Forget the house – what about the neighbours?

There’s an old Jewish proverb which simply states; – “Ask about your neighbours, then buy the house.”  It seems sensible enough advice.  After all, even in prestigious zones, neighbours can make life ‘heaven or hell’ depending on how cordial the relationship is.  Yet it seems even with due recognition of the importance of neighbours in daily life - Aussie home buyers spend more time watching the above named television series, than they do investigating a potential property and its neighbourhood surrounds.

A recent survey conducted by St George Bank, suggests little more than an hour is spent inspecting a property prior to a home buyer happily signing on the dotted line. Consequently, over 55 per cent of those surveyed reported experiencing problems once they’d moved in - problems ranging from plumbing complaints to insufficient parking, poor TV reception and unsurprisingly close to the top of the list - noisy neighbours.

To be fair, once a buyer has discovered a property they categorise as being ‘ideal.’ Arranging a lengthy private inspection is not always possible due to work hours and family commitments.  The majority of buyers are often restricted to weekend ‘open for inspection’ times during which the property is decked out in ‘show home’ fashion, hiding the poor paint work or damp patch on the carpet with careful placement of furniture. Hence, why a building inspection is highly advisable even in the acquisition of ‘new’ houses.

But, what about the neighbours - how do you check the calibre of those living next door or within ‘cooee’ down the street?  It’s not an easy task and there’s no full proof answer. However, from personal experience, spending time walking and assessing the local streets outside of work hours should uncover if there’s a ‘yappy’ dog or ‘would be’ drummer residing close by. Knocking on doors, chatting to a resident whilst they’re putting out the bins, asking questions, checking if gardens are well attended and calling council to assess if there are any proposed developments pending, can all assist with risk management.

Of course, once you’re in the house, there’s nothing to stop new ‘less than desirable’ neighbours moving in.  However, if you’ve been careful, and purchased into a neighbourhood predominantly attracting a similar demographic, the chance of a group of ‘party loving’ 20 year olds renting in a family orientated suburb should be reduced.

Another aspect affecting the type of neighbours buyers can adopt is the planning ‘zone’ a residential property falls within.  Purchasers are frequently unaware of the zoning around their property at the time of acquisition.  They often ‘assume’ they’re in a residential zone based on street appeal alone.  However business zones and industrial zones can look just as ‘residential’ in their aspect and under current laws, should council approve, unsuspecting owners can find themselves located next to a McDonalds, factory, or worst still,  an ‘Adult Sex Shop,’ rather than the dilapidated house situated there at time of purchase.

This is one reason banks are reluctant to lend on residential property in a business or industrial zones without a healthier than usual deposit – a matter that oft catches the un-educated buyer off guard if they don’t do their due diligence.  However, all the checks in the world won’t protect a home owner if the ‘movers and shakers’ in local or state Government decide to ‘meddle’ with current zoning laws – or for that matter, change them all together.

The primary purpose of zoning is to prevent over development altering the character of a suburb or interfering detrimentally with residents and businesses residing there. Buy in a heritage protected area for example, and it’s unlikely you’ll end up with a tower block overshadowing the back yard.  However, if you purchase a house situated in a business or ‘capital city’ zone – it’s far more likely a high-rise monstrosity may be constructed next door.

Any change to a property’s zone can have significant consequences on the price and future potential it holds. In Perth for example, large swathes of land have been re-zoned to allow for greater density in major activity centres. This could mean a house sitting on a block of land with the potential for a two-storey seven-metre-high development, could easily become next month’s six-storey unit site! Obviously the affect it has on any area will advantage some and disadvantage others – but at the time of acquisition, none would have been the wiser.

Similar changes have been suggested in Sydney - and the Victorian Government is also revising their zoning guidelines.  Like Perth, the changes have the potential to affect individual property prices, not to mention the lifestyles of those unfortunate enough to draw the short straw.  Neither are the zoning alterations suggested in Melbourne by any means ‘subtle.’  If you’ve ever been to a Melbourne auction and heard it spruiked in the ‘pre amble’ that the property to be sold is in the most desired ‘residential 1’ zoning category - brace yourself!...  Because it’s all about to change.

As a brief rundown, the state government aims to delete the nine existing zones and merge them into five categories.  Residential zone 1, 2 and 3 will become “Residential Growth Zone, General Residential Zone and Neighbourhood Residential Zone” For each the zone, the density restrictions alter.  You can go here to find a rundown of the changes – however, in most instances, planning controls are loser, maximum height restrictions have been removed or increased (with the proviso they can also be exceeded) – and the size of land needed for subdivisions reduced.

Whilst some areas will be protected, don’t be fooled by various articles which claim the changes will increase land values or protect back yards! Even the assertion by Minister Guy that;

“The Victorian Coalition Government's sweeping reform of planning zones, will return certainty to our suburbs and towns and in particular to councils, residents, and the development industry”

is broadly misleading.

A close reading of the proposed ‘guidelines’ for each category leaves a lot to the imagination as far as ‘set in stone’ height limits, subdivisions, facades, are concerned.  In some cases, it’s not even necessary to specify a ‘future build form.’ The submissions are ‘wishy washy’ with statements such as

“higher or lower maximum building height can be set by a council” and

“a permit to exceed any height limit may be granted”

To be fair – the Government are giving the public a ‘right of reply’ to express opinion – however who thinks they’ll listen? They’ve made it abundantly clear in their 2030 plans, the idea is to increase density rather than facilitate outer suburban locations with infrastructure.

Maximum height limits for the CBD have already exceeded ‘reasonable’ levels – with 14,000 apartments due for construction through the course of 2013 alone. However, it’s fair to suggest areas with Heritage significance will still be protected from over development.  So, homebuyers and investors should take heed of this before they lock in a purchase.

And whilst we all understand the need to provide feasible options for a growing population of migrants, you would expect, at the very least, Governments would learn from previous planning mishaps and avoid repeating the errors.  Melbourne’s Docklands - a suburb built out of high rise tower blocks - is widely known as a city lacking soul.  With “the sky’s the limit” height restrictions and overzealous developers, the suburb has struggled to attract any diversity of resident. There are few family homes and apartment sales have been dominated by the investor sector – many of which remain vacant for much of the year.

Improvements have been made since – however with more ‘high-rise’ currently under construction, any improvements will be limited in what they can achieve.  I met a Dockland’s advocate at a recent party I attended.  Whilst discussing future development in the suburb, I asked ‘what about schools?’  ‘Oh! We conduct many school trips” he answered.  However I wasn’t talking about trips – I was talking about primary and secondary schools – the focus of family and community life.  You can build as many parks as you like, however if there’s no one to play on the swings, no children running around playing footy – something’s missing.  The ‘soul’ of any community focuses on the family.

This is why it was disappointing to read this week of another Docklands in the making.  One I highlighted months ago as being a potential disaster. And now, it’s coming to fruition – that of “Fisherman’s Bend.”

Once again Government have taken it upon themselves to alter the zoning to “Capital City Zone” giving developers all but a ‘cart blanch’ guarantee they can capitalise on ‘high-density’ tower blocks maximizing the residential capacity the land has to offer. However, as evidenced by the Docklands – high-rise accommodation does not offer affordable solutions for renters or buyers – or solutions they would necessarily take advantage of even if it did.

In the Docklands development, Selling agents were paid high commissions to flog ‘off the plan’ apartments to unwitting investors.  This usually came with rental guarantees, which once expired, left the purchasers unable to achieve the same return.  Unit growth charts for Docklands read like a day’s trading on the stock exchange, with sharp rises and plummeting dips proving anything but stable capital growth. Averaged out the growth has been little more than 5 per cent per/annum and worst following the GFC – a level currently exceeded by many long term deposit accounts and a dim shadow of what other properties in Melbourne historically achieve.

How many of these apartments are currently sitting vacant is hard to assess, however SQM have the vacancy rate above 11%.  Considering our population growth and previous surge of single-person households, you’d expect these developments to be busting at the seams, however clearly they’re not attracting the level of demand that’s oft been spruiked.

All in all the warning is loud and clear for the homebuyer or investor.  You can’t avoid the planning changes currently underway, however you can minimise risks when purchasing. Take my advice and inspect the neighbourhood before you inspect the house.  Or “love thy neighbour” could present more challenges than you’d expect.

Catherine Cashmore