Young first home buyers in Sydney are increasingly opting for apartment living, according to a new report.

While Sydney’s apartment market is still dominated by investors, ABS census figures cited by BIS Shrapnel show an increase in owner occupiers from 39 to 42 per cent.

That contrasts with an overall decline in the proportion of owner-occupation and shift to increased rates of renting in the national census figures.

The BIS report notes that some $45 billion was borrowed in the 12 months to March 2014 to purchase residential property in New South Wales – 76 per cent above level of credit extended in 2010-11.

Much of this increased borrowing has been channelled into off-the-plan sales, with high density building approvals in Sydney more than doubling from 9,932 dwellings in 2010-11, to 20,354 dwellings in the year to March 2014.

BIS says this extra borrowing has resulted in an estimated 18 per cent rise in Sydney unit prices are over the last two years.

Report author Angie Zigomanis says the popularity of apartments is not just due to empty nesters downsizing.

“We think it’s really Gen Y and Gen X renters who are used to living in apartments, used to living in areas closer to the city, who perhaps either don’t want or can’t afford a detached house and are happy to upgrade into an owner occupied type of apartment,” he said.

Apartment demand to continue

Mr Zigomanis says strong demand for off-the-plan apartments is likely to continue for the next couple of years, particularly since New South Wales Government first home buyer concessions are focussed on newly built dwellings.

He says low interest rates and the expectation of price growth is also likely to continue fuelling demand.

“We’ve just seen strong demand for off-the-plan purchase of apartments and that’s translating to a strong up turn in new apartment construction,” Mr Zigomanis observed.

“Over the past 12 months or so, we’ve seen around 20,000 new dwellings approved for construction in buildings four storeys and above, and we expect that to continue to be the case for the next couple of years and that, by far, is a record for Sydney.”

BIS Shrapnel forecasts that high density dwelling approvals will remain just under 20,000 a year for the next five years.

However, the forecaster says the increase in supply is unlikely to saturate the market, given a lack of apartment development caused in part by the tightening of finance and uncertainty triggered by the global financial crisis.

The report says that the boost in apartment construction over the past two years and next five will only make up for a shortfall in construction since the last boom peaked in 2004.

BIS says the local government areas most likely to attract new high density apartments include the City of Sydney (an estimated 3,700 units per annum), Parramatta (1,600), Ryde (1,200), Auburn (1,100) Kur-ring-gai (900).