Category: Building & Construction

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

Malcolm Turnbull seizes housing affordability as key to his comeback

From The New Daily.

Malcolm Turnbull has seized on housing affordability as one issue that could help drag his government out of the electoral doldrums, according to sources close to the Prime Minister.

Treasurer Scott Morrison is currently in London with a mission to take a lead from Britain in finding ways to open up the housing market to more potential home buyers and help solve the crisis in Australian cities.

Add to that Mr Turnbull’s decision last week to appoint Victorian MP Michael Sukkar as Assistant Minister to the Treasurer with the task of tackling housing affordability, and it becomes clear the government is taking the issue seriously.

Mr Sukkar insists the housing crisis is an “extraordinarily high” priority for the Prime Minister.

That view was reinforced by another government source, who said the Prime Minister wants to be seen to be acting on the issue.

“Malcolm is genuine in wanting to see something done on housing affordability, but it has also become too much of a hot political topic for us not to be seen to be acting in this space,” the source said.

“We need something to help turn the polls around, and if we can make progress with housing, it could be a win-win situation.

“The problem is being able to achieve something substantial. Kevin Rudd promised the earth on housing when he was in opposition and then found out how hard it was to deliver once he got into government.

“We are under no illusion about how difficult this issue is, but we think something can be achieved.”

Mr Morrison is embarking on a string of briefings in the UK detailing how the Conservative government there opened up access to bank data and changed how that data is created and shared.

The so-called open banking standard will help more startups offer cheaper housing financing products.

Last year, an Australian parliamentary committee recommended banks here be made to, by July 2018, open up access to their customers’ data and thereby make it easier for them to switch financial institutions.

The Treasurer will meet with the Open Data Institute, the Bank of England and the Financial Conduct Authority while in Britain.

He will also meet with his UK counterpart, Chancellor of the Exchequer Philip Hammond.

But while the government seems keen to follow some of the examples the Brits are setting over housing affordability, abolishing negative gearing doesn’t appear to be one of them.

Mr Sukkar has already dismissed changing Australia’s negative gearing regime, while Labor is continuing its pledge to make significant changes to the system.

Shadow assistant treasurer Andrew Leigh said there was more to learn from the UK conservatives about housing affordability than just innovative financing methods.

“You’ve got to distinguish between a policy which builds a small number of homes at the bottom end of the market and one which could make a difference right across the wide swath of the market,” Dr Leigh said.

“So sure, we should look at innovative financing solutions but let’s not pretend that that’s going to make it easier for middle Australia to buy a house.

“Here you need to look at something else the Conservatives have been doing over in the UK.

“In the 2015 budget the British Conservatives decided to make changes to negative gearing. The British Conservatives, against a scare campaign in which some of the tabloids said it was going to drive down house prices, saw through significant changes to negative gearing of the kind that Labor has been proposing in Australia.

“I’m worried that the Treasurer will come back touting a plan which will really only help a few rather than one that will help many.”

New Home Sales Bounce Back in November

The HIA New Homes Sales Report – a survey of Australia’s largest home builders – shows a strong bounce in November 2016.

In November 2016 new detached house sales increased by 5.2 per cent, while sales of multi-units were up by 9.3 per cent. Seasonally-adjusted new detached house sales increased in four out of five mainland states in November 2016. New South Wales was the exception with a decline of 5.9 per cent. In November last year detached house sales increased by 17.9 per cent in Queensland, 4.7 per cent in Victoria, 4.2 per cent in Western Australia, and 4.0 per cent in South Australia.

The November update for the HIA’s monthly New Home Sales survey shows a 6.1 per cent bounce in seasonally-adjusted new home sales. Over the three months to November 2016 the total number of new home sales fell by 0.7 per cent to be down by only 0.2 per cent when compared to the same three month period in 2015.

“Following a dip to a two year low last October, the November bounce in new home sales is a reminder that the national new home construction sector remains in strong shape,” said HIA Chief Economist, Dr Harley Dale. “The sector may have just passed its peak, but the short term outlook is a healthy one, a conclusion supported by other leading indicators such as the ABS measures of Building Approvals and Housing Finance.”

“At this stage of the new home building cycle that’s a very impressive result – this is already the largest and longest national new home construction cycle in history.”

“A healthy outlook for new home construction in the first half of 2017 is good news for the Australian economy, because of the huge impact that new home construction has on broader economic activity.

Without the boost from housing over the last five years the domestic economy would have at some point slipped into recession.”

“You wouldn’t want to be seeing signals of an imminent and sharp slowdown in national new home building activity, and we’re not. Looking further out, the declines in construction activity will inevitably become chunkier,” concluded Harley Dale.

New Home Starts continue to Ease from Peak

ABS data on building activity indicate that new dwelling starts have passed their record peak, said the Housing Industry Association (HIA).

During the September 2016 quarter, only New South Wales (+5.4 per cent) and Queensland (+6.3 per cent) saw increases in new dwelling commencements. The largest decline was in the ACT (-39.6 per cent) followed by South Australia (-20.0 per cent). There were also large reductions in Western Australia (-13.6 per cent) and Victoria (-9.6 per cent). Falls in new dwelling starts also occurred in the Northern Territory (-7.6 per cent) and Tasmania (-0.6 per cent) during the September 2016 quarter.

“New dwelling starts hit all-time record levels during 2016, but today’s data provides further evidence that we’ve left the peak behind,” commented HIA Senior Economist, Shane Garrett.

During the September 2016 quarter, new dwelling commencements fell by 2.8 per cent in seasonally-adjusted terms to 55,070. Detached house starts were down by 1.8 per cent compared with the previous quarter, while multi-unit commencements dipped by 3.9 per cent. Over the year to September 2016, new dwelling commencements totalled some 229,336.

“The result for the September 2016 quarter represents the second consecutively quarterly decline in new dwelling starts, with a substantial portion of the reduction happening on the multi-unit side,” explained Shane Garrett.

“In contrast, detached house starts have been holding up quite well. The upturn in new home building between 2012 and 2016 was heavily influenced by increased apartment building with output more than doubling,” Shane Garrett pointed out.

“With new home building set to move lower over the next few years, we expect that the higher density market will have to absorb the bulk of the reduction. From a peak of over 230,000 starts during 2015/16, we anticipate that new home starts will continue to ease over the next couple of years and bottom out at around 172,000 during the 2018/19 financial year,” Shane Garrett concluded.

Home Lending On The Rise

The latest housing finance data from the ABS underscores the renewed momentum in home mortgage lending, especially in the investment sector, and there was also a rise in first time buyers accessing the market.

  • The trend estimate for the total value of dwelling finance commitments excluding alterations and additions rose 0.6%. Investment housing commitments rose 1.7%, while owner occupied housing commitments was flat.  In seasonally adjusted terms, the total value of dwelling finance commitments excluding alterations and additions rose 2.2%.
  • In trend terms, the number of commitments for owner occupied housing finance fell 0.1% in November 2016 whilst the number of commitments for the purchase of new dwellings rose 0.7%, the number of commitments for the construction of dwellings rose 0.2%, and the number of commitments for the purchase of established dwellings fell 0.2%.
  • In original terms, the number of first home buyer commitments rose by 13.4% to 8,281 in November from 7,302 in October; the number of non-first home buyer commitments also rose. The number of first home buyers as a percentage of total owner occupier commitments rose from 13.7% to 13.8%.

Total commitments in trend terms was $32.7 billion, of which $19.8 billion was owner occupied loans, and $12.9 billion for investment purposes. 39.5% of new lending was for investment purposes, and we see the proportion of investment loans continuing to rise, it is already too high.

Looking at the month on month movements, the seasonally adjusted changes highlight the rise in the investment funding for new construction, with a 40% rise on last month. Owner occupied refinancing fell.

The more reliable trend analysis shows the monthly movements, with a strong surge in investment loans by individuals, and a stronger fall in owner occupied refinancing.

Looking at total loan stock (in  original terms) around 35% of all loans outstanding are for investment purposes, and the slide we saw late 2015 appears to be easing.

Turning to the first time buyer, original data, the number of first time owner occupied buyers rose compared with last month, and the overall mix also increased.

Combining the first time buyer property investor data from our surveys, we see a spike in overall first time buyer activity.

Last month, around 1,100 more first time buyers entered the owner occupied market than the prior month (12%), and around 150 more in the investment sector.  We also saw a rise in the fixed rate loans, as borrowers try to lock in lower rates ahead of expected rises.

So overall, still strong momentum in the housing sector, and powered largely by an overheated investment sector.

 

UK Housing Construction Higher In November

Latest data from the UK’s Office of National Statistics shows that despite the overall fall in all work in November 2016, new housing continued to grow at an increasing overall rate of 1.2% in comparison with October 2016, representing the biggest increment since February 2016. A rise in affordable public housing is a significant factor. This has resulted in housing output reaching an all time high of £2,639 million, as seen in Figure 4.

The increase in housing has occurred in part as a result of the notable rise in public housing, which recovered from negative growth in October 2016 to increase by 5.5%. There was an increase of 13.7% compared with the same period a year ago, the largest month-on-year growth rise since December 2014. This high level of growth comes in the shadow of the government committing to “drive up the housing supply” by providing £8.0 billion to deliver over 400,000 affordable housing starts by 2020.

In addition, private sector housing continued to grow at a steady month-on-month rate of 0.6% compared with October 2016. However, similar to public housing, the private sector has experienced large growth in relation to the same period last year, at a rate of 12.5% which has been broadly consistent throughout 2016. This may be in part due to historically low interest rates facilitating borrowing for construction firms, coupled with the loosening of private housing planning restrictions, both of which could have contributed to the continued boom in private housing both in November 2016 and throughout the year.