Building Approvals Tumble

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

Hi all

Great information… a very sincere thanks.

I am currently looking at a couple of small developments: One with DA approved for a duplex pair in Sth East Qld (I purchased the site some time ago) AND another in western suburbs of Sydney – new homes with 6 month delay on settlement of land. The idea here is to sell for short-term (approx 6 months) profit (approx $ 50,000 to $100,000) prior to having to settle on the land. We have done the feasibility and all is looking very good indeed. Obviously all depends on the market.

Cheers
Garry

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

Food for thought…. 

The Matusik missive is FREE……. So im sharing the joy……..lol

Matusik Missive – A new paradigm?

20^th October 2010

The numbers of housing loans and new housing starts continue to slide.  Every excuse under the sun is offered up as to why.  The real reason, being an actual lack of demand, is rarely mentioned.  But in short, buyers across the board are not that interested in buying residential property at present.  This is especially the case for new stock.

Why?

Let’s cover the new supply first.  This follows on nicely from the most frequent reply to our three-part urban myths missive series last month, which posed the question as to why a proper study into “what the market really wants” isn’t done.  Well, we have done several; for the PCA for their Australia on the Move publication and for several clients including the Brisbane City Council. 

In short, the current new supply is wrong.  It is either too small, of limited quality and/or overpriced.  What’s on offer too often does not offer value for money.  Hence buyers increasingly opt for something established, which they might renovate or refurbish in the future, rather than buy a new dwelling. 

In an ideal world, many would buy something alternate to the detached house, but only at prices much cheaper than new apartments, townhouses and the like are currently asking.  In general, the market expects “other” housing to be about 20% cheaper than a detached house in the same area.  Whilst they expect some shrinkage in the size of alternate accommodation, the current offerings are considered by most to be way too small. 

Another complaint is that the quality of the new product – and in particular for apartments – is far too low for the prices expected.  The thirst for a quality product is an opportunity and one which should grow in demand as baby boomers enter retirement. 

The cheap and cheerful (often of late more “nasty” than “cheerful”) trend has gone too far.  It is somewhat ironic that the housing industry is vamping up the supply of really tight product just as the emerging demographics suggest the opposite.  Household sizes are increasing across Australia – fuelled by a baby boom, relatively high overseas migration and adult children remaining (out of choice) at home with their parents. 

When it comes to existing product, many vendors, in short, want too much for the property.  There is a flood of second hand stock on the market; the customary spring market pick-up is missing this year (although its impact is usually overstated) and with the threat of a further interest rate rise pending, vendors need to get realistic quickly or take their property off the market.  Failure to do so could result in substantially lower offers (than a realistic price today) in the near future.

This issue was brought home quite clearly when a 293 square metre penthouse  on the Brisbane River in Kangaroo Point (with uninterrupted views of the Brisbane CBD) was passed in at auction a few weeks back.  The reserve was set between $1.2 and $1.4 million which equates to a paltry $4,600 per square metre. 

Ironically, it is a buyer’s market and could be for some time to come – read “years” not “months” – yet potential purchasers are not buying.  Usually and somewhat ironically, rising interest rates get interested parties off the fence.  Maybe that will occur once the RBA actually moves the cash rate, but maybe not. 

I cannot help but feel that we have entered a different paradigm – one in which a dwelling is a home, rather than a vehicle for speculation.  If that happens, the term “real” estate will regain its true meaning. 

To revisit our Aussie Urban Myths commentary visit newgeography.com

 Michael Matusik

PSST…. PASS IT ON!

The Matusik missive is FREE – why not share the joy!   If you know someone who would like to receive the missive, please forward it on or send their name and email address to [email protected] so they can receive their very own weekly dose of Matusik.

Thanks Beedie,

It is food for thought. Very interesting from the point of view that buyers are not willing to settle (no pun intended) for low quality product and also that they don't want what is currently offered in the form of new apt and townhouse developments. The only problem is

there isn't enough land close to infrastructure to provide everyone with a 4 bed house on a large block,
govts are unwilling to provide more money/infrastructure until the population is overflowing in an area and demands it,
developers have enough trouble fighting through the red tape as is for anything even than these small developments let alone larger developments.

It will be interesting to see the next decade unfold as this will be the crunch time for Australia in managing population growth and economical growth, and of course the housing market.

PS I have had a back flip moment on presales…..PRE-SELL is KING!

D

Must admit we cant put our developments up quick enough.

In saying that however we dont intend to sell them merely build, lease and collect the rents.

One reason BA's are falling is simply the lack of development finance.

Cheers

Yours in Finance