26 November 2018

Headline in search of a story - lack of balance in housing supply reports

| John Minns
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Hand holds the magnifying glass in front of an open newspaper with paper houses.

Studies suggest the ACT has an oversupply of housing options, but how much of this translates to reality on the ground?

Affordability and housing supply are important issues for the accommodation and financial security needs of Canberrans. It was therefore with mounting frustration that I found media responses to the ANU Regional Housing Supply and Demand in Australia (B. Phillips & C Joseph) Working Paper focused largely on a single line in a table on page 13 and failed to ask basic questions about what was really going on.

In essence what was reported was that the ACT had an “imbalance intensity” of 4.4% or 6700 properties. What this refers to is surplus housing as a share of total dwellings.

On a positive note, much of response to this has focussed on what the real experience of consumers has been, namely the lack of affordable options in the geographic locations and housing types they are looking for, and it is these insights that are supported by the facts.

There are a number of questions for which people want answers and here are a few of them.

“We are looking for our first home that suits our young family. Why are there so few affordable options outside of apartments?”

“I am looking for an affordable rental property while I complete my degree. Why am I missing out to other applicants so often?”

“We want to travel more and enjoy our grandkids. Why can’t we find an easy-care townhouse option in the areas we want to live?”

“Our family wants to upgrade to a larger home. Why are we getting out bid at auction so frequently?”

All of the above clearly relate to a lack of supply so how do we reconcile this lived experience with the reports of excess housing?

The answers to all the above lie in a single word. Appropriate.

Here are several reasons that have contributed to the above challenges being faced by real people every day.

  1. Lack of appropriate land to meet the needs of first homebuyers. It is arguable that this has been addressed at some level with recent land releases however for the majority of the last 10 years it has not been possible to build a median-priced house on a median-priced block of land. We have to acknowledge that with a monopoly on land supply in the ACT and the increasing reliance of the ACT budget on land taxes and sales, that there is very good reason why buyers have been forced outside our borders.
  2. Lack of appropriate housing options. Retirees and empty nesters want townhouse options in suburban locations, not greenfields. First homebuyers would often like affordable houses yet between July and September 2017 over 52% of new apartments sold by Independent Property Group were to these buyers.
  3. Lack of appropriate planning laws to overcome the previous 2 points. We have a Lease Variation Charge (LVC) that overtaxes redevelopment of ageing suburban blocks meaning that many owners of these properties not only can’t afford to redevelop their own block with a modern townhouse or dual occupancy dwelling, they also have no options to move to. Asa result, they often stay in their existing property for years beyond the time they prefer with the added consequence of reducing the available housing supply for first home buyers or families looking to upgrade.
  4. Lack of appropriate rental properties. The rental vacancy rate at 31st October for Independent was 0.39%. Or to put it another way, 99.61% of rental properties in a portfolio of over 3500 dwellings were occupied. Leading into the busiest time of the year for property managers, this is dangerously low and has the obvious downstream impact of driving up prices and reducing affordability still further.

When I read the Working Paper, it was heartening to read the authors’ comments in the Executive Summary and throughout the document that said, This paper does not conclude that people’s housing needs are being met or that what is being supplied is at an affordable price point for all families.”

And that statement sums up the challenge.

This is not a challenge that will be resolved by glib headlines or kneejerk reactions. There are a number of levers that will need to be pulled and these will include land release, barriers to entry, planning laws and drivers of appropriate housing supply.

Political over-reactions such as the suggestion to remove negative gearing options from certain property classes will just make things worse. Perhaps some consideration should be given to reviewing the taxation of capital gains where this will not inhibit the provision of suitable housing options.

And maybe there is some light at the end of this tunnel. While not addressing the LVC issue the Environment, Planning and Sustainable Development Directorate released a discussion paper this month that floated the possibility of allowing strata titling of dual occupancy dwellings on RZ1 blocks in Canberra. While the industry has been calling for this for many years, we welcome this change of heart that could have the impact of increasing sustainability, reducing infrastructure costs and growing government revenue through rates which many Canberrans would be glad to pay.

Affordable Housing is not a simple fix. It can be addressed and will be improved more quickly if all stakeholders are prepared to sideline vested interests where possible and work together to achieve a great result.

What are your thoughts on this issue? Let us know by commenting below.

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The ACT Government could fix housing affordability in a day if they just operated the ACT property system the way it was designed. We have a leasehold land system to keep property prices down. You can’t speculate on land you are going to give back in 99 years.

Why should the baby boomers be able to renew leases on land in premium suburbs for almost nothing when young people are paying $400,000 for a 99 year lease on a postage stamp sized block of land? A 99 year lease is a 99 year lease. It should be a level playing field.

Oh, that’s right. Senior public servants and politicians would not be able to get big capital gains on their properties if the property system was run the way it was designed. So, it has been corrupted.

Hallelujah Brother. Great article.

I am also concerned about the data used in the report. I believe through friends and colleagues that a good proportion of the supposed 6,700 excess properties are not ‘real’ and are actually:

Properties that are purposely empty due to overseas and interstate owners for part time use or basically permanently empty.

Properties that are empty due to various personal and relationship matters.

Properties that are empty due to financial reasons and also sale transition.

As I have previously stated around median house prices promoted by organisations like realestate.com and issues with ACT Government land valuations.

Property data is not being properly captured, transformed, standardised and analysed in canberra.

Banks and experts such as Digital Financial Analytics have better data sources than Government and ABS based housing data.

Keep up the great articles like this.

This article could use a short addition to outline exactly who the author is and who he works for (I know it is available going into the profile page – but it should be put up front too).

Developers can come to the party in this space already and do a lot more than they are currently doing. One simple example is to actually offer better choice in the multitude of apartment blocks being built.

It is common overseas, in particular Europe, for a lot of apartments to be 3 and 4 bedroom apartments, more suitable for families with kids. Here we get a handful of 3 or 4 bedroom apartments in a huge tower, if that. Usually a very small % of the building. Of course not everyone wants to live in apartments – but it would be a nice start to see some genuine variety available in the newer builds going up. But we all know the only thing driving developers is the big fat $$$$ they can get – and the best way to do that is shovel in as many 1 and 2 bed apartments as they can, at the lowest possible quality they can get away with.

As for LVC – it is surely primarily in place to capture part of the windfall gain created in the first place by Government regulation. Without going into arguments about the rate at which it is applied and the like, I don’t fundamentally see the issue with the concept in broader terms. Similar taxes are applied in a lot of other areas. As for LVC in existing suburbs locking out first home buyers – how many first home buyers can actually afford to buy in existing suburbs (especially inner city ones) anyway?

Queanbeyanite10:06 pm 23 Nov 17

The problem is the local council. They’re trying to jam in as many houses as they can within the boundaries of the ACT. You only have to ask why they would blow $1.2 billion on a tram when they could have realigned the railway to Goulburn with ample land along that corridor. But that’s in a different local council and they wouldn’t get their cut.

“Lack of appropriate housing options. Retirees and empty nesters want townhouse options in suburban locations, not greenfields.”

Agree with that 100%.

The industry and government are promoting a perception that a home unit for retirement etc. is what this demographic wants and indeed, lots take that option because there is nothing else on offer.
Many more of us are waiting for solutions exactly like what you are proposing.

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