Hi,

It would have been pretty likely that people put off listing properties for sale during the final weeks of footy and Grand final week. People were actually pulling their auctions after the Grand final had to be played again. Melbourne…..

D

And then there is this….

Real estate tale of two cities

Simon Johanson

October 4, 2010

AUSTRALIA is suffering a chronic housing shortage.

The figure commonly bandied about is that there is a shortfall right now of nearly 200,000 dwellings.

Around the country there are individuals, couples and families struggling to put a roof over their heads. It's a dire situation that's set to get worse.

Goldman Sachs estimates in a recent report that in two years' time the national shortage will be 250,000 dwellings – nine times the size of the next largest housing gap back in the mid-1970s.

A housing shortage is not only hard for those struggling to find a place to live, it also drives up property prices for everyone else and generally makes housing less affordable.

But buried in one of the documents littering my desk is a paragraph from an authoritative BIS Shrapnel building industry prospects paper that states the following:

''For 2009-10 dwelling commencements [in Victoria] are estimated to have lifted 27 per cent to 53,350 starts.'' In other words, 53,000 new houses were started last year.

According to the report this is a record level of housing construction for the state and is above the estimated annual underlying demand for new dwellings.

So what's going on? If, as it turns out, Victoria is building more homes than needed, why does the state still have a housing supply problem?

The answer lies in the fact that it doesn't have a problem, or at least it doesn't have as much of a problem as its northern neighbours New South Wales and Queensland.

Between 2006 and 2010 Victoria, like the rest of the nation, experienced rapid population growth that resulted in pent-up demand for housing.

At the time new home construction couldn't keep up and the state was left with a housing shortfall last year estimated at 42,000 dwellings. It turned on the building-and-land-supply tap and in three years that figure is expected to drop to 29,000 dwellings.

''As of this year, we've had a very strong upturn and we're starting to build more than is required but we also have that pent-up demand from the last three years to work through,'' says BIS Shrapnel senior analyst Angie Zigomanis.

While a deficit of 42,000 dwellings sounds like a lot, Sydney has an even bigger problem.

Figures released last week show Victoria continues to be the powerhouse behind new home construction. NSW, by contrast, dragged its feet with a severe drop in new homes sales.

This year BIS Shrapnel estimates there will be a shortfall in NSW of 99,000 dwellings.

Unlike Victoria, NSW is hampered by the slow release of land for building, geographic limitations to growth on the outskirts of Sydney, higher levies on developers and planning hold-ups.

''It's a combination of developer levies that have been much higher than elsewhere, but also the geography of Sydney makes it more difficult to bring new supply on stream than in Melbourne,'' says Macquarie Bank senior economist Brian Redican.

It's a situation exacerbated by higher interest rates.

''We've seen lending for new construction fall over the previous 12 months and now that's flowing through into people getting fewer approvals from their local governments to build new houses,'' Redican says.

Last year new dwelling starts in NSW were at their lowest level for 50 years – an unprecedented situation for a state facing such an enormous and daunting housing shortfall.

''In NSW the cost of new land has been so much higher than in Victoria that it has been much less profitable for developers to bring new supply into the market,'' Redican says.

In Sydney the cost of developing a greenfield site ($560,000) is more expensive than developing an infill site ($550,000). In other cities, it's the reverse and at least a quarter less expensive, Goldman Sachs estimates.

Because work has started on so few new dwellings, next year's estimate puts the housing shortfall at 111,000 and rising.

For the first time this year, an almost unprecedented event contributed to Melbourne's population jump – while 4280 Victorians moved north, even more Queenslanders (4471) moved south.

Those that brave the southern chill will have an easier job finding a house in Melbourne.

Queensland had an estimated shortfall of 38,000 dwellings this year. That deficit is likely to rise to 56,000 by 2012.

So what will help? More first home buyer grants? Not according to Goldman Sachs.

''The most illogical policy prescription over the past decade has been the preference by federal and state governments to provide first home buyer grants as a way of encouraging new housing supply.''

The major challenge facing Australia is an acute lack of supply, not a shortage of demand.

''Only 16 per cent of first home buyers buy a newly constructed house. The vast majority use the first home buyers grant to bid up the price of the existing housing stock.''

If you are going to fix the problem, you have to start at the source. Sydney, with a little help from Queensland, is almost single-handedly responsible for the entire nation's housing shortage.

D

WJ,

My respect for you has increased, it is a wise man who can admit they were wrong about something.

I think the way forward is not to rely on capital growth and to manufacture profit. If prices track sideways then money can still be made.

Yeah I don't think we are quite out of the woods, prepare for another scare along the way, in which the fearful run for the hills and the brave take a calculated risk. Time to buy some gold too methinks just in case

D

Harb, I am still laughing!

Yeah 2012 we are all going to bite it, personally I'd rather bite it knowing I achieved my own goals and had fun making money and spreading it around. ;P

Simple I wonder if the people you are speaking of struggle with their finances as money management is not something that is inherent, it is learned. Maybe no one has educated them to take care of their money and personal finance. Maybe the Aussie school system is to blame since no one is taught about money and finance at any year level.

And the big maybe is …………………………………….. maybe there is just more stuff to waste money on. Don't need plasmas, and nice cars and fake tan and beer and ciggies. Don't need takeaway every night and lunch bought every day. Don't need the brand name clothes when the kmart jeans work just the same. But………………….. these are things that people desire and will accrue debt trying to accumulate. I wonder if they struggle because they are trying to have it all and yesterday.

I think is most people knew how to budget life would not be a struggle, it would probably be pretty easy. But it might be a bit tough on them having to go with out the loads of crap they want to buy…..

D

Harb,

You have nailed it on this and the other threads you have posted on.

The stark reality is that people are not abandoning their homes in droves, people have steady employment and there is incentive to buy and own property.

This thread ( and several others) I think has looped the same ground about 5 times now and still the property crash has not happened. Hope all the whingers have sucked it up and bought a property by now, because the next gain will make peoples hair stand on end.

Then hopefully we can come and put an end to this thread.

D

Hi Beedie,

I know how you feel. I've got our current one which is 12 apts on the boil. It is a two and half year project. Whip out the crystal ball.

Guess the supply and demand sentence really sums it up. If you have a product that has a limited supply you will have what everyone wants. I've been watching the prices slowing where I am, slowing but not falling. Outer eastern Melbourne suburbs just seem to keep going up, part of the fun of a ripple….

I think Steve's comments are the closest we will get to the crystal ball. He's been on the money with most of the predictions. I know a lot of people are predicting crashes and whatever but from everything I read and all the property I am looking at, it just seems a bit fanciful.

Bring on the market update.

D

Thanks for the clarification Steve!

Do you think, particularly in Melbourne that more residential projects have been started due to the spurt in growth we saw at the start of the year? And that there will be a few more "speculators" who get into the market at the top?

I guess I never saw a three unit development as speculating due to not having pre-sales, I wonder if the banks will be changing their policy in the future to mitigate this risk.

And sorry Marie123 I didn't realise the question was directed at Steve (BIG Whoops)

Honestly I have about six billion questions I could put here now……..

D

Hi Marie123,

You're back, how is your deal going?

Yep pre-sales as far as selling off the plan before construction. Generally on a 3 unit site you don't need to have pre-sales (nice to have though) for the bank to give you construction finance. So these are a bit easier to get finished and sold in a reasonable amount of time.

In Melbourne in particular because the prices on everything went up so much in such a short amount of time these small deals lacked a decent profit. Now that the market has flattened a bit should be some decent deals to be had. Probably lots of good bits of land in WA but not on the ground there

D

Ahh geez!

Just wear it and move on. The energy expended on something so small.

The other thing that will come out of this is a relationship with your managing agent and the tenant. Handle this the right way and your managing agent will put you in the good books and the tenants will think of you as a good landlord who will fix an obvious problem and not a cheapskate. Handle it the wrong way and the agent will roll their eyes every time they deal with you and the tenants will move out at the end of the lease.

This is an opportunity to build a nice solid relationship with your agent so that they know you and look after your property really well.

D