The Sydney suburban apartment market has experienced a significant rise in purchaser activity and price growth in recent years. Strong population growth and an existing dwelling undersupply, coupled with low interest rates supported strong dwelling demand. Rising prices attracted significant investor activity to the
market and drove robust off-the-plan sales volumes. However, there are challenges emerging as new supply increasingly comes on line and banks continue to tighten funding to investors.

Apartment development has increasingly moved from inner Sydney suburbs to the city’s middle ring. After accounting for around 29% of total apartment building approvals in 2010/11, middle ring Sydney suburbs comprised 40% of apartment building approvals in 2016/17.

This analysis draws from our annual Apartments in Sydney Suburbs report, which covers the Local Government Areas of Sydney to the right, and profiles indicators relating to demand, supply, rents and prices.


Underlying demand for dwellings increased over the four years to June 2017 on the back of strong population growth. Low interest rates have allowed pent up demand to be released into the market. Underlying demand rose to an estimated peak of 42,500 dwellings over 2016/17, well above the average of 32,600 dwellings pa over the previous five years. However, dwelling completions surged far ahead of underlying demand. Annual completions doubled from 23,100 starts in 2012/13 to an estimated 47,200 starts in 2016/17. This has seen the underlying dwelling deficiency slowly eroded since 2014/15. Over 2017/18, completions are forecast to remain strong while underlying demand is expected to ease as net interstate outflows rise. This will lead to a further decline in the level of stock deficiency.

Two bedroom apartments account for the majority of the Sydney apartment stock, at 56% of occupied apartments at the 2016 Census. Moreover, studios and one bedroom apartments account for another 29% of Sydney’s occupied apartment stock, with the remaining 15% containing three or more bedrooms.

The households occupying apartments are reflective of the composition of the apartment stock. Studio and one bedroom apartments are dominated by lone person households (who accounted for 55% of total studio and one bedroom apartments), while two bedroom apartments have a more even split of lone person, couple without children and family with children households, at around 25-30% each. In comparison, family with children households were the most prevalent household type in three bedroom apartments (40% of households).

Studio and one bedroom apartments are dominated by rental tenants, who account for 76% of households. In contrast, only 12% were fully owned suggesting that studio and one bedroom apartments are not attracting downsizers. Around 74% of two bedroom apartments were renting. Households with a mortgage accounted for the larger share at 18%. In contrast, a high share of three bedroom apartments were owner occupied (43%), with a high percentage (18%) being fully owned. This suggests that many owner occupiers in three bedroom apartments are downsizers and are buying with full equity.

The high density sector has benefited most in this upturn in the Sydney market. High density building approvals more than doubled from 13,500 approvals in 2012/13 to 30,100 approvals in 2016/17. While there has also been a moderate upswing in house approvals, the medium density sector has remained flat. Inner Sydney has traditionally attracted the greatest amount of high density activity, although the middle ring has begun to account for a greater share of high density dwelling approvals. The deterioration of affordability in Sydney has encouraged a shift towards both apartments over houses, and also activity from inner to middle regions.


As the market picked up, median price growth for units averaged 9.1% per annum between 2012 and 2017. This price growth was fairly even geographically across the Inner and Middle regions of Sydney, ranging from 10.8% per annum in Eastern Suburbs to 7.3% in the Middle West.

The result has been that indicative unit yields have now fallen below their previous lows of 2005, to be 3.6% in June 2017. This would suggest little potential for further unit price growth (and eventually the possibility of price declines), as occurred during the mid-2000s. A smaller dwelling deficiency and tightening restrictions on investor activity will also add drag to market sentiment.