House Market Planning Insanity
Two articles which caught my attention last week were Chris Vedelago’s excellent piece on Melbourne’s outer suburban estates where buyers who previously committed to a ‘house and land’ purchase using a ‘holding deposit’ of some $500 - $1000 (or in some cases 5 per cent) were cutting their loses and cancelling projects following an inability to gain finance as a result of the post boom ‘slump’ - an inevitable consequence of short term ‘first home buyer grants’ and incentives.
The other was Roz Hansen’s excellent speech - originally delivered at The Sambell Oration to the Brotherhood of St Laurence” entitled - “A Tale of Two Melbournes? The Disparities of Place and How to Bridge The Divide” and printed in Property Observer last week.
Chris’s article pointed out the harsh consequence an inevitable ‘rush to market’ induces where foolhardy first home buyer grants are introduced and subsequently scrapped in an attempt to boost new home sales.
According to the report in which the research was derived from the “specialised urban research organisation” ‘Research4, - ’ developers have had nearly 1800 lots returned this year as plans to build new homes were scrapped.’
Other data from Research4 indicates that a drop in Melbourne’s land sales accounted for an 83 per cent overall fall in the National number of land transactions from the ‘peak’ of the second quarter 2010 to first quarter of 2012.
On the face of it, the data is shocking, however it’s not surprising – after all, the 2009/10 boom in land sales, was driven wholly by the increased first home owners grant and additional federal ‘boost’ – coupled with a low interest rate environment – which subsequently induced a rush of 7,535 new residents into Melton alone, inflating the median ‘lot price’ by a lofty 60 per cent which – according to ‘Research4’ - made it the “fifth most expensive land market out of 33 submarkets across Australia”
The foolhardy nature of ‘inducing’ so many residents to move into a sparsely facilitated suburbs, lacking in essential infrastructure – and subsequently, ‘abandoning’ them in “never never land” as grants are scrapped causing land prices to fall sharply, seems to be of no consequence to state governments who are busy introducing yet another round of incentives to stimulate (prop up) the construction industry in outer suburbia.
Roz voiced thoughts I have shared in many of my columns for Property Observer – principally the poor planning and failed ‘infrastructure’ promises that equate to municipalities where residents are more likely to suffer health issues such as eating disorders and depression resulting from inadequately integrated and facilitated communities.
As I have previously mentioned, unless we address the core issues behind our new Greenfield estates, recent history will keep repeating itself and the outer suburbs will (for want of a better word) become the relative Ghettos’ of Melbourne town.
It would be far more sensible to build up already facilitated satellite towns such as Geelong and Ballarat as an example, and continue to extend our train and public transport amenities, than create ‘new suburbs’ of sprawling Mc Mansions where the trade off of a bigger house is of little consequence once you step outside the front door.
Perhaps Australia wasn’t hit hard enough by the GFC to learn valuable lessons in community innovation and sustainability – concentrating its efforts instead on how to continually prod and poke the housing market under the misguided hope a jump in construction and resurgence of pre GFC booms are one of the ‘economic drivers’ which could rescue the Government’s balance sheets as we enter 2013.
The HIA on the one hand scream how ‘affordable’ housing is with their housing affordability index showing levels are back to the early 2000’s. And yet, at the same time inform us that “The RBA must cut interest rates to bolster the chances of a housing recovery in 2013” – is the cash rate the only answer the HIA can give to save a failing construction industry?
What the HIA don’t do, is address how home owners can survive when rates finally rise and the incentives which they advocate ad-infinitum are once again withdrawn?
Roz mentions that landlocked residents need to turn to “buses, walking and cycling.” However, in a recent Study prepared by ‘Adelaide thinkers in residence” it was noted that in the absence of train lines, ‘when driving is the only option for travel – then walking and biking are abandoned’ – in other words, they are not preferred modes of transport for our 21 century generation outside of recreational activities.
I mention this in particular regard to outer suburban locations, as I’m aware than in inner metro localities, biking to work can be faster than driving during peak hour traffic and therefore is a far more viable option.
However for outer suburbia, we need train lines - firstly because people need a ‘fast’ way of commuting to existing work places and inner cities amenities, and secondly, because factories and additional jobs will not up-sticks and move ‘outwards’ if the only option they have to recruit staff is in a local neighbourhood of falling land sales and poor infrastructure facilities.
Research4 also made comment that “Melbourne’s first-home buyers could soon be priced out of the new homes market unless the State Government returns a $13,000 grant scrapped in June”
They base their research on the stark reality that outside of an incentive fuelled environment - which gives buyers un-influenced ‘time’ to think about their purchase decisions -a large majority opt ‘not’ to buy in outer suburbia for profoundly obvious reasons.
Therefore, re-introducing the grant would serve no other purpose than to bolster the construction industry and should not be ‘dressed up’ under the guise helping first home buyers.
The Victorian Government is currently reducing stamp duty payments for first home buyers in a time tiered system, that will eventually take the level paid to 50 per cent of the price a second home buyer would normally pay.
It works far better than a grant in as much as there is no restriction on what or where to buy and the intention is to introduce it as a long term measure. As for grants and outer suburban ‘incentives’ as history attests it will do nothing more than create more ‘boom and bust’ cycles - hurting construction workers and home buyers over the long term, and providing a great example of Einstein’s beautiful definition of Insanity – “doing the same thing over and over again and expecting different results. “
Melbourne’s market in particular is a concern more so because of the unprecedented boom which has lead to a housing market which is clearly overpriced for a growing minority of buyers. As if to underline the fact, as other states show modest improvements in their median values buoyed on by the RBA’s interest rate drops and mining activity, Melbourne is still sitting firmly in correction mode – and for buyers, thankfully so.
Even an uplift in transaction levels as we finish the year with a Christmas rush of bumper auction activity hasn’t spurred values with RPData recording a 1 per cent fall in dwelling medians for the month of November and a -2.5 per cent drop for the year to date.
A lack of first home buyer activity has been noted by a number of players. Recently Meriton’s Harry Triguboff commented that the reserve bank would need to drop rates more than a quarter or even half a percent to boost spending. However, although affordability is clearly a problem if anything I’d suggest a severe lack of affordable and desirable property suited to the first home buyer market is far more applicable to the problem at hand.
Once again it comes down to poor planning policy. Back in 2011 when Fisherman’s Bend was first proposed, Matthew Guy (Planning minister for Melbourne) stressed ‘the project would focus on affordable housing’ – however as a number of us pointed out at the time, in order for the suburb to work for the first home buyer market who are the most price sensitive demographic sand have restrictions on the purchase of high rise accommodation, there would need to be a mix of low density housing suited to a range of buying types
The dream that anyone would take notice of this seemingly sensible advice was precisely that, as it’s now revealed Melbourne’s new CBD zoning has all by ensured the area will be dominated by high rise developments and as Kate Shaw, (university of Melbourne fellow in urban geography) pointed out here, the privately owned land that developers have snapped up with skyscraper 30 plus story blocks in mind, will be anything but affordable.
They will be fitted out to appeal to the predominant market for high rise accommodation – principally the Asian investor market which compared to Aussie home buyers have cash to burn and prefer this type of accommodation on which are no FIRB restrictions on purchase.