28 April 2009

Canberra's Housing Glut?

| urchin
Join the conversation
19

I have heard too many times that Canberra has a housing shortage and that this is why house prices are so absurdly high. So I did some digging and looked at median house price growth vs. population growth vs. new dwelling commencements. The figures (limited by data availability) are as follows:

  • Population growth 2002-2007: 17086 people or 5.3% (see note 1)
  • Dwelling commencements 2002-2007: 14917 (total) 7744 (houses) 7146 (other resid.)(see note 2)
  • 2002-2007 Dwelling commencements as a % of 2006 Census data re total dwellings: 11.4% (see note 3)
  • Population/total dwellings: 2.46 ppd if you include unoccupied buildings, 2.6 if you don’t. (see note 3)
  • Growth in Median house prices 2002-2007: $230,000 or 93% (see note 4)

(Note 1 – based on ABS stats; Note 2 – based on ABS stats; Note 3 – based on ABS stats; Note 4 – based on ABS Stats)

Obviously not all dwelling commencements will be on new land, but given all the land releases/new suburbs popping up it would be fair to say that the large proportion of them will be new land commencements rather than knock-down & rebuilds. So where is the land shortage? We built twice as many dwellings as were needed to accomodate the increased population? Why are prices still so high? Why isn’t the ACT gov’t being more proactive in bringing them down?

Ultimately this bubble will burst, but if the gov’t were responsible about it and tried to bring it down gradually instead of stoking the speculative interests and lining their pockets with the proceeds of land sales the ACT would be able to avoid the economic destruction that the popping of the bubble will produce…

Join the conversation

19
All Comments
  • All Comments
  • Website Comments
LatestOldest

I think that the original point of this thread may have been lost – namely, that economists, ministers, and (especially) the construction industry constantly talk about a housing shortage, when census figures show that the growth in dwellings has in fact outstripped population growth, even taking into account smaller household sizes. This “shortage of supply” myth is one of the three great lies used by the real estate industry to justify ever higher property prices (together with “prices will only ever go up”, and “values always hold up better in inner locations”).

Supply in Canberra has increased a lot over the period from 2002-2007. Off the top of my head, the following unit developments were completed during this period: Space Stages 1 & 2, Valonia, Monarch, Haig Tower (Turner); Solstice (Watson); Sky Plaza (Woden); the Avenue, Metropolitan (Civic); Gateway, Viridian, Waterfront, SoHo, Aspect (Kingston); ongoing high-density infill in the Belconnen town centre. There are some very big developments there. Plus, there was lower-density residential land released in Harrison, Gungahlin, new McKellar, Dunlop, Conder, Gordon, Banks. It goes on.

Agree with VY that there is unlikely to be a price “crash” in Canberra anytime soon, although when the economy has turned around and the Fed Gov’t is trying to get the budget back into surplus there will probably be some quite aggressive spending cuts in the APS and this could lead to lower prices.

Arty, I agree, except your figures need updating, 2 years ago a 600m2 was $185,000 now they are $270,000+

step 1 – create land shortage ( at same time promise more land )
step 2 – create frenzy for builders and investors
step 3 – auction land to desperate builders ( pay $40,000 over reserve )
step 4 – now we have a market value for the rest of suburb
step 5 – drip feed release of land for new value
step 6 – market demands more land, increase price again, and again, and again

valuers are forced to increase land values due to “demand” and market supply

and guess who controls supply and demand

Exannuc_Smith said :

I did some research of my own, as a few years ago (admittedly during the real property upswing) I heard a rumour that builders were making roughly $180K per ‘average’ house.

Sounds like the entire cost.. You do realize that’s not profit?

Woody Mann-Caruso6:48 pm 28 Apr 09

Some days I think I should just give all my money to VY and tell him to call me when I’m a property squillionaire. In the meantime, I’ll sit tight on my 200K mortgage, hope I don’t get axed and pretend I don’t care I know nothing about property (or investing, for that matter…).

VYBerlinaV8_the_one_they_all_copy4:50 pm 28 Apr 09

Hey Urchin, good response to my points.

I’d offer two items for thought before signing off…

1) Several decades ago the mid-cycle price for an average home in Australia was about 3 times average income. Now it’s about 6 times average income (very roughly, that is!). Coincidence that it’s now most common for both partners/parents to work? I’d suggest not.
2) Markets tend to be inefficient, and often overreact. The reason this whole boom didn’t get started until 8-9 years ago was, I believe, because the market hadn’t forgotten the 90’s, including the public service cutbacks (specifically relevant to Canberra).

Don’t forget that there have been previous booms. I read an article on another website where they had posted an article from the US about the ‘exorbitant’ prices of homes in around around San Francisco. The article was from the late 1970s, and the prices were almost identical to today’s but divided by 10. For example, a nice, large and well located home was going for around $80,000. These prices were considered madness.

I guess my opinion is still that we will see some softening in real terms in the next few years, but then another big rise as the gen X-ers get into their late 40’s and early 50’s. In western countries, people generally spend the highest at around age 49-50. When the X-ers get to that age, demand for well located, quality property will be huge.

Just some thoughts…

heya v8. I should really be working more but anyway…
1) As far as lending criteria goes… that is something I need to do more research on. It would be interesting to see how/if rules/criteria/lvr changed from late 90s onwards.

2) Income has certainly risen, but to the point where housing prices double or even triple? Really? In just 8-9 years?

3)The societal values argument is a bit too fuzzy and non quantifiable for me. Sure we have more families with both parents working but is that a cause or result of higher prices? Also if this transition took place gradually over the last 20 years why have housing prices only spiked in the past few years? When you look at the graph of house price increases it is a dramatic jump.

4) ABS actually has an index of the cost of construction materials and in the past 8 or so years it has only jumped by 20-30% or so. This would also only effect new home prices. Even given that some degree of spillover in pricing is bound to occur, why should a decrepit 40 year old ex guvvy triple in price because other people are building bigger houses elsewhere?

5) Lifestyle – now we are getting onto common ground & that is something I can agree with. A big part of the price rise is a result of the popularisation of the semi-self-fulfilling prophecy that property will always go up and result in enormous profits. So people jump in and, since prices only ever go up, no price is too high to pay. But this is a purely speculative development and has nothing to do with the fundamental value of the home. Since it is predicated on fanciful future returns, once houses stop returning those kinds of gains the speculative element ought to vanish.

6) again, agreed and agreed. the ACT is deliberately drip-feeding new land in order to keep prices high. Their talk of affordable housing is so much BS. So in order to avoid unpopular cuts in services or unpopular rises in taxes they keep housing outrageously expensive and ignore the effect that this has on the quality of life in the ACT for the sake of political expediency.

Of These factors and more have pushed the price of housing up. The problem, though, is that the market WILL bear it, which is why prices haven’t dropped much. In fact, the sub-500k market is pretty warm at the moment, partly because of the FHOG bonuses

I would say it is warm *primarily* because of the FHOG. It was dead in October and prices were just starting to drop until Rudd gave out free deposits to restart the bubble. If prices go down more than 5% or so these new FHBs are going to find themselves in negative equity & god help them if they have to sell their house for one reason or another….

Don’t discount the market cycle, though. People start buying property when they realise they can buy for less than it costs to rent. Rents are currently climbing to correct property investment yields, and will continue to do so

Actually rents dropped in the ACT last quarter. Albeit only marginally. I think there is a big difference between the fundamental value of the home and mortgage serviceability. The former is based on the home itself. The latter is based on interest rates and credit availability. We are at record lows now in terms of interest rates and the banks haven’t really started to turn off the taps. But neither of these conditions will continue forever. They are slowly tightening credit, requiring real savings, requiring a bigger deposit and have stopped passing on cuts while raising fixed rates.

There are cycles and then there are speculative cycles. The question is which are we in at the moment. I have been unable to find any empirically measurable reason to explain why the value of houses in the ACT could have increased by so much in the past 8-9 years. Market prices have soared but the value has not and supply has not been constrained. This leads me to believe that, sooner or later, some sort of correction must occur–a likelihood greatly increased by our descent into a recession and higher unemployment. Even if the ACT is sheltered from the worst of it, the financial institutions that are in the business of lending money to home buyers will not be. The only question is how destructive the collapsing bubble will be. If we had a government with a broader vision they might act to soften the blow instead of trying to inflate the bubble further. alas, that does not appear to be the case…

Anyway, I didn’t want to turn this into a housing bull/housing bear debate as nothing is ever resolved by that. I was primarily interested in dispelling the myth of a housing shortage. the houses are there, but for one reason or another, prices keep going up up and away.

VYBerlinaV8_the_one_they_all_copy3:42 pm 28 Apr 09

Hi Urchin – thanks for your response to my post (#2). While it’s true that easy credit has fuelled the boom, it’s not the only factor. I’d suggest there are a number of factors causing property to rise:
1) Availability of credit has improved, but in that you didn’t really need a deposit any more. Lending criteria has still been in place all along, and hasn’t really changed that much, I think.
2) Incomes have risen in real terms over the past 15 years or so, leading to households having greater available income to spend on housing.
3) Societal values have changed over the past 20 years with most families now having 2 working parents instead of one. Two incomes means more $$ available for housing.
4) Average dwelling size has increased by around 50% in the last 20 years, meaning that new houses cost more, on average, to build and buy.
5) ‘Lifestyle’ tv shows where claims are made about buying a house, giving it a new coat of paint and then selling for a huge profit have popularised property investing (although there aren’t any more investors %-wise than before, I think).
6) Govts, like the ACT govt, have made a shedload of $$ by releasing land slowly and charging a lot because of its relative scarcity.

These factors and more have pushed the price of housing up. The problem, though, is that the market WILL bear it, which is why prices haven’t dropped much. In fact, the sub-500k market is pretty warm at the moment, partly because of the FHOG bonuses.

Don’t discount the market cycle, though. People start buying property when they realise they can buy for less than it costs to rent. Rents are currently climbing to correct property investment yields, and will continue to do so. Look also at property prices in parts of the US and Europe (cities, especially). We hear about “property prices crashing” in places like England, but London is still bloody expensive (relatively more expensive than Australia, I think).

Finally, most property investors are not ‘speculators’, hoping for a massive short term gain, but are rather people who are happy to buy and support an asset in the short term, knowing that in the longer term a combination of capital and rental growth will make their investment bear fruit.

Of course, none of this makes property any cheaper for the now. Property will get relatively cheaper over the next few years, but I very much doubt there’ll be a major crash, especially not for average priced property in a city like Canberra.

VYBerlinaV8_the_one_they_all_copy said :

Also, there have been some big IT projects in govt over the past few years, which have resulted in a lot (ie many hundreds) of people commuting into Canberra each week. Where I work, some of these people have been getting together to rent 4 bedroom fully furnished homes with their travel budgets (it’s cheaper and nicer than hotel rooms, which are often full anyway), and this is also reducing supply somewhat.
The point about students is well made. International students especially are often well funded to engage quality housing accomodation rather than sharing or living on ressies.

on the same vein, the numbers of ADF personnel and housing for them has depleted the housing availability as well. once the property is acquired by dha, it usually is on their books for at least 5 or 6 posting rounds.

a few responses.

@ #8 – yes uni students are counted in population. only temporary visitors (i.e., tourists, ppl on business trips) are not. i would need to see some serious documentation to show that there has been a sudden surge in teenagers moving out on their own over the past 9 years or so since this bubble began. Has there really been that dramatic of a shift in the demographic makeup of Canberra in the past 9-10 years?

@ arty & peter – the prices the LDA is selling land for is absurd. 330m2 for $150,000 is about as cheap as it gets (thats in bonner–and of course you cant get those lots because developers managed to snap em all up before individuals had a chance). Thats $454 per square meter! Right across the street in Amaroo UV is around $380/m2. When you ask the LDA why bonner land is so expensive they answer “well its because Forde is right next door…”–and who do you think sets the UV for Forde? the LDA, of course. Land sales are a cash cow for the ACT gov’t and they have become overly dependent upon them. If they reduce land prices they reduce the land values for neighboring suburbs. Thus they lose money on the direct land sales and they also lose tax revenue from lower rates. So they continue with the charade of pretending to care about making housing affordable while doing everything they can to prop up prices.

@#2 I chose the dates based on the availability of consistent data sets and the fact that I didn’t feel like spending days putting it together. If I had been able to move the start date back to, say, 1990 the rise would have been much more dramatic. Take a look at the allhomes research data (http://www.allhomes.com.au/ah/ah0052) as a rough indicator of the trend in housing prices. From 1994-1999 (and probably for several years prior to that) houses were basically flat. Then from 2000 on its houses to the moon. Nearly tripling in price in 8 years. What happened in those 8 years to make housing three times more valuable? It wasn’t a shortage of supply. It wasn’t a dramatic increase in population. It was easy access to too much credit as people bid up property in the hopes of getting fabulous capital gains. I.e., it was a speculative bubble. That’s human nature, that’s fine–though I would like to see people & businesses held accountable for their bad business decisions. What irks me most is the fact that government has been complicit in this all along. Instead of looking after the long-term welfare of the city they have been trying to milk every last penny from this boom. Now it is about to come crashing down around our heads and what do we have to show for it?

VYBerlinaV8_the_one_they_all_copy3:04 pm 28 Apr 09

Also, there have been some big IT projects in govt over the past few years, which have resulted in a lot (ie many hundreds) of people commuting into Canberra each week. Where I work, some of these people have been getting together to rent 4 bedroom fully furnished homes with their travel budgets (it’s cheaper and nicer than hotel rooms, which are often full anyway), and this is also reducing supply somewhat.
The point about students is well made. International students especially are often well funded to engage quality housing accomodation rather than sharing or living on ressies.

Exannuc_Smith2:57 pm 28 Apr 09

I agree but think there is another factor here also. I did some research of my own, as a few years ago (admittedly during the real property upswing) I heard a rumour that builders were making roughly $180K per ‘average’ house.

Being from the far northside where lots of builders live (when they’re not at their Kaveny’s Road properties 🙂 ), I asked one or two about this while at a school function. Interesting answers. Basically the answer was “more than that” with clear examples (in one case) given. It blew me away. So did the conceited attitude. Small sample I’m sure, but next time you’re in Gungahlin check out their houses and vehicles….

Anyway I looked at the cost of building a house on a major franchise builders website. Surprise surprise, they charge more to build the same house in Canberra than anywhere else in NSW including places like Dubbo and further out west. I am not sure what this means…it can’t be all due to transport costs as is often claimed…..

I do not mind people making a reasonable profit, but when it causes ordinary people to be chained to mortgages for many more years than they could be, it seems to me to be just plain wrong. For what it’s worth, I believe the ACT market is controlled by the various interests of ACT Govt, developers and builders organisations.

OK – rant over !!

Population growth also doesn’t tell the full story.

Canberra has a young population, and as the teenagers grow up, they need to find their own houses. but the parents still stay in the original house. So a whole new house is required, with no population growth at all.

Also Canberra’s unis have been growing – do they count the students in our population?

Arty said :

Hi peterh, I refer to new land, 5 years ago a 600sqm block was less than $100,000 today it is over $200,000.

I am not discounting the sharp increase of UV values on blocks, but the ACT govt LDA would know what is the cause for the increase in land values. They told us that it was down to median prices for the new areas, based on the bordering suburbs.

All I know is that for a 4 bedder, with an ensuite, it is in the realms of 400-500K now, and was about 300K before. we need a bigger house, 3 bedder just doesn’t do it any more, but we also need a large block to allow the kids a play area…

and now that the local schools are closed or closing, kambah isn’t much of an option…

Hi peterh, I refer to new land, 5 years ago a 600sqm block was less than $100,000 today it is over $200,000.

Arty said :

Look at the Land prices! ACT Government controls the availability of land which in turn dictates the price of houses. You are right someone should talk to Jon about it.

Arty, Land prices are based on the unimproved value of the block, the median of the block and the surrounding areas. go after the ACTPLA minister. now, who is that?

Look at the Land prices! ACT Government controls the availability of land which in turn dictates the price of houses. You are right someone should talk to Jon about it.

wha?

prices based on the 2006 census, and the population at the same time, extrapolated to show that there should be heaps of houses? there are. unfortunately, there are also sky-high prices for brand new houses, and the established vendors are selling to cover the gap in the new mortgage.

we are starting to see a decline in affordability in the housing market, the 1st home buyers grant well will dry up soon enough…

VYBerlinaV8_the_one_they_all_copy12:24 pm 28 Apr 09

The problem is that you’ve effectively chosen a time period (2002-2007) that represents a house price cycle, in fact a large one due to significant stagnation in prices for the 10 or so years prior. This means that you’re comparing prices between top and bottom of the cycle.

That said, the market is definitely high at the moment. But a big correction to bring prices back into line with 2002 levels (even CPI adjusted)? Not in the short term, and probably not long term either. Over the next few years CPI will erode values, but it’s unlikely you’ll see prices at the 2002 levels.

Hells_Bells7411:34 am 28 Apr 09

Nice work.

Your basic human right to live in a home shouldn’t be a commodity based on scarcity or developers monopolies as you’ve shown, but alas..

Daily Digest

Want the best Canberra news delivered daily? Every day we package the most popular Riotact stories and send them straight to your inbox. Sign-up now for trusted local news that will never be behind a paywall.

By submitting your email address you are agreeing to Region Group's terms and conditions and privacy policy.