The newest Nightingale project encapsulates an entire precinct in Brunswick. Seven architecture practices are involved, each designing a multi-residential apartment block and offering another level of saving for some buyers.
Two of the architecture practices hope to use an innovative Baugruppen finance model developed by a consulting company, Urbau.
Urbau founder Duncan McGregor says this is model was developed exclusively for Nightingale projects.
“Nightingale targets 15 per cent less than market prices; we can target 30 per cent less. The difference is significant,” he says.
But Australians prefer not to live in apartments; they want houses. They love them – they commit time, energy and pride to them.
That’s one reason suburban homes are more valuable than apartments.
Those emotions are bankable meaning in purely economic terms; our emotional investment makes settlement risk in suburban dwellings low. By contrast, investors buy 85 per cent of new apartments built in inner-city Melbourne.
When just two or three investors walk away from a settlement they gouge the profitability of multi-residential developments.
Banks and investors charge a premium for the risk, which drives up the cost of funding and, therefore, the price of the apartments. The Baugruppen model reduces the risk; buyers are emotionally invested in the apartments because they have helped fund and design them.
Close to 5,000 people registered their interest in the latest Nightingale project – which will provide about 280 apartments – significantly reducing the risk and costs.
How does it work? Let’s look at a typical multi-residential development first. Banks stump up 70 per cent of funding and investors provide the rest at high-interest rates. In many cases, 30 per cent interest is not unusual.
For the first two Nightingale projects, the group secured bank funding at the usual rates but found socially-conscious investors prepared to lend for lower interest rates of 15 per cent.
Baugruppen aims to replace some or all of the investor funds with money from the buyer’s group, cutting down the overall cost of funding.
Several models are developing in Australia. Geoffrey London, a former chief architect of both Victoria and Western Australia, is part of a group working pro-bono to foster a Baugruppen project in White Gum Valley on the fringe of Freemantle with support from the state government.
If London can bring together a group of buyers for the 16 to 19 dwellings planned for the land, the state government won’t expect the buyers to pay until the project is built.
The White Gum Valley development has several goals:
- To create affordable housing;
- build better-designed medium-density apartments which are more sustainable;
- explore the potential of shared amenity; and
- increase a sense of community.
The downside for this project is the building group must provide about 25 per cent of the funding, a prohibitive contribution for many buyers.
Urbau’s Baugruppen model is more accessible, asking for only a 10 per cent deposit from buyers, with the other 20 per cent coming from Nightingale’s social investors.