New land and house projects

The smell of a new house and land project may have the scent of investment success, but be warned.  Not all greenfield developments deliver the same outcome. Macroplan research suggests that a deep knowledge of future land supply in the area, the location’s particular attributes, and the likely future purchasers or occupants, can drive much more significant returns than indiscriminate investment in house and land packages.

The most important thing to understand is future land supply.  There are many highly desirable locations for which there is only the prospect of limited land for release in the coming years.  Areas that have fallen into this category in the past include Doncaster and Templestowe in Melbourne and Kuringai in Sydney.  The astute investor could identify there was strong demand for this product and constrained supply would ultimately lead to big price increases.

After looking at supply, the next thing to consider is the location itself, especially in relation to schools, shops and public transport.  We know that a significant premium is attached to each one of these factors and many greenfield locations have access to all three.  What you want is the right location but without paying too much for it.  The trick here might be knowing that there will be a train station in place in two years’ time, even if it isn’t there now. Some areas like Wyndham in Melbourne still have house and land packages available within walking distance of the new regional rail line.

Sometimes the future importance or modality of a location is not apparent, so it takes diligent research to find out where future roads, rail, and schools will be. This means visiting Councils and discussing future structure plans.

Areas that have struggled due to a lack of early infrastructure and an abundance of land supply - the two things you want to avoid - include Melton in Victoria and Caboolture in Brisbane.  In these locations, relative price improvements have been very low compared to other benchmark areas with quality facilities.

Was there a way to predict this?  Not historically.  Before the internet allowed access to information, it was very difficult for consumers to identify future value.  Today, however, it is much simpler and it’s really a case of ‘buyer beware’. Understanding land release, infrastructure timing and major changes in amenity (new schools or retail centres) will drive higher investment returns.

Another big value driver is the master-planned community which, compared to smaller sub-divisions in similar locations, show significant value growth.  That’s because these large-scale projects plan in community facilities, retail, local buses and parklands.  Given the scale of the communities, developers are able to deliver higher levels of amenity earlier.

Examples of these master-planned communities are Brighton Butler in Perth, Caroline Springs in Melbourne and Oran Park in Sydney.  These are big projects with around 20,000 lots, and over a couple of decades in the making.  Oran Park for example bills itself as a town built for the future, offering residents high speed fibre optic cable and sustainable living technologies. The enclosed retail centre, public and private schools were all built almost ‘upfront’.

Oran Park, Sydney

Let’s not forget that new land and house projects are often developed in areas of new economic opportunity.  For example the residential areas around the proposed Western Sydney Airport at Badgerys Creek will house a wide range of well paid employees. Where these local economies become strong, the whole range of service provision occurs, catering from child care to aged care.  And so an area becomes more valuable, not only for the first home buyer, but also the last home buyer.


About the author:

Brian Haratsis is MacroPlan’s Founder and Executive Chairman. Brian is an economist and future strategist with over 30 years experience as an advisor to governments and major corporate clients throughout Australia and New Zealand. For more information or to discuss your property research requirements, please contact Amy Williams on 02 9221 5211 or amy.williams@macroplan.com.au.

Affordable housing

There has been much talk of late about the need to provide affordable housing.  However, as far as we can see, affordable housing will remain a pipe dream unless there are significant policy changes at all levels of government. There are three elements to be addressed in achieving housing affordability.  Firstly, the cost of new dwellings needs to be reduced.  Secondly, we need to enable access to housing for those who want to purchase. Finally, and perhaps most importantly, we need to provide access to rental accommodation for those who are not in a position to buy. These policy initiatives seem to have been well understood in the 2017 Budget which recognises the issues and wants State to Local Government and the private sector to help solve the problem.

If we look at the first of these - lowering the cost of new homes - we start on the urban fringes. Here, the cost of land has increased substantially to the point where a block of land costs more than the dwelling.  These increases have occurred across the country, but the extent varies by state.

In Melbourne, the median price of land is $224,000.  That’s half the price of Sydney’s median at $450,000.  This is not caused by either city’s popularity or the fact that there’s more space in Melbourne.  It is the result of Victoria’s land release policies. Victoria is currently releasing 100,000 new lots in addition to an existing seven-year supply of land.

In Victoria, state and local government collaborate on land release to ensure prices remain reasonable.  Clearly, this type of policy could be implemented on a national basis.

In addition to efficient land release, it’s also possible to reduce taxes and charges for lower income groups.  For example, in Sydney and Melbourne, there’s no stamp duty for first home buyers.  But it would also be possible to reduce the development and infrastructure contributions levied on developers, allowing them to sell land at lower prices.  It’s not well known, but these contributions can be as high as half the price of land!

In relation to the second element of affordable housing - enabling access - this can be achieved through a range of innovative purchasing schemes, such as shared equity between a first home buyer and the government.  The West Australian government will put up half the purchase cost, say $200,000 on a $400,000 home, and then take its half share of the eventual sale price. The 2017 budget includes the potential for first homebuyers to access superannuation but this only works for these with sufficient income.

Governments could also consider a range of pre-purchase schemes, such as allowing consumers to buy land at today’s prices for delivery in five years, avoiding excessive price increases and encouraging enforced savings.

Lastly, rental housing.  Here the federal government already provides a rental assistance scheme for low income people but it typically covers only 20-40% of the rent.  In the past 15 years, this group has been squeezed in the rental market, as a result of an increasing number of high income earners now choosing to rent instead of buy.  The government has been discussing with the major corporate players the idea of providing long-term rental housing using low cost federal funding, but affordable rental properties available for the lowest 25% of income earners continues to dismiss it.

However, in the short term, any of the initiatives discussed are unlikely to significantly impact the fundamentals of property development.  The big thing to watch is - interest rates.


Get it touch

For more information or to discuss your property research requirements, please contact Amy Williams on 02 9221 5211 or amy.williams@macroplan.com.au

Stand-alone house approvals jump 10% in a year - MacroPlan in the press

Australian Financial ReviewMichael Bleby Tuesday, 4 February 2014

A 10 per cent jump in approvals of detached houses in the last calendar year shows that growth is returning to house building after a subdued decade.

Stand-alone houses, not apartments, account for about two-thirds of total housing approvals and are a crucial indicator of underlying market strength.

Last year’s seasonally adjusted figure of 99,508 was the highest in three years.

Not even a 3.2 per cent dip in approvals for December could dampen industry views that the worst is over.

“Our expectation is that the trend will continue to remain positive,” said Brian Haratsis, the Executive chairman of property consultancy MacroPlan.

Stand-alone housing perks up

Mr Haratsis said, “The Queensland issue is that Queensland hasn’t begun to respond post-GFC. They are very dependent on jobs.”

In contrast to the widely reported slowdown in the resources industry, the Western Australian market for detached houses continued to grow strongly last year.

Total WA detached-house building approvals jumped almost 38 per cent last year to 22,176 from 16,114 in 2012.

Mr Haratsis said this reflected the state’s heavier reliance on overseas migration than a state like Queensland, which primarily relied on migrants from the southern states, principally NSW. Continued overseas immigration was supporting the Western Australian housing market and easing the pace and depth of a slowdown, he said.

Please click here to download the full Australian Financial Review article.

MacroPlan MacroPlan’s experienced and qualified economists align their understanding of macro-economic forces with micro-economic variables such as geographic and industrial characteristics, demographics, labour market shifts, resource demand and commercial realities.  Contact Brian Haratsis, Executive Chairman  today to discuss your property research requirements.

 

 

Affordable housing inquiry has wide-ranging remit

Prepared by Stuart McKnight, General Manager for Western Australia: THE Senate Economics References Committee has commenced an inquiry into affordable housing that has a wide-ranging terms of reference relevant to developers, builders, not-for-profit organisations, aged care providers and property investors.

Issues to be investigated include land supply, home ownership, property investment, taxation, negative gearing, National Rental Affordability Scheme (NRAS), development finance, superannuation and retirement incomes, social implications, aged care, planning policies, funding mechanisms, essential and key workers, sustainability, building materials, community and social housing programs, and the roles of all levels of government in facilitating affordable housing.

The extensive Terms of Reference are available here.

The last national inquiry into affordable housing was in 2008 by the Select Committee on Housing Affordability in Australia.  That focused on barriers to home ownership and had seven issues listed in the Terms of Reference.  In contrast, this new inquiry covers not only home ownership, but also rental housing, community/social housing, homelessness, and with 16 major issues and six sub-issues in the Terms of Reference.

If you are wondering whether the inquiry is relevant to you or your business, the answer is probably, “yes”.

If you would like more information about how MacroPlan Dimasi can assist you with your submission please contact Stuart McKnight, General Manager – WA on 08 9225 7200 or via email.

Submissions are due by 25 March 2014 and the Committee is due to report by 26 June 2014.

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Canny homebuyers on top of the world - MacroPlan in the press

Greg Brown from the Australian writes:

LOCAL economic circumstances will drive the best and worst property growth across the country this year, with improved prospects for gas pushing up prices in Queeensland's Toowoomba and car industry job losses sending prices sliding in the Adelaide suburb of Kilburn.

Forecasts by property consultancy firms MacroPlan and Australian Property Monitors show that Queensland will host four of the six best performing suburbs for home value growth this year, with the low Australian dollar boosting key industries in the state.

Suburbs in South Australia, Canberra and some iron-ore producing towns in Western Australia will stall, as the industries that employ large numbers of people in these areas face a tougher year.

Brisbane's Dutton Park on the fringe of the city and the outer western Redbank Plains will be two of the country's top performers, growing by a forecast 10 per cent, with the whole city expected to reap the rewards of renewed confidence.

MacroPlan chief economist Jason Anderson said that rising inner city rents in Brisbane this year would see more demand for city fringe apartments, while the affordability of Redbank Plains would stoke the interest of a more confident first-home buyer cohort, returning to the market after low levels last year.

Download the full article.

MacroPlan’s experienced and qualified economists align their understanding of macro-economic forces with micro-economic variables such as geographic and industrial characteristics, demographics, labour market shifts, resource demand and commercial realities.  Contact Jason Anderson, Chief Economist  today to discuss your property research requirements.

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