The new black

Four charts this post.

Chart 1 shows that new attached dwelling approvals are on the decline, whilst detached housing demand is rising again.

Chart 2 shows that a third of the attached dwellings approved haven’t been built yet, whilst most detached houses approved actually turn dirt.

Chart 3 shows that walk-up apartments now make up only a small proportion of our infill housing redevelopment, whilst terraces and townhouses are on the rise.

Chart 4 shows a big swing towards two-storey townhouse development.  This is the new black and I believe the demand for such product should see the current levels of supply more than double over the next decade.

Now if only the local councils would see sense.

Past v projected population growth

I have been to several industry presentations and events over the past six months covering the housing market’s outlook.

Many of my contemporaries launch into their talk using the projected population growth figures.  I sit there wondering how close these projections are when compared to recent trends.

The table below outlines the past population growth versus the medium projected series for each local authority area from Noosa to Tweed and out to Toowoomba.

SEQld/Northern NSW:  Past vs projected annual population growth

  Population growth Difference
LGA area Past Projected No %
Brisbane (C) 19,650 12,850 -6,800 -35%
Gold Coast (C) 12,500 14,660 2,160 17%
Ipswich (C) 5,950 16,450 10,500 176%
Lockyer Valley (R) 750 770 20 3%
Logan (C) 5,550 9,050 3,500 63%
Moreton Bay (R) 10,000 10,750 750 8%
Noosa (S) 580 530 -50 -9%
Redland (C) 1,950 1,820 -130 -7%
Scenic Rim (R) 700 1,300 600 86%
Somerset (R) 550 560 10 2%
Sunshine Coast (R) 7,100 8,540 1,440 20%
Toowoomba (R) 1,680 1,680 0 0%
Tweed (S) 1,080 1,780 700 65%
Total SEQ 68,040 80,740 12,700 19%
Matusik, ABS, Qld + NSW Govt.  Past = annual average between financial 2009 and 2019. Projected = annual average medium series change between financial 2021 and 2031.

It seems to me that we have to see heaps of improvements, and on a range of fronts, if we are going to see a 20% lift in population growth across south east Queensland over the next decade.

A colleague, at the most recent function, leaned towards me during a keynote speech and declared “Tell him he’s dreaming”.

Throwing out the baby with the bathwater

Most residents want cars parked off street.

In response to such sentiments, Brisbane City Council proposes to increase the number of parking spaces required for future apartment buildings and townhouse developments across the middle and outer suburbs.

Parking increases have been framed as adding to the quality of life and safety of Brisbane suburbs.

I agree with this, but council’s current development rules stop this from happening.  What works against getting more cars off street are two things – site cover and basement parking.

At present, the site cover ratios are too low to get enough cars off street.  They need to be at least 60% and not the often 40% as they now stand.

Also, it should be as of right to supply parking at ground, and in many cases, parking on the first level too, of a five to eight storey project.  Basements kill infill projects as they more often than not blow the costs out of the water.

Now before you go all green on me and say that apartment (and townhouse) residents only really need one car, that is so against the trend.  Revisit my recent ‘Cars’ post here.

The market wants two cars per two bedroom apartment or two/three bedroom townhouse.  They won’t buy if this isn’t supplied – especially if targeting downsizers or two tenants.

Some have tried car stackers, but they don’t seem to sell well in SEQ, at least, and all the noise about car sharing etc. is really baloney – for every 1,000 new residents in Queensland there are some 817 new cars and this ratio continues to climb!

Hands up if you are prepared to give up your car. That’s what I thought.  I often ask this question when giving a presentation or workshop.  Very few raise their hands.  Of note, a recent town planning focused event resulted in no hands being extended.

Some of you might say that the developer can just dig a deeper basement, provide the necessary cars and up the end sales price. Hmmm.

Here is a simple tried-and-true formula that applies to two bedroom apartments: they need to be priced about 25% less than three bedroom houses selling in the same area.  If they aren’t, they are very hard to sell.  Development is really all about sales risk.

Providing the necessary onsite carparks to make apartment living workable in the middle and outer suburbs – as the development rules now stand – is, in many cases, economically unfeasible.  There is now too much sales risk.

Most want cars off street.  Many want more housing of the type that is now commonly labelled the ‘Missing Middle’.  But you cannot have both as the current development rules apply.

Be careful Brisbane (and other councils) you might just throw the baby out with the bathwater.

What I would do if I was the Federal Housing Minister

A few weeks back I mentioned in passing the Federal Housing Minister.

This prompted several on the Missive mailing list to ask me what I would do if I held that position.  Serendipitously, I engaged in a similar online discussion a week or so ago and that resulted in being asked to speak at several business forums over the next month or two.

So, what would I do if I was the Federal Housing Minister?  

At present over 60% of our domestic credit goes to housing related activities and just over 30% goes to business.  A generation ago these were the opposite.  See the chart below.

 

 

This is one of the most telling charts on the Australia economy, yet it gets little airplay nor is it regularly updated.

My aim – as housing minister – would be to reverse these proportions over the next 25 years, if not sooner.

That said, here are the ten things I would do.

1.  All publicly promoted/exposed housing market-related research, such as price growth predictions, must go through a peer panel review and an equally weighted ‘con’ argument must run alongside the ‘pro’ pitch.

2. All states/territories to remove stamp duties and federally we will remove the investor capital gains tax discount and all negatively gearing tax breaks.

3. Impose a broad based land tax on all properties set at between 2.5% and 5% per annum, depending on use, tenure and length of time held.  Overseas interests pay a higher rate per annum.  Too many land-bank.

4. Introduce a capital gains tax on all properties, with the % set to decline on length of time held – under 2 years say 20%, 2 to 5 years 15% …. over 25 years 1% etc.  This is to help stop flipping.

5. Stop all first home buyer grants and related gifts – they just stuff things up by making housing less affordable, distorting the building cycle and resulting in fewer first home buyers than would otherwise be the case.

6. You cannot use more than 50% of your SMSF assets to buy an investment dwelling/s.

7. Same set of development and building rules across the country varying only due to climatic conditions.

8. Infrastructure charges per new dwelling are also the same across Australia, set at 5% of sales price and payable on final settlement.

9. Caveat emptor applies to all buyers – off-plan included and especially high-rise apartments.  And developers and builders are responsible for all shonky workmanship, within a specified time frame and with fair caveats, not the general public.

10. No Passport, No Buy – regardless of dwelling type, development status or origin of purchaser.

20%?

A few weeks back BIS Oxford Economics made a big call, suggesting that the median Brisbane house price could rise by 20% or by $113,000, over the next three years.

This made the front page of several newspapers and split the online real estate community with many sharing the prediction as if it was the gospel truth and others saying it was BIS, but without the I.

I too entered the digital foray, suggesting that before folks blindly like or resend this information that they check out BIS’s past calls.  I did this to gauge the level of interest in my comment and on some platforms, my comment attracted higher online activity than the original post/share.

So, I have decided to look into this in more detail.

I like to ask myself a few questions when this type of stuff hits the newsstands.  These questions include:

  1. What has been forecast in the past?
  2. How do these forecasts compare with what really happened?
  3. What does the current forecast look like against present and/or future trends?

I have included two tables and two charts in the post.

Table 1: BIS Oxford Economics Brisbane house price forecasts
Time period $ change % change Price range
Past forecasts
2014 to 2016 $73,000 16.4% $445,000 $518,000
2016 to 2018 $67,000 13.2% $508,000 $575,000
2017 to 2019 $34,000 6.5% $526,000 $560,000
Current forecast
2019 to 2021 $113,000 20.5% $552,000 $665,000
Table 2: Brisbane moving annual median house price
Year ending June Median $ Annual change Three year change
$ % $ %
2009 $444,750 -$14,500 -3% $94,500 27%
2010 $485,250 $40,500 9% $79,250 20%
2011 $457,750 -$27,500 -6% -$1,500 0%
2012 $444,500 -$13,250 -3% -$250 0%
2013 $462,500 $18,000 4% -$22,750 -5%
2014 $491,500 $29,000 6% $33,750 7%
2015 $512,750 $21,250 4% $68,250 15%
2016 $539,750 $27,000 5% $77,250 17%
2017 $554,250 $14,500 3% $62,750 13%
2018 $564,250 $10,000 2% $51,500 10%
2019 $552,000 -$12,250 -2% $12,250 2%
Price Finder

My comments

BIS Oxford’s recent past calls haven’t been that far off the mark.

Well two out of three ain’t bad!  Revisit tables 1 and 2.

Whilst the predicted % change – revisit chart 1 – looks possible, the actual quantum of the forecast price change – revisit chart 2 – looks far less probable.

For mine, three things need to happen if this forecast is to come true:

  1. Queensland needs to create a lot more full-time work and those jobs need to be high paying ones. Recent trends suggest otherwise.
  2. A lot of the buyers will have to come from elsewhere, being from interstate or overseas. Interstate migration to Queensland is increasing and there is evidence to show that they pay more for a property than the local market, but unless their numbers increase dramatically, their impact on the overall market is likely to be limited.
    Overseas buyer interest, in contrast and despite some Murdoch motormouths trying to talk it up, is on the wane.
  3. Australia’s economic, social and demographic outlook would need to change and probably significantly.

End note

I hope that BIS Oxford’s call comes true.  I do so for a selfish reason; we are planning to sell our home and downsize in the next year or so.  Our age and being an empty nest have more to do with our timing than any market analysis or trying to pick the market.

But I think that the market forces against such a gain are too many.

I don’t hold much stock in exact price forecasts.  I think that understanding the general shape of things to come is more important than trying to put an accurate number on something so uncertain.

Having said that, if I was to guess and based on some luck coming Queensland’s way, then I think a gain of between 8% and 10% or up to $50,000 in Brisbane’s median house price over the next three years is probably more realistic.

Auction Clearance Rates

Here’s a typical example of THE Monday morning real estate headline these days:

Buyers flock to weekend auctions

Preliminary data from CoreLogic shows that Sydney’s residential market recorded an auction clearance rate of 77.2 % on the week of the 8-14 July, compared with 46.9% at the same time in 2018.

Melbourne’s preliminary clearance rate was 73.6%, up from 56.2% a year ago.

Real estate agents cite factors such as recent official interest rate cuts and positive sentiment in the wake of the federal election for the higher-than-usual winter sales activity.

Source: Australian Financial Review – Page 5: 15 July 2019.

But what is really being measured here?

Of course, caveats apply, and they include the following CoreLogic rules.

Auction clearance rates are calculated for auctions scheduled during the week ending Sunday and are based on available data using:

  • Total known number of sold properties before, at or after auction,
  • against the total known number of auction results, including passed in and withdrawn auctions and
  • not all auction results are available or known to CoreLogic at the time of calculation and reporting of auction clearance rates and auction property details.

Fair enough.  Well maybe?

In preparation for writing this post I asked some 50-odd people – many in the property industry, some novices and others with no interested in real estate at all (yes, they do exist!) – what they thought an “auction clearance rate” actually meant.

Nearly all replied something along these lines “the property was sold at auction…on the day…under the hammer…and at or above the reserve price”.

Well my friends it means nothing like that at all.  In fact, the actual results are as clear as mud.

At the time of writing the final results for the week of the 8-14 July weren’t available, so I have used the results for previous week instead.  It matters not.  My findings will be the same.

And I want to zero in on the Sydney house auction results. Again, my findings apply to all markets outlined in the table below.

Here’s my summary

  • 72% promoted auction clearance result (I have rounded up to the nearest 1%)
  • 242 auctions
  • 213 “results”
  • 213/242 = 88% (So why isn’t this the promoted auction clearance rate given the caveats outlined above?)

Breaking things down further:

  • 53 sold prior to auction
  • 98 sold at auction
  • 2 sold after auction
  • Totals 153
  • 153/242 auctions = 63%

But wait there is more!

  • 44 passed in
  • 16 withdrawn
  • Totals 60
  • 60 + 153 = 213 “results”

I do wonder what has happened to the missing 29 (242 minus 213). This isn’t a small number as 29 represents 12% or 1 in 8 houses listed for auction that week in Sydney.

One assumes that these 29 houses are still for sale.

So, at best the results are 63% and not 72% or even 88%.

But given what my straw poll suggests, most think the auction clearance result should be actually 40% i.e. 98/242.

Relevance

Also, auction clearances only seem relevant in select markets.  These include Canberra, Sydney, Melbourne and to some degree Adelaide for detached houses. Also, they have more relevance to house sales rather than apartments.

The table below shows why.

Total auctions as % of estimated sales during week of 1-7 July 2019
Capital city House sales Unit sales
Adelaide 20% 4%
Brisbane 7% 3%
Canberra 62% 19%
Melbourne 23% 22%
Perth 4% 1%
Sydney 28% 17%
Hobart 3% 0%
Total capital cities 19% 15%

End notes

There is little doubt that the promoted auction clearance results – regardless of the exact measurement – have improved in recent months.

There is also a past strong relationship between the change in median house prices in Sydney and Melbourne and the promoted auction clearance rate results.

Yet I cannot help but think that this indicator is touched – like too many things in the property space these days – with more than its fair share of fraud.

It pays to understand what is actually being measured.

Infrastructure Charges

Few will oppose that we should be creating more affordable homes.

Yet from the get-go it is bloody hard; if not impossible.

I, like many others, have reasoned that changing our existing planning schemes and widening our product choice would help deliver more affordable housing; but even if that was to happen the way we currently set infrastructure charges would need to change before any real inroads where made.

In Queensland, and keeping things simple, a developer (read the buyer!) has to pay $20,000 per new one or two bedroom dwelling or $28,000 per new three or more bedroom dwelling in infrastructure charges.

This is paid at the beginning of the development process and applies to all new dwellings, regardless of price, that require a subdivision or development approval.

The infrastructure charge is levied when a either a new allotment is created, or a new dwelling is supplied.  It is only charged once.

One table accompanies this post.

SEQ median new price points & % infrastructure costs*
LGA Vacant lot H+L package Attached dwelling
$ % infra charge $ % infra charge $ % infra charge
Noosa $340,000 8% $704,000 4% $783,000 3%
Sunshine Coast $275,000 10% $525,000 5% $564,000 4%
Moreton Bay $254,000 11% $487,000 6% $452,000 4%
Brisbane $415,000 7% $753,000 4% $600,000 3%
Redlands $280,000 10% $594,000 5% $540,000 4%
Ipswich $202,000 14% $403,000 7% $432,000 5%
Lockyer Valley $150,000 19% $364,000 8% $325,000 6%
Toowoomba $180,000 16% $419,000 7% $405,000 5%
Logan $225,000 12% $437,000 6% $372,000 5%
Gold Coast $291,000 10% $548,000 5% $580,000 3%
Average $261,200 11% $523,400 5% $505,300 4%

The table shows that the cheaper housing solution, the higher the proportion of infrastructure charge.

This is counterintuitive.

I think infrastructure charges should be levied at a maximum of 5% of the sales price. 

That would help deliver more affordable homes, whilst charging those that can afford it more.

The real benefit of most new major infrastructure projects is, more often than not, highest in the more expensive housing locations – i.e. inner city or similar urban spaces – and is levied at the expense of those living in cheaper accommodation.

Those that benefit the most should pay their fair share.

That sounds a bit like social engineering I know, but something meaningful needs to happen in this space.  Otherwise we will just keep going around in circles.

And my final word is that infrastructure charges, regardless of their quantum, should be levied at the end of the development process, on sales settlement.

….

*$28,000 was used to determine the land and house and land package infrastructure component and $20,000 was used for the new attached dwellings as most have either one or two bedrooms.

Stamp Duties

I keep getting emails telling me about how much more affordable housing has become now that interest rates are declining.

Yet the evidence is wafer thin, with more often than not, an index chart attached to the spruik which needs a magnifying glass and a lot of imagination to see any actual improvement in housing affordability.

Yet the biggest impediment to housing affordability – being stamp duty – isn’t being addressed.

Two tables accompany this post.

Table 1: Interest rate reduction’s impact on a 30 year, $500,000 mortgage
Interest rate reduction Saving per month Saving per year
0.25% $75 $900
0.50% $150 $1,800
0.75% $225 $2,700
1.00% $300 $3,600
Table 2: Stamp duty paid on a $500,000 purchase of an established dwelling
State or Territory Primary residence Investment Transfer fee
1sthome buyer Other buyer
NSW $283 $18,215 $18,215 $141
Vic $1,366 $23,336 $26,436 $1,258
Qld $1,494 $10,244 $17,419 $1,307
SA $25,485 $25,485 $25,485 $3,992
WA $18,197 $18,197 $18,197 $261
Tas $18,589 $18,589 $18,589 $207
NT $24,218 $24,218 $24,218 $145
ACT $12,631 $12,631 $12,631 $386
Stamp duty includes mortgage transfer fee, transfer fee and stamp duty.  Includes electronic transfer in Vic; south of the 26th parallel in WA; Darwin in NT + not eligible for the pension, $120,000 household income and 2 children in ACT.

Whilst lower interest rates no doubt help, there is a lot of evidence to show that most mortgage holders keep their payments steady and pay off their loan sooner.

In addition, there is little confirmation to show that more are buying or are taking out a larger loan because interest rates are slightly lower. In fact, the latest figures show that the average new housing loan has dropped by 4% in size over the last 12 months.

Yet most buyers will tell you that the high price of stamp duty is one of the main reasons from keeping them from moving and is the biggest drag on affordability.

A recent investigation by CoreLogic found that 73% of the buyers polled in their study believed that the best way to make housing more affordable to them was to reduce or remove stamp duty.

If you really want to help make housing more affordable and help kick start the housing market is a meaningful way, then stamp duties need to be removed and replaced with a flat transfer fee.

The second table shows how low the transfer fee component of stamp duty is in most states/territories.

Sadly, state governments are now hooked on stamp duty revenues.

My initial response is that stamps should be replaced with a broad based land tax.  But better still we don’t really need to spend as much on infrastructure projects as we do and if we stop wasting money, then stamp duty revenue – at their current high cost – aren’t really needed.

Oh, and by meaningful way, I mean that removing stamp duty will help downsizers move into smaller, more appropriate dwellings, helping free up their larger homes for families with children and it will also help get the ‘sales train’ moving.

Often a new sale is stalled or doesn’t proceed because a buyer cannot sell their existing home or investment property.

Survey Bias

A few weeks back the mainstream press ran a real estate puff piece about how much house and unit prices have grown in select suburbs in Queensland.

Be very wary of this evidence.  It is full of survey bias.

There is no way that the same house in Auchenflower bought in early 2018 has resold for 23.1% more a year later.  Ditto goes for unit in Rochedale for example.  But in this case a Rochedale unit is apparently worth 25.2% more!

These figures are influenced by several factors, including:

  • Low sample of sales.
  • Anomalies such as site sales, or when values fall, divorces etc.
  • Major renovation activity.
  • New projects settling.

The rules when using median property values as a guide should:

  • Include many hundreds of sales, but better still a thousand plus sales, in the survey sample.
  • Exclude all anomalies, best done by including only ‘normal sales’ and removing new housing sales from the mix.  I also exclude sales below and above certain prices – for example under say $250,000 and over $1.5m – to help remove bias.
  • Use moving annualised figures and cover at least five years, but better still a ten-year period, and not just last year’s result versus this year figures.

Really the only way to determine price growth is to review resales.  That’s the same house or apartment/townhouse (without a major renovation between sales) reselling between two time periods.

If that was applied to the suburbs in the attachment, then my quick analysis shows very little growth in resale house values and actually falls in resale value in most cases for apartments.

But that doesn’t make for a great headline does it!

PS I do chuckle when the intel is so wrong, yet the results are reported with a decimal report.

It’s the price stupid

I am often asked how someone decides what house to buy.

My answer is “The best price they can find at the time”.

Others in my space will wax lyrical about being close to work, in the right school zone or being near public transport.

These factors do play a role but nowhere near as much as the price.

A recent survey by CoreLogic supports my claim.  This survey, conducted in 2017, found that the top considerations when deciding what to buy included:

  • 79% price
  • 40% proximity to work
  • 39% near good public transport
  • 37% near major infrastructure like hospitals
  • 30% distance from the CBD
  • 29% close to existing family
  • 28% close to school/sjp
  • 28% larger block of land

I am amazed how few resale properties are placed on the market these days without a clearly listed price or even price range.

In the new building space, especially off-plan development, the asking prices are almost always hidden from view.

You have to make an inquiry to find out what remains for sale and how much the developer is charging.  And even then, the answers supplied are opaque at best.

And forget trying to get a full price list!

I reckon sellers are missing out on potential sales, and maybe more than they realise, by hiding the price.

No other major sales item hides the price.  This is especially the case on the internet.  Look at the car industry or holiday packages, for example, and how they promote the price/deal.

I just don’t get it.  The real estate portals and promotion blurbs are chockers with babble about the secondary things on the survey list above, yet the most important thing is missing – the price.

Maybe it is time to rethink how real estate is promoted.