Revitalising spaces: the role of small-scale developers in urban renewal and adaptive reuse

Urban renewal and adaptive reuse could play a key role in driving the growth of Australia’s home supply, given that these innovative forms of development make it easier to create new in-fill dwellings in urban areas.

In-fill dwellings will likely be of critical importance to future home development in Australia. The federal government’s target of 1.2 million homes by 2029 includes the mandate that they be ‘well-located’, which means situated close to existing structures and amenities.

SME developers are especially well-suited to urban renewal and adaptive reuse, given the smaller scale and unique, tailored nature of such in-fill projects. There are also large scale opportunities, particularly in the CBD areas where demand for lower grade office accommodation has dropped substantially. The challenge for large commercial building owners looking for alternative uses is that this will take longer to convert and is even harder to find the builders with the right skills for large projects. For this reason, they should give extensive consideration to these new forms of development, and the opportunities they could bring as Australia pushes for growth in urban housing.

What are urban renewal and adaptive reuse?

‘Urban renewal’ refers to redevelopment programs that seek to transform disused or stagnant inner city areas and transform them into the sites for new homes and businesses.

‘Adaptive reuse’ is related to urban renewal, and simply refers to the recycling of existing buildings or structures for new purposes that are distinct from those originally intended.

Urban renewal and adaptive reuse promise to play a key role in Australia’s home supply growth, by transforming existing parts of cities into new residential facilities and fostering in-fill development.

Obvious examples of adaptive reuse that will increase home supply include the conversion of factory buildings, old churches or even prison facilities into residential apartments.

Innovative forms of adaptive reuse have also recently emerged, enhancing the ability of developers to create new dwellings in inner-city precincts and achieve urban renewal.

Key examples of such innovative reuse include prefab, modular construction, and the related building approach of airspace development.

Prefab modular construction

Prefab home construction involves the manufacture of complete housing components or modules in offsite factories.

These modules are then transported to the site of the development, where they can be rapidly assembled in a process that is far quicker than traditional construction methods.

Ehsan Noroozinejad, an urban transformations expert from Western Sydney University, believes prefab modular construction could transform home development in Australia, by significantly increasing efficiency and reducing environmental impacts.

Reduced cost and increased construction speed are especially beneficial for smaller developers, who may have limited access to funds and need to accelerate turnover in order to maximise profitability.

Research from McKinsey & Company found that prefab construction can halve project time, as well as cut construction costs by 20 percent and materials costs by five percent to 10 percent. This translates into a major increase in profitability over the course of multiple projects, essentially doubling what developers can achieve in a given timeframe while also reducing costs.

Prefab is also an excellent option for in-fill developments, as the off-site manufacture of modular components reduces the need for tricky on-site construction in areas surrounded by existing buildings and structures.

Barriers to prefab adoption

Despite its success overseas, there are still a number of barriers to the widespread adoption of modular building in Australia.

These include a lack of government support or incentives relative to other countries, and a scarcity of skilled workers with experience in modular building methods.

This situation could soon change, however, following a rapid evolution in Australia’s prefab construction market in recent years, including the emergence of new technologies, materials and systems.

CrowdProperty CEO David Ingram said the term ‘prefab’ often has negative connotations of low quality or not very aesthetically pleasing housing.

“Modern materials combined with architectural details can enhance the visual appearance of these buildings,” Ingram said.

“They can also incorporate sustainable design features like green roofs, solar panels, and energy-efficient systems and even deliver higher standards of safety, for bush fire prone areas, for example.”

Airspace development

Development of the airspace above a building is another form of adaptive reuse that could help SME developers to make a bigger contribution to home supply growth.

Airspace development involves the replacement of the old rooftops of existing buildings with new homes, often times built using modular construction methods.

The creation of homes on existing rooftops provides major environmental and cost benefits.
Chief amongst them is avoiding the need to knock down established buildings to make way for new concrete structures, all of which are highly carbon intensive.

Airspace development is highly economical, coming in at around 60% of the cost of traditional builds, given the presence of existing infrastructure in the foundational buildings for electricity, water and gas.

The sale of new homes on top of older strata buildings can also generate funds for the repair and rejuvenation of these pre-existing structures.

Warren Livesey, the Sydney-based founder of Buy Airspace, says this new development approach is already a proven model that has been adopted in the world’s leading cities.

“It’s already widely used in New York, London and Paris, where it’s fast becoming the most popular form of urban in-fill development,” Livesey.

“Those areas have approved around 500,000 new airspace homes.”

Livesey believes airspace development could have a major impact on urban home supply in Australia, given its early stage of development here and the tremendous potential for rooftop homes.

“The potential is huge – airspace development can create close to 1.2 million new rooftop homes in Australia around the CBD areas of major cities,” Livesey said.

“We estimate that the market in Sydney alone is worth $150 billion, and $400 billion for Australia as a whole.”

The creation of rooftop homes is especially well suited to SME developers, given the uniquely economical nature of the business model it involves.

“In overseas cities, the developers don’t actually need to buy the airspace, let alone the whole building, because it’s still held by the original owners,” Livesey said.

“The owners instead tender out airspace to airspace developers, who are used for their services.

“Once the site is completed and sold, half the proceeds go to the existing owner and half to the developers. The outlay is small and it’s economical for them.”

While airspace development remains in its infancy in Australia, the market could be on the brink of booming growth, given both its sustainable nature and the need to increase housing in dense urban areas.

“The Property Council of Australia has adopted airspace development as their preferred sustainable housing plan, and Australia is host to 340,000 strata buildings,” Livesey said. “At this point, it’s the most untouched opportunity.”

Finance challenges

One the major issues preventing developers from looking at modular and airspace construction is the lack of expertise in the finance sector. Traditional lenders like banks don’t want to consider such projects as they lack the expertise to fully understand the project and how to securitise it.

CrowdProperty CEO David Ingram says specialist lenders like CrowdProeprty have the expertise and flexibility to consider all of these project types.

“We’ll look at all of these projects on a case-by-case basis but we’re open to funding modular and airspace projects,” Ingram said.

“We’ve funded all of these project types in the UK where modular and airspace are much more established than in Australia, but we see a big opportunity for innovative construction techniques and are keen to work with developers and other stakeholders to find a finance solution to suit.”

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