becoming a parent; and I confess I wasn't sad to see the end of a recent stay at Christchurch's only vertical hotel).
There has been a tonne of speculation about build quality this week, which I won't add to here.
At the end of the day I'm a Chartered Accountant not an engineer, but my experience has been that the apparent construction quality of new developments varies from very high to very ordinary, and it's hard to think of a pithy quote to cover what is, after all, a diverse market.
What is clear is that new apartment construction is now contracting at a remarkable speed.
Annual approvals for new units of four or more storeys have fallen from 76,300 at the 2016 peak to 61,800 in late 2018, but every other indicator shows activity slowing much more sharply and a shrinking pipeline.
The Reserve Bank will release its monthly Financial Aggregates figures later today, which will provide a more timely reading on the housing credit impulse.