Category: Building & Construction

The housing market is swinging to over-supply

From The NewDaily.

First time home-buyers may have been relieved on Wednesday to see home prices falling by an average 1 per cent across the nation, according to the latest data from CoreLogic.

‘May’ is the operative word. In a nation full of property experts, even relatively inexperienced house hunters know that figure could bounce back next month.

The figures for bubble-cities Sydney and Melbourne were heartening for non-home-owners, falling 1.3 and 1.7 per cent respectively – the biggest monthly slide since November 2015.

What makes these figure different to the falls seen 18 months ago, however, is the context in which they are happening.

In its simplest form, the market is swinging towards over-supply in a very short space of time – something that will surprise buyers who’ve been told for years that the problem was ‘under-supply’ .

The ‘over-demand’ problem

The government, and every real estate agent or property spruiker worth their salt, has been using the myth of ‘under-supply’ to explain the sky-high prices that are locking a generation buyers out of the market.

High profile real estate agent John McGrath wrote on Tuesday in the Switzer Daily investment newsletter that: “We have too much population growth fuelling demand and too much of an undersupply to experience a crash.”

Well it’s not quite that simple. As covered earlier this week, the immigration intake is going to become a hot-potato at the next election, so may not be as reliable a back-stop as in recent years.

And the ‘under-supply’ problem is mostly a myth anyway.

As University of Sydney town planning academics Peter Phibbs and Nicole Gurran explained recently, ‘under-supply’ is the government’s way of explaining rock-bottom housing affordability, without having to do much about it.

A far more accurate term to use is ‘over-demand’, which is created by the large tax refunds the government has been handing back to property investors since changes to capital gains tax laws in 1999.

The much under-reported figure that proves that point is the number of Australian residents per dwelling, measured by the Bureau of Statistics, which has remained virtually unchanged right through the housing boom years.

There is no great mis-match between the number of dwellings available to be lived in, and the number of people wishing to rent or buy them.

The ‘under-supply’ simply reflects too few dwellings on the market to cater for investors who wish to enjoy large tax refunds through negative gearing, as well as the apparently fool-proof capital gains that benefit from the 50 per cent capital gains tax discount.

When these dynamics are understood, falling house prices in the bubble cities have to be the result of one of two things: investors deserting the market, or a larger volume of properties coming onto the market.

Well investors are still not deserting the market according to the Reserve Bank’s latest credit data. It shows the value of investor loans growing by 7.3 per cent year-on-year, which is still higher than the growth in owner-occupier loans, at 6.1 per cent.

So if investor demand for credit is continuing apace, and if the usual numbers of young first-home-buyers are out looking for a home, how can prices be falling?

The answer is on the supply side. The much discussed ‘apartment glut’ is beginning to work through the system, with knock-on effects in the detached housing market.

As Mr McGrath himself notes: “CoreLogic figures tell us that the supply of established housing stock available for sale in Sydney and Melbourne is at its highest level for this time of year since 2012.”

Meanwhile, foreign buyers – mostly from China – many of whom are not captured by the RBA credit data, are pulling out of the market. That leaves even greater supply for local investors to pick over.

In those circumstances, prices can fall despite ‘strong investor demand’.

What we are seeing is not a shift from a large under-supply back to more normal levels of supply, but a shift from normal-ish levels of supply to over-supply – with slightly lower levels of investor demand due to the China exodus.

That will leave Treasurer Scott Morrison with some explaining to do at the next election, when he will presumably continue to promise to ‘unlock supply’ and solve the affordability problem.

In fact, it’s looking pretty unlocked already.

Dwelling Approvals Rose A Little In April

The number of dwellings approved rose 0.1 per cent in April 2017, in trend terms, and has risen for three months, according to data released by the Australian Bureau of Statistics (ABS) today.

Dwelling approvals increased in April in the Australian Capital Territory (3.6 per cent), Queensland (3.4 per cent), New South Wales (1.7 per cent), South Australia (1.6 per cent) and Tasmania (0.3 per cent), but decreased in Victoria (3.2 per cent), Western Australia (2.3 per cent) and the Northern Territory (2.2 per cent) in trend terms.

In trend terms, approvals for private sector houses fell 0.2 per cent in April. Private sector house approvals rose in South Australia (2.0 per cent), Victoria (0.3 per cent) and New South Wales (0.2 per cent), but fell in Queensland (2.0 per cent). Private house approvals were flat in Western Australia.

The movements across states show an upswing in SA, slight rises in VIC, NSW and WA, and a sharp fall in QLD.

In seasonally adjusted terms, dwelling approvals increased by 4.4 per cent in April, driven by a rise in total dwellings excluding houses (8.9 per cent) and total house approvals (0.8 per cent).

The value of total building approved rose 2.5 per cent in April, in trend terms, and has risen for three months. The value of residential building rose 0.2 per cent while non-residential building rose 6.9 per cent.

“Dwelling approvals have been relatively stable in trend terms over the past three months, after falling from record highs in mid-2016,” said Daniel Rossi, Assistant Director of Construction Statistics at the ABS. “The April 2017 data showed that the number of dwellings approved is now 14 per cent below the peak in May 2016”.

Here’s where housing construction is booming in Australia

From Business Insider and HIA.

Australia has been on an epic residential building boom in recent years, constructing more homes than ever before in the 2015/16 financial year.

And nowhere has this been more evident than in the locations listed below.

Courtesy of Australia’s Housing Industry Association (HIA), it shows Australia’s top 20 residential building “hotspots” for the 2015/16 financial year.

Here’s the list released in a report from the group over the weekend.

Source: HIA

The HIA deems a “hotspot” to be a region where population grew above the 1.4% national average and where at least $150 million worth of residential building was approved during the year.

Perhaps unsurprisingly, the group found that nine of the top 20 Hotspots were in New South Wales, with a further four and three located in Victoria and Queensland resectively.

And many of those were in inner-city regions, courtesy of an unprecedented level of apartment construction in these locations.

Pimpama, sandwiched between the Gold Coast and Brisbane in Southeast Queensland, was deemed to be the hottest of the hotspots in the 2015/16 financial year, logging population growth of 35.1% with $340.2 million worth of dwellings approved.

Cobitty-Leppington in Sydney’s Southwestern fringe, along with Palmerston in Darwin, took out second and third spots respectively.

Inner-city locations such as Docklands and Southbank in Melbourne, and Waterloo-Beaconsfield in Sydney, also made the top ten list.

While residential building activity across the broader Australian economy looks set to slow in the years ahead — building approvals have been trending lower, particularly for apartments, while the value of residential construction work done in the March quarter of this year fell — the HIA is forecasting that the decline will be modest, leaving total residential construction at elevated levels.

“Even though new dwelling starts will decline over the next couple of years, the annual volume of new home starts is not likely to fall below 173,000 at any stage,” the group said in early March this year.

“By any standard, this is still a very robust level of activity.”

Source: HIA

Construction Work Falls In March Quarter

The ABS preliminary trend data shows a fall overall of 6.8% compared with a year ago to $46.2 billion. Within that residential construction fell 1%, non-residential construction fell 3.5% and engineering fell 12.4%. The trend for total building work was down 1.1% in the March quarter.

In fact only the public sector non-residential construction held momentum. In other words, it is government spending which is holding the number up, whilst private sector investment is falling.

Within the residential data new houses and other residential both fell.

Once again the lack of business investment is taking its toll. With housing coming off, growth looks more uncertain, and only Government spending on infrastructure can it seems can save the day (but at what cost?)

Data confirms houses near jobs are too expensive

From The Conversation.

Australia’s capital cities are getting more and more units, that are largely concentrated and come with a hefty price tag, a new report shows. And while these areas also have lots of jobs, the high price for houses means many on low incomes won’t be able to access that employment.

Between 2006 and 2014, more than 50% of new units were built in the 20% of local government areas with the highest number of jobs.

When compared internationally, it would seem that Australian housing supply has not been as weak as is widely believed. However, the report points to some stark differences in housing supply patterns, emerging across Australia’s capital cities.

In Sydney, Perth and Brisbane, new housing supply has lagged slightly behind population growth. In the other capital cities, housing supply actually outpaced population growth between 2006 and 2014.

Housing supply and house prices

The issue of housing affordability has traditionally been pitched in terms of supply failing to keep pace with growing demand, and house prices rising in response to the imbalance.

Yet, house price inflation has surged even in metropolitan areas where housing supply exceeds population growth. The evidence suggests a complex relationship between supply, population growth and price that is shaped by both supply and demand-side factors.

As prices and rents rise, housing costs continue to eat up larger shares of household incomes, particularly in moderate and low-income groups.

The study shows 80% of new unit approvals were located in the top 20% of local government areas with the highest unit prices. This is while 80% of new house approvals were in the top 40% of local government areas with the highest house prices.

There is very little new supply in areas where house prices are lower, where households on low to moderate incomes can afford to live.

Affordable housing, cities and productivity

The lack of affordable housing in the vicinity of employment centres can pose threats to the productivity of our cities. If suburban residents are forced into longer commutes to access employment in the CBD, it can reduce productivity.

A potential consequence is that low-paid workers are deterred from seeking jobs in CBDs. This would then cause certain skills to become unavailable, and businesses to be less efficient, because they cannot quickly fill vacancies with suitable applicants.

Our data shows new units have grown by 30% in areas which have the most jobs, between 2005-06 and 2013-14. In contrast to this new units have only grown by 2.5% in areas with less jobs.

It would appear that unit approvals are concentrated in areas with abundant job opportunities. So productivity could improve, as congestion eases, and commute times lowered, if (and it’s a big if) these dwellings were affordable to those wishing to take advantage of these job opportunities.

New housing supply has grown at a pace that matches population growth rates, at the national level. However, there is plenty of variation across the capital cities.

The strongest growth in the number of units has been in the territories (though this is from a low base), followed by Melbourne and Brisbane. However, the strongest growth in the number of houses has been in Perth, at around 22%.

Sydney has experienced much lower growth in its number of houses, at less than 10%. This reflects the very different patterns of development in the two cities.

In Perth, Brisbane and Sydney, increases in the supply of housing didn’t keep pace with population growth during, between 2006 and 2014. However, the drivers of this shortfall are varied.

Perth’s population grew very strongly over the period that we studied. The roughly one-quarter increase in population would stretch the capacity of most housing construction sectors.

However, even though Sydney’s population growth (at 14%) is below the average across all capital cities, its housing supply failed to match this growth. These outcomes highlight the different demand and supply side factors operating across states.

We currently have a national housing policy narrative that is dominated by a consensus view that higher levels of housing supply are the solution to housing affordability problems. While increased supply will always help take steam out of pressured markets, our study suggests a more nuanced approach is needed to the supply side, while not ignoring the demand side pressures.

It’s important that we identify those barriers to expanding affordable housing supply that have been impeded in the majority of our cities, especially for low income households.

Authors: Rachel Ong, Deputy Director, Bankwest Curtin Economics Centre, Curtin University; Christopher Phelps, Research assistant, Curtin University; Gavin Wood, Professor of Housing, RMIT University; Steven Rowley, Director, Australian Housing and Urban Research Institute, Curtin Research Centre, Curtin University

From ‘white flight’ to ‘bright flight’ – the looming risk for our growing cities

From The Conversation.

If the growth of cities in the 20th century was marked by “white flight”, the 21st century is shaping up to be the era of “bright flight”. The young, highly educated and restless are being priced out of many of the world’s major cities.

They are choosing instead to set themselves up in smaller, regional cities. These offer access to less expensive housing and abundant cheap workspace. The barriers to entering the workforce or starting up a business are lower.

The “metropolitan pressure” of rapid urbanisation is generating a talent spill-over effect, which is setting the stage for a new era of urban winners and losers. This talent leakage is primarily made up of the “forgotten ones” – those who don’t qualify for social housing, but who are unable to afford market-rate housing.

In this age of of hyper-urban migration, where talent goes, capital flows. Cities need to respond to this migration trend and provide adequate housing solutions to retain talent. If not, it could shape up to be a major economic challenge as many are relying on this cohort of knowledge sector and tech-focused workers to lead them into the digital age.

Lessons from the rise of the suburbs

Many will know the urban story, or rather sub-urban story, of the mid-20th century. It was an era marked by “white flight”, the term used to describe the phenomenon of predominantly middle and upper-class Caucasians leaving urban centres to live in the suburbs.

For some, it was a chance to have their dream home in a culturally and ideologically homogeneous neighbourhood replete with white picket fences and enabled by access to cheap debt and favourable tax incentives.

From the cities’ perspective, this migration was devastating. Cities saw their tax revenues drained as higher-income earners fled to the ’burbs. At the same time, these cities required increased investment in social services, housing and education for low-income residents who largely had no choice but to stay in urban centres.

Over a few decades, this exodus led to severe economic and social decay in many of the world’s cities. By the mid-1970s, even New York was on the verge of bankruptcy.

Reversal drives an urban renaissance

This era of “white flight”, however, began to fade in the later part of the 20th century as a new generation of urbanites flocked to cities across the world.

What we are experiencing now is nothing short of a modern urban renaissance. From the very young to the very old, from singles to families, people are moving to cities in droves, drawn by the excitement, cultural diversity, eclecticism and array of employment opportunities that urban living offers.

Global cities like London and New York have rebounded from this era of urban decay better than they could ever have expected. In many ways, however, they have been too successful for their own good. The reverse migration back to the city has placed enormous pressure on our metropolitan regions.

As urban populations grow, so too does the level of investment needed for cities to function well. The investment is required to improve ageing infrastructure, expand mass transit, increase housing supply and extend capacity of civil services.

But making all these upgrades to improve and sustainably grow our cities creates another challenge: it increases competition for space. The more we increase density in our cities, the more expensive land becomes. The more expensive land becomes, the more expensive housing becomes, so people get priced out of their city of choice and move on.

Spilling over to second-tier cities

This pattern has been playing out for a some time now in the US. The spill-over of talent from top-tier cities like New York, Chicago, Los Angeles and San Francisco has flowed into more regional cities such as Seattle, Portland, Austin, Philadelphia and Denver.

Australia doesn’t have many regional cities that, like Minneapolis in the US, offer a place for talented workers to migrate within the country.

These second-tier cities have been the beneficiaries of this new wave of tech-savvy, knowledge sector workers. With all those bright workers around, companies like Google, Facebook, Apple and Amazon soon followed.

As a result, these cities now have some of the hottest property markets in the world. And they are now experiencing their own growing pains as housing prices have soared and the next wave of talent are being priced out.

And so the pattern continues and the talent spills into even more regional cities like Charlotte, Chattanooga and Minneapolis.

What does this mean for Australia?

Today, civic leaders and planning agencies are caught in the vice of balancing the need for increased density and growth while maintaining liveability, affordability and a sense of place.

Unfortunately for many cities, this vice has been tightened too much. We are pushing out the very workers who make our cities function (bus drivers, social workers, teachers), who define their culture (artists, designers, writers, musicians) and who will shape their future (data scientists, software developers, clean tech experts).

For Australia, this issue is much more acute. Unlike the US, which has a multitude of cities for talent to spill into, Australia has only a handful of cities. While places like Parramatta, Geelong and Newcastle will likely benefit from talent capture owing to the pressure build-up in Melbourne and Sydney, many more “bright ones” will likely seek their fortunes overseas and leave the country altogether.

We will rue the day if the companies follow suit, but cities can also take action to relieve some of this affordability pressure. Many cities are enabling innovative housing models such as Baugruppen in Berlin and Pocket Living in London. US cities like Seattle, Austin and Portland are leading the way on inter-generational urban co-housing models.

In Australia, Moreland City Council, birthplace of The Commons and Nightingale housing model, is doing its part to keep talented artists, designers, key workers, young families and downsizers within metro-Melbourne. Co-living models, such as Base Commons in Melbourne, are also making an entry here in Australia as a refreshed, millennial-driven approach to urban co-housing.

Watch this space. And cities: keep enabling housing innovation.

Author: Jason Twill, Innovation Fellow and Senior Lecturer, School of Architecture, University of Technology Sydney

Trend Dwelling Approvals Rise 0.8% in March, But…

The number of dwellings approved in Australia rose 0.8 per cent in March 2017, in trend terms, after falling for nine months, according to data released by the Australian Bureau of Statistics (ABS) today. However the more volatile seasonally adjusted series took another fall.

Dwelling approvals increased in March in New South Wales (3.0 per cent), Tasmania (1.6 per cent), Queensland (0.5 per cent) and Victoria (0.3 per cent), but decreased in the Northern Territory (19.1 per cent), Australian Capital Territory (7.1 per cent), Western Australia (1.9 per cent) and South Australia (0.1 per cent) in trend terms.

In trend terms, approvals for private sector houses fell 0.6 per cent in March. Private sector house approvals fell in Queensland (2.0 per cent), South Australia (0.4 per cent) and Victoria (0.3 per cent), but rose in New South Wales (0.3 per cent) and Western Australia (0.1 per cent).

In seasonally adjusted terms, dwelling approvals decreased by 13.4 per cent in March, driven by a fall in total dwellings excluding houses (22.0 per cent) and total house approvals (5.0 per cent).

The value of total buildings approved rose 0.1 per cent in March, in trend terms, after falling for seven months. The value of residential building approved rose 1.0 per cent while non-residential building approved fell 1.9 per cent.

Modest Decline in March New Home Sales

The HIA New Homes Sales Report – a survey of Australia’s largest home builders – shows a modest decline in total new home sales during March 2017.

Amongst the jurisdictions surveyed, NSW was the only state to record an increase in detached house sales in March, posting a 10.4 per cent rebound after a soft result in February. Detached house sales fell by 4.6 per cent in Victoria, by 5.4 per cent in Queensland and fell in South Australia and Western Australia fell by 1.7 per cent and 1.2 per cent respectively.

“New home sales across the country eased by around 1.1 per cent in March 2017,” said HIA Economist, Geordan Murray. “The decline was more evident in detached house sales which were down by 1.4 per cent in March. Sales of ‘multi-units’ eased by only 0.1 per cent in the month.

“With residential building activity having peaked at a record level in 2016, industry spectators are watching leading indicators closely to assess where activity may be headed in the next phase of the cycle.

“In particular, there has been a high degree of speculation about the trajectory of activity in the multi-unit market given the unprecedentedly large role it has played throughout the upside of the cycle. The new home sales survey shows that sales have been sustained at a relatively high level though to March this year.

“Similarly, detached house sales are indicating only a slight downward trend. This is consistent with other data on building approvals and dwelling commencements,” concluded Geordan Murray.

Short Supply Forces Land Prices to Rise Again – HIA

Australia’s residential land market showed signs of increased supply pressures during the closing quarter of 2016 according to the latest HIA-CoreLogic Residential Land Report published today by the Housing Industry Association and CoreLogic.

According to the latest HIA-CoreLogic Residential Land Report, the weighted median land lot price rose by 4.8 per cent to $254,406 during the December 2016 quarter – 9.3 per cent higher than a year earlier. Today’s report also indicates that the estimated number of land lot sales across Australia totalled 10,756 during the final quarter of 2016 – down by 22.7 per cent compared with the previous quarter and 39.5 per cent lower than a year earlier.

Based on land transactions during the December 2016 quarter, the annual pace of residential land price growth was strongest in Melbourne (+16.3 per cent), followed by Sydney (+10.7 per cent) and Adelaide (+10.3 per cent). Over the same period, Perth’s residential land market experienced the weakest price growth (+0.9 per cent) with modest land price increases affecting Brisbane (+5.4 per cent) and Hobart (+3.1 per cent).

“The volume of residential lot transactions appears to have dipped sharply during the December 2016 quarter, placing pressure on land prices,” remarked HIA Senior Economist, Shane Garrett.

“With land being such a crucial ingredient in new home supply more challenging cost conditions in the market for residential land in 2017 will make the battle to improve housing affordability more difficult.

“We need to make it easier and less costly to deliver additional stocks of shovel-ready residential land to market. This can only be done by tackling planning delays in zoning and subdivision, releasing government-held land and improving funding mechanisms for housing infrastructure,” concluded Shane Garrett.

According to Eliza Owen, CoreLogic’sCommercial Research Analyst, “The continued fall of sales volumes against sustained value increases suggests demand is outstripping the available supply of vacant residential lots. This is particularly evident in Melbourne, where the value of lots experienced the highest growth of all capital cities in the year to December (16.3 per cent). Sales volumes in the city fell 15.2 per cent in the six months to December 2016.

“The median lot value in Melbourne is still lower than Sydney, which has consistently maintained the highest median lot price of the capital city markets. With a median vacant lot price of $455,000 this accounts for approximately 45 per cent of the median Sydney house price at the December quarter, assuming the median house was on the median lot. This median lot value has increased a staggering 65 per cent over the last five years.

“With housing affordability high on all government’s agenda, and an increasing concern for households, particularly in Sydney and Melbourne, more attention must be paid to how increased supply of residential land could help ease demand,” concluded Eliza Owen.

Higher Investment Property Lending Flows In February Offset Wider Falls

The ABS finalised their finance data today with the overall flows for February 2017. It is not pretty. Overall lending flows, in trend terms, which irons out some of the statistical bumps, shows an overall fall of 1% to $62.2 billion in the month.

Looking in more detail, lending for investment property rose 0.7% to $13 billion, whilst other fixed lending to business fell 2.9% to $20 billion.  So overall productive business lending fell again. Not good for productive growth. Actually the bulk of investor lending was in Sydney and Melbourne, highlighting again the lopsided property market, and why investor lending needs real attention from regulators and Government.

As a result of this, the proportion of fixed business lending for investment housing rose again, to 39.7%, and the share of lending for housing investment rose to 19.4%, the highest it has been since 2015

The total value of owner occupied housing commitments excluding alterations and additions rose 0.2% in trend terms, and the seasonally adjusted series fell 0.5%.

The trend series for the value of total personal finance commitments fell 0.3%. Fixed lending commitments fell 0.6%, while revolving credit commitments rose 0.2%.

The seasonally adjusted series for the value of total personal finance commitments fell 3.8%. Fixed lending commitments fell 4.7% and revolving credit commitments fell 2.2%.

The trend series for the value of total commercial finance commitments fell 1.8%. Revolving credit commitments fell 3.2% and fixed lending commitments fell 1.5%.

The seasonally adjusted series for the value of total commercial finance commitments rose 1.8%. Revolving credit commitments rose 25.5%, while fixed lending commitments fell 2.8%.

The trend series for the value of total lease finance commitments rose 6.4% in February 2017 and the seasonally adjusted series fell 31.5%, after a rise of 73.6% in January 2017.

Finally, here are the movements within the housing sector, with falls in new construction and refinance, offsetting rises in investor lending and purchase of existing dwellings.