Category: Building & Construction

First Home Owner Grant To Double In Regional Victoria

The Victorian Government has announced the First Home Owner Grant will be doubled in regional Victoria. The Grant will increase from $10,000 to $20,000, commencing 1 July 2017. The Government expects up to 6,000 first home buyers will receive extra assistance.

This is in addition to the recent land release announcement.

The increased grant will be available to first home buyers building new homes valued up to $750,000, and is an additional $50 million investment in regional Victoria over the next three years.

The grant will be applicable to contracts signed from 1 July 2017 to 30 June 2020, at which time, the Government will review the benefits for first home buyers and businesses in regional Victoria.

However, our analysis of such grants, not only here but overseas is that they simply lifts prices by the same amount. It is a zero sum game.

Whilst we understand the political agenda, this move is unlikely to improve housing affordability and access to property.

Dwelling approvals continue to fall in January

The number of dwellings approved fell 2.1 per cent in January 2017, in trend terms, and has fallen for eight months, according to data released by the Australian Bureau of Statistics (ABS) today.

Here is the data charted by the HIA. They say “new dwelling approvals have been falling back over the past year, particularly due to a reduced inflow of new multi-unit projects”.

In trend terms, dwelling approvals decreased in January in the Australian Capital Territory (19.4 per cent), Queensland (6.8 per cent), New South Wales (4.8 per cent), Northern Territory (1.7 per cent) and Western Australia (0.3 per cent). Dwelling approvals increased, in trend terms, in Tasmania (3.0 per cent), Victoria (2.9 per cent) and South Australia (1.1 per cent).

In trend terms, approvals for private sector houses fell 1.2 per cent in January. Private sector house approvals fell in New South Wales (2.2 per cent), South Australia (1.4 per cent), Western Australia (1.4 per cent), Queensland (1.0 per cent) and Victoria (0.3 per cent).

In seasonally adjusted terms, dwelling approvals increased by 1.8 per cent in January, driven by a rise in total dwellings excluding houses (6.6 per cent). Total house approvals fell 2.2 per cent

The value of total building approved fell 2.9 per cent in January, in trend terms, and has fallen for six months. The value of residential building fell 0.9 per cent while non-residential building fell 6.8 per cent.

Future Housing Starts Lower

According to the Housing Industry Association, during the year ended September 2016, there were over 229,000 dwellings that commenced construction. While this is still an exceptionally high level of activity based on historical experience, the annualised level of commencements has eased since peaking at over 231,000 in the year ending in the March 2016 quarter. This is supportive of HIA’s view that the current new residential building cycle is likely to have peaked in 2016.

Detached houses

Despite the decline in the total number of commencements, the detached house segment of the market has proven resilient.

There were 29,634 detached houses commenced during the September 2016 quarter, which makes a total of 115,953 commencements in the year up to this point.

The prevailing dynamics in the detached house market during 2015/16 were a marked contraction in the level of activity in Western Australia counter balancing the ongoing resurgence in the Victorian and New South Wales markets. While there were variations in other state and territory markets, when we take a national perspective these two factors eclipsed the rest. However, we are now well into 2016/17 and approaching a new phase of the cycle which will have a fresh dynamic. The headwinds afflicting WA may soon subside and Sydney and Melbourne’s time in the sun may be drawing to a close.

From a national perspective, detached house commencements are forecast to ease by 1.7 per cent in 2016/17 ahead of a further decline of 7.3 per cent in 2017/18. After falling to a low of 104,800 starts in the 2018/19 year, the level of detached house building is forecast to gradually improve across the out years of the forecast horizon.

Multi-unit dwellings

The ‘multi-unit’ market has weakened overall. After a very strong result in the March 2016 quarter, the number of multi-unit commencements fell away quite sharply throughout the middle of the year.

However, there are markedly different trajectories for the semi-detached market (including townhouses, row and terrace type dwellings) and the market for apartments in buildings of four or more storeys.

The number of commencements for semi-detached dwellings continued to grow throughout the year. In contrast, the number of commencements for apartments in high-rise developments slowed as activity in Victoria and Queensland eased. The flow of new apartment projects getting underway in New South Wales has remained more buoyant and there is a record level of apartments in developments awaiting commencement.

In aggregate, there were a total of 25,202 multi-unit dwellings commenced in the September 2016 quarter, which is equivalent to 113,383 across the full year. HIA is forecasting that multi-unit dwelling commencements will remain at quite a high level in the 2016/17 financial year, albeit with an annual decline of 11.3 per cent. Looking beyond 2016/17 is when we anticipate commencements will post more significant declines. Multi-unit commencements are forecast to decline by around 25 per cent in 2017/18, and then by a further 12 per cent in 2018/19. The 2018/19 year is projected to be the low point of the cycle for multi-unit commencements, when 68,400 starts are forecast to occur.

 

A Softer New Year for New Home Sales

The first key new housing update for 2017 provides a softer update, said the Housing Industry Association.

The January 2017 update for the HIA’s monthly New Home Sales survey reveals a decline of 1.5 per cent in detached house sales following a similar fall of 1.6 per cent in December last year. Detached house sales fell by a very modest 1.1 per cent over the three months to January 2017 to be down by 4.0 per cent when compared to the same period 12 months previously. The sale of ‘multi-units’ dropped by 4.3 per cent in January following an increase of 6.4 per cent in December 2016. Over the three months to January 2017 multi-unit sales increased by 4.8 per cent to a level 9.0 per cent higher than the comparable period a year earlier.

Seasonally adjusted new detached house sales increased by 12.1 per cent in Western Australia in January 2017 following a sharp dip of 9.1 per cent last December. In the month of January 2017 detached house sales fell by 6.8 per cent in New South Wales, 4.1 per cent in Victoria, 2.0 per cent in Queensland, and 1.4 per cent in South Australia.

“The HIA New Homes Sales Report – a survey of Australia’s largest home builders showed a moderate decline of 2.2 per cent in January 2017,” said HIA Chief Economist, Dr Harley Dale. “This weaker update does follow a relatively decent run home for new home sales in late 2016.”

“Given that Australia is tailing off from the largest and longest new home building cycle in history, both the total and sub-component profiles for new home sales are still in very good shape,” said Harley Dale.

“There aren’t many sectors punching above their weight in the nation’s economy right now, so the profile for new home sales is also good news for Australia as a whole.”

“HIA’s latest forecasts for new dwelling commencements will be released on Thursday and they will paint a healthy short term picture for residential construction. There is nothing to be seen in this latest update for new home sales or from any other recent leading indicator results to deter us from this outlook,” concluded Harley Dale.

 

Lender caps hit apartment deals: LendLease

From AAP.

Property giant Lendlease is seeing longer settlement periods and higher cash buying as apartment buyers respond to a recent clampdown on mortgage lending by banks.

The company said residential pre-sales remained steady but customers are taking longer – between 28 to 30 days – to complete settlements at Australian apartment buildings.

“In Australia, we are working with buyers who need more time for settlement. We are also seeing increased use of non-banking sources of finance and also more cash buying,” chief financial officer Tarun Gupta said.

Australia’s major banks have tightened lending criteria for property investors over the past year – particularly for foreign investors, in response to the regulator’s cap on lending growth in the investor market.

“We are seeing an uptick in cash settlements, which are now 30 to 35 per cent. We are also seeing more non-banking finance entities writing loans for our customers,” Mr Gupta said.

Lendlease booked residential pre-sales of $5.7 billion, with 2,037 units settled, including 628 apartments.

Apartment defaults continued to be minimal, at less than one per cent.

The company delivered a 12 per cent lift in first-half profit, leveraging on its strength in the construction and office building space.

It reported net profit of $394.8 million for the six months to December 31, as margins jumped at its US construction business and sales were stronger at a number of its Australian office buildings.

Revenue rose 7.6 per cent to $7.95 billion.

Lendlease lifted earnings for the development division by 10 per cent, in part because of the completion of the last of the three Barangaroo office towers in Sydney.

“Commercial development, in particular the Australian office sector, was a highlight of the first half result,” chief executive Steve McCann said over an investor call.

The company made forward sales for three office buildings in Brisbane and Melbourne, and sold down a majority stake in the Circular Quay Tower development in Sydney.

The office segment is expected to be a major contributor to future growth at the company, with 13 major commercial buildings now in delivery phase across the globe, with estimated value of $7 billion.

Total development pipeline grew to $49 billion, up five per cent from a year earlier.

“We remain well placed for future success given earnings visibility and a targeted and disciplined approach to delivering on our strategy,” Mr McCann said.

But the main contributor to profits was the construction division, where half year earnings jumped 45 per cent, mostly on the back of a rebound in margins at the American business as a number of projects were completed.

Construction margins were weaker in Australia, but were offset by increased engineering activity.

The company declared an unfranked interim distribution of 33 cents per security, up 3.0 cents from a year earlier.

Land Sales Recover, as prices rise

Residential land sales increased for the second consecutive quarter as prices reached a new high during the three months to September 2016 according to the latest HIA-CoreLogic Residential Land Report published today by Housing Industry Association and CoreLogic.

Today’s HIA-CoreLogic Residential Land Report shows that the land lot price nationally rose by 3.3 per cent during the September 2016 quarter to another record high of $243,585. During the quarter, 18,510 land lot transactions are estimated to have occurred across Australia, 6.4 per cent higher than the previous quarter but 7.3 per cent lower than a year earlier. During the six months to September 2016, land transactions experienced the largest increase in Perth (+5.5 per cent) compared with the same period year earlier. Land turnover also increased in Hobart (+2.1 per cent) over the same period. Land sales saw the largest reduction in Sydney (-29.9 per cent) over the same period. Turnover also fell back in Melbourne (-13.5 per cent), Adelaide (-5.1 per cent) and Brisbane (-3.3 per cent).

“During the September 2016 quarter, the volume of land sales increased by 1,121 lots compared with the June 2016 quarter,” said HIA Senior Economist, Shane Garrett.

“However, the number and size of government taxes, fees, levies and charges on new residential land needed to accommodate our growing population continues to weigh down on our national housing affordability challenges,” explained Shane Garrett.

“In addition to removing the excessive taxes on new land, long term commitment from all levels government in the areas of planning, land release and infrastructure funding is necessary.”

“Price pressures in the residential land market are greatest in the capital cities, with Sydney prices now approaching $1,000 per square metre,” concluded Shane Garrett.

According to CoreLogic research director Tim Lawless, “with median land prices rising consistently since mid-2013 it is clear that one of the primary drivers of broader housing market growth has been the underlying appreciation of land values, which is pushing the overall value of housing higher. The median dollar value per square metre of vacant land was recorded at $927 in Sydney, which is 32 per cent higher than the next most expensive capital city, which is Perth where the rate per square metre is $701. The high land costs are a significant contributor to the unaffordability of housing across Australia’s largest capital city.”

“With housing affordability one of the most topical housing market issues, the underlying drivers of high land costs need further scrutiny. Government policies around land release and headworks costs are central to the debate around housing affordability and the cost of vacant land,” continued Tim Lawless.

“The trend towards a larger number of land sales over the September and June quarters of last year is very welcome, however land sales remain more than 7 per cent lower than their previous 2015 peak. With capital city transactions rising by almost 10 per cent over the September quarter compared with a 1.1 per cent rise across the combined regional markets, it is clear that demand for vacant land is most concentrated across the capital city markets where economic conditions are generally stronger,” concluded Tim Lawless.

New Home Sales Grew In December – HIA

The HIA New Homes Sales Report – a survey of Australia’s largest home builders – highlights a relatively healthy end to 2016, said the Housing Industry Association.

New detached house sales fell by 2.3 per cent in the December 2016 quarter, while the sale of multi-units grew by 3.2 per cent.

The December update for the HIA’s monthly New Home Sales survey shows growth of 0.2 per cent in total seasonally adjusted new home sales in December 2016. This result follows faster growth of 6.1 per cent in November. Multi-unit sales increased by 6.4 per cent in December 2016. Detached house sales fell by 1.6 per cent, within which there was strong gains for New South Wales and Victoria.

Seasonally adjusted new detached house sales increased in two out of five mainland states in December 2016, compared to four out of five states in November. Detached house sales increased in the month of December by 2.4 per cent in New South Wales and by 5.8 per cent in Victoria. The monthly fall in detached house sales was 9.1 per cent in Queensland, 1.9 per cent in South Australia, and 9.0 per cent in Western Australia.

“New home sales hit a two year low in October last year, but recovered well in November and December,” said HIA Chief Economist, Dr Harley Dale. “The late 2016 results were strong for the sales of ‘multi-units’, while detached house sales remained in reasonable shape.”

“The strong finish to 2016 for new home sales admittedly follows a very weak month in October,” said Harley Dale. “Obviously it is better that new home sales bounced back rather than kept falling!”

“The overall profile for both HIA New Home Sales and ABS Building Approvals is consistent with the first stage of the down cycle in new home commencements being a mild one. We expect this down cycle to begin in 2017.”

“As has been the case all cycle, new home sales (and building approvals) highlights the large differences in new home building conditions between the five mainland states,” concluded Harley Dale.

Sensible reform to finance affordable housing deserves cross-party support

From The Conversation.

Treasurer Scott Morrison’s visit to cold old London last week in the middle of the Australia summer was time well spent. Morrison made time in his hectic schedule for a lengthy meeting with the UK’s Housing Finance Corporation (THFC) to discuss an affordable housing financial intermediary with its chief executive, Piers Williamson.

Founded in 1987 to make up for the shortfall in public funding, THFC is a finance aggregator and intermediary that co-funds affordable housing for rent and ownership. And Williamson is no stranger to Australia’s housing problems. He has been a source of advice and advocate for policy reform in various Australian industry and government forums. He also has the ear of our largest superannuation funds.

And, much like Australia, the UK has a serious problem with housing affordability and supply, made worse by policy and market settings that fuel instability rental housing. In this context, channelling investment via a specialist financial intermediary towards newaffordable housing provided by landlords with a social purpose makes good sense.

The idea just needs an effective champion in Australia. In fact, it needs a bipartisan team of champions.

How does this financing model work?

Long identified as a glaring gap in Australia’s affordable housing system, bonds issued via a specialist intermediary would steer investment to where it is sorely needed. If combined with appropriate incentives and public programs, it would go a very long way towards producing more affordable housing choices, as in the UK.

International research found the UK’s Housing Finance Corporation to be one of the world’s leading examples of good practice. It funds not only affordable housing but also ensures that investment flows towards registered landlords meeting real accommodation needs.

Researchers have adapted this model in proposals for an Australian Affordable Housing Finance Corporation. Combined with a well-designed guarantee and revolving capital loans program, it’s a feasible approach, as a New South Wales government-funded study found in 2016.

In the UK, THFC combines the borrowing demands from small social landlords with committed public assistance to source the most favourable financing terms available from capital markets. With a guarantee, these enabled housing associations to borrow at a cheaper rate than the UK government.

THFC acts as the landlords’ principal. It issues mortgage bonds on their behalf, raising and passing on funds at a lower cost than would be individually possible.

Public funds on both the supply and demand side are also an important part of the equation. The NSW feasibility study makes it clear that a stable government co-investment strategy is required to ensure affordable supply.

Such a strategy was well established in the UK. But in recent years it has become less generous and stable, which has affected both supply and affordability. The UK experience demonstrates that the greater the share of public investment and stability of revenue settings, the lower the cost of private finance and the more affordable dwellings can be.

Over the past 30 years, THFC co-financed more than 2.4 million dwellings through well-regulated landlords with a commitment to secure affordable housing. These registered social landlords allocate dwellings on the basis of need rather than to the highest bidder. Renting affordable homes to those who need them is their business focus, not capital gains.

These landlords are well regulated for this purpose. In return, they have access to favourable public loans, tax incentives and direct revenue support via the UK’s Housing Benefit.

With detailed knowledge of providing sustainable social housing, THFC is able to assess the financing needs and credit risks of the housing assistance sector. Large institutional investors have little time for this. THFC’s hands-on scrutiny has ensured a zero-default record and stable A credit rating from Standard and Poor’s.

When an intermediary like THFC is combined with a government guarantee it can be even more effective in reducing perceived risks and thus financing costs, as our international research shows. Since 1991, the Swiss government helped to build, then backed, a thriving bond-issuing co-operative. This created a new market for bonds and drove down mortgage interest rates for affordable rental housing.

The UK’s Affordable Housing Guarantee delivered A$4.15 billion at or below the rate of government bonds in its three-year existence. The not-for-profit Housing Finance Corporation was licensed to manage this scheme. With the UK Treasury guarantee, it was able to obtain and pass through funds from the European Investment Bank below government gilts.

What conditions are needed for success?

The longest-term and lowest-cost investment flows to where the risks are known and predictable. In the UK, these risks have been reduced by four key conditions:

  • On the revenue side, rents have been underpinned by adequate levels of assistance for those who need it.
  • Landlords are registered and regulated in England and Scotland to ensure they are not only financially sound but also socially responsible and thus eligible for government support and tax incentives.
  • On the supply side, government funding instruments provides subordinated loans, guarantees and equity.
  • Planning mechanisms provided well-located land for affordable housing development.

These conditions have been in place throughout successive governments, Conservative and Labour. More recently, the emphasis has shifted from social rental dwellings towards affordable home ownership.

The situation in Australia is different. The small community housing sector offers long-term tenancies and shared-ownership housing in a supportive context. However, the sector needs a more sustainable business model to grow.

Current policy settings affecting supply (capital investment, planning provisions) and rent assistance are too weak and uncertain. This can change; it’s all a matter for policy reform. Other countries have moved ahead and Australia needs to catch up.

With an intermediary and appropriate government support behind them, Australian community housing organisations will have the potential to grow, as they have in the UK, US, Switzerland and Austria.

By now Morrison and his team should be well informed, having spoken to the UK experts, boned up on international evidence and consulted Australian industry.

Following the recommendations of the Senate inquiry into affordable housing and Treasury’s own Affordable Housing Working Group, sensible policy reforms such as these are likely to attract cross-party support. They not only draw on proven best practice elsewhere but can be adapted to Australian market conditions and growing needs.

Author: Julie Lawson, Honorary Associate Professor, RMIT University

Building Approvals Past Peak – HIA

The December 2016 update for ABS Building Approvals confirms we are well passed the peak for the cycle, said the Housing Industry Association.

In December 2016 total seasonally adjusted building approvals fell by 1.2 per cent with detached houses down by 2.2 per cent and ‘other dwellings’ sitting flat at +0.1 per cent. On a three month annualised basis total approvals remain above the 200,000 threshold at 204,692.

In December 2016, seasonally-adjusted building approvals increased by 19.5 per cent in Tasmania and 17.0 per cent in Victoria, while in trend terms there was an increase of 1.2 per cent in the Northern Territory. Building approvals fell in Western Australia (-16.3 per cent), New South Wales (-13.2 per cent), South Australia (-5.4 per cent), and Queensland (-0.1 per cent). In trend terms approvals fell by 2.1 per cent in the Australian Capital Territory.

“While a downward trend in building approvals is firmly entrenched, residential construction activity itself will hold up well throughout 2016/17,” said HIA Chief Economist, Dr Harley Dale. “From 2017/18 we will see a sharper decline in new home building activity, primarily due to the medium/high density segment of the market.”

“Building approvals peaked in July 2016, but by December last year were only 18 per cent lower than that peak. Given approvals reached an all-time high last year that’s a modest fall – we can take that away and bank it as a good outcome for the Australian economy.”

“This has been an extraordinary cycle for new home building – the biggest and longest in history. A long tail to the cycle will be helpful for the Australian economy.”

“It is important to focus in 2017 on ensuring Australia has the correct longer term policy settings to ensure we adequately house our growing and ageing population. The recent appointment of Michael Sukkar as Assistant Minister to the Treasurer, with a focus on housing affordability allows the Federal Government to lead from the front in meeting this crucial national objective.”

If you’re serious about affordable Sydney housing, Premier, here’s a must-do list

From The Conversation.

So “fixing housing affordability” in Sydney is one of three top priorities for the new premier of New South Wales, Gladys Berejiklian. It’s good that the state’s new leader recognises this as an intensifying problem that can’t be ignored.

Berejiklian will appreciate the electoral importance of this issue. It’s an especially sensitive topic in western Sydney, which no longer provides Sydney with the large reserve of less-expensive property that it once did. Unless they can draw on family wealth, even middle-income first-home-buyers are now locked out of huge swathes of Sydney – including areas far from the inner city.

But given she came to the top job from the Treasury portfolio, Berejiklian would also be expected to have a clear understanding that the lack of well-located affordable housing is an economic productivity concern as well as a social problem.

One aspect of this, as shown by our recent research, is that central Sydney’s booming hospitality sector is facing growing pressure to find and retain suitable employees. This is because of workers’ limited ability to find affordable housing within a reasonable distance. To work in the inner city they must weigh up other compromises – such as living in shared housing, or paying a very high proportion of income in rent.

Relying on backpacker labour supply isn’t an ideal business strategy. And, as inner Sydney housing affordability deteriorates further, there’s every possibility other CBD industries will see their lower-income labour market thinning out.

The broader issue is the growing stress caused by the continuing focus of employment creation in inner-city areas. This applies especially to the so-called “global arc” stretching from the airport in the south to Macquarie Park in the north.

The mismatch between where affordable housing and jobs are available is a key cause of traffic congestion. Dan Himbrechts/AAP

In the last few years annual job growth here has been running at more than 2%, but only 0.5% in western Sydney. At the same time, housing market pressures mean more and more people needed to fill these new jobs are having to live in outer western Sydney. The resulting traffic congestion is damaging Sydney’s economy.

Nationally, the cost of congestion in 2015 was A$16.5 billion – up by 30% on 2010. Anyone who commutes by car in Sydney will know it is a major part of this problem. Ultimately, some companies may choose to relocate to places where these problems are less severe.

Housing supply is only part of the solution

On the other hand, it must be hoped that Berejiklian will leave behind at Treasury the flawed analysis that fixing Sydney’s housing problems is simply a matter of increasing housing supply.

No-one disputes that, with continued population growth, maximising new house-building must be part of the policy mix. But the idea that this can provide any kind of silver bullet for housing unaffordability is shot dead by the experience of the past few years. Record construction rates have co-existed with unprecedented and ongoing property price hikes.

As premier, Berejiklian should therefore lend support to her ministerial colleague, Rob Stokes, who called it right by arguing recently that Sydney’s housing problems partly result from a market pumped up by excessive tax concessions for landlord investors.

These powers are held at the federal level, not with the states. So Berejiklian can do little more than lobby for such reform.

Adopt the best policies from others

And yet the premier does have important powers of her own that can make a difference.

Recognising that even a moderation of property prices isn’t going to provide relief for tens of thousands of hard-pressed renters, the NSW government must take a leaf out of the book of cities like London and New York by using its planning muscle to ensure the inclusion of affordable rental housing in all major new housing developments.

Under the former premier, Mike Baird, a promising initiative in this arena was the recent proposal by the Greater Sydney Commission to introduce a scheme of this kind. Private housing developments on sites “upzoned” under the planning system should include 5-10% affordable rental housing.

If she is serious about this issue, Berejiklian should back the commission’s move. She can prove her commitment to finding solutions by setting a much higher affordable rental housing target for development on government-owned land. This would ensure that a significant affordable component is locked in for flagship projects such as the Central to Eveleigh and Bays Precinct urban renewal schemes. This is a one-off opportunity that must not be squandered.

The new premier should also recommit to the innovative Social and Affordable Housing Fund (SAHF) created under her predecessor, following his 2015 commitment to a “billion-dollar fund” for affordable housing.

An announcement on the promised second phase of the SAHF has been long-awaited. Perhaps Berejiklian can pledge to underwrite this by dipping into the huge stamp-duty bonanza the government has reaped in recent years.

Above all, NSW needs an overarching housing strategy that encompasses much more than just the social end of the spectrum. Recognising the urgency of the problem, Berejiklian should pledge that her officials will get to work on this right away.

Author: Hal Pawson, Associate Director – City Futures – Urban Policy and Strategy, City Futures Research Centre, Housing Policy and Practice, UNSW Australia