Density targets

The Queensland government have just released broad hectare land profiles for the Gold Coast, Ipswich and Logan.

The table below provides a quick summary:

Headline summary
Municipality Hectares Dwellings* % SEQld supply
Gold Coast 1,994 63,234 15%
Ipswich 6,532 111,617 28%
Logan 9,924 123,063 30%
Forecast housing typology
Municipality Higher density Standard urban Rural Residential
Gold Coast 82% 16% 2%
Ipswich 57% 42% 1%
Logan 18% 81% 1%
Expected dwellings per hectare
Municipality Higher density Standard urban Overall
Gold Coast 104 12 32
Ipswich 58 10 17
Logan 33 12 12

Matusik + Queensland Government. * Medium scenario.

Some comments

  1. These three municipalities are expected to accommodate close to three quarters (73%) of the new housing development across south east Queensland.The Sunshine Coast and Brisbane City Council are forecast to hold an additional 10% each.
  1. Most of the new housing development on the Gold Coast, and much of it in Ipswich, is expected to be higher density and, in most part, apartments. This is much higher than current market demand.
  1. The density expectations appear realistic for standard urban development but impossibly high for higher density areas. Density must be offset. To get people to give up their private space, the immediate public spaces must be of a high quality.  This often involves adequate green space and enough room between buildings for views, sunlight, privacy and climatic comfort.

It might pay for town planners to better understand current housing densities before they set such targets.

For example, these Queensland suburbs have the following number of dwellings per hectare:

  • New Farm 50
  • Surfers Paradise 34
  • Forest Lake 18
  • Southport 17
  • North Lakes 11
  • Springfield Lakes 8

The suburb of New Farm has the highest dwelling density in Queensland.

To download these new broad hectare land profiles, click here.

Poverty is nicer in a warmer climate

The story goes something like this….”Brisbane’s housing market will boom as more people in Sydney cash up and move to SEQ”.

Well the chart suggests that this story line isn’t coming true.

It would also appear the net interstate migration to Qld has peaked.  Well maybe?

There is little doubt that population growth to Queensland has increased.  Just look at the traffic.

The Sunshine State is increasing by 88,000 new peeps per annum at present, which is up from the recent low 57,000 annual intake in 2015 but is still someway off the 114,000 yearly peak ten years ago.

A quarter of the current growth is from interstate migrants, whilst overseas immigrants accounts for 40%. Births exceeding deaths – natural increase – accounts for the remaining 35%.

I am often asked why net interstate migration isn’t having a big impact on property values in SEQ.  My answer includes the following pearls of wisdom:

1.  Most buyers are much better educated these days.  They explore property values online and as a result aren’t being duped into paying over the top prices.  This was more likely in the case in the early 2000’s where real estate property portals were in their infancy.

2.  Many migrants from Sydney, and to some degree Melbourne, are economic refugees.  They cannot make ends meet in the southern capitals, so they are trying their luck in sunny Queensland.  They are often unemployed or underemployed; mostly rent and have filled up a lot of the apartment oversupply across inner Brisbane.  Poverty is nicer in a warmer climate.  Apparently.

3.  Queensland doesn’t have an 21st century economic engine.  It is relying on resources, agriculture, tourists and population growth.  Resources are employing fewer heads and tourism, retail, health and education jobs are often low paying ones.  Plus it’s hard to grow things in a drought.

This means that there are fewer jobs in Queensland when compared to New South Wales or Victoria.  They don’t pay as much.  Many aren’t full time.

In short, Queensland has little economic grunt.

Damn the torpedos, full speed ahead!

How low can they go?

Most of those working in the dismal science are calling for several more drops in the RBA cash rate, with some calling out a 0%.

Interestingly many of these same cats were talking about interest rate rises only 12 to 18 months ago.

The chart shows that falling interest rates do – eventually – help instigate house price growth.

Since 1990 the official cash rate has dropped 44 times.  In April 1990 the cash rate was 15.5%.  In late September 2019 it is just 1%.

For mine the cash rate will keep falling – at least two more times or by 0.5% in total over the next six months – in order to try and keep the Australian economy growing.  And of course, to help address the slide in housing prices.

Yet, how much impact this easing will have on house prices is questionable.

Next stop will be printing money and more shovel ready projects.  Road works aplenty; public sector bonuses galore and as many Adani’s as we can.

Damn the torpedos!

…..

Damn the torpedos is one way of saying ‘bugger the consequence’s or ‘burn one’s boats’.  It is also a great Tom Petty and the Heartbreakers album from 1979, where Tom’s intent was to ‘kill disco’.

Moreover, “Damn the torpedoes, full speed ahead!”, is a famous order issued by Admiral David Farragut during the Battle of Mobile Bay in 1864.  It is a paraphrase of the actual order, “Damn the torpedoes! Four bells. Captain Drayton go ahead! Jouett, full speed!”.

Land market trends

This post I want to discuss the vacant land market.

Four tables have been included in this post.

Table 1: SEQ urban land sales 2009 vs 2019, sale volumes + median prices

LGA area 2009 2019 Ten year change
Sold $ Sold $ Sold $
Brisbane (C) 1,375 $278,000 1,750 $416,250 27% 50%
Gold Coast (C) 1,125 $248,500 1,475 $290,250 31% 17%
Ipswich (C) 1,350 $169,750 1,600 $203,000 19% 20%
Lockyer Valley (R) 350 $81,500 200 $149,750 -43% 84%
Logan (C) 950 $171,500 2,100 $226,750 121% 32%
Moreton Bay (R) 2,350 $214,750 1,975 $253,750 -16% 18%
Noosa (S) 150 $275,250 125 $340,500 -17% 24%
Redland (C) 250 $294,500 325 $319,250 30% 8%
Sunshine Coast (R) 1,475 $240,250 1,675 $275,500 14% 15%
Toowoomba (R) 850 $109,500 500 $180,250 -41% 65%
Tweed (S) 225 $267,750 200 $380,000 -11% 42%
South East Qld 10,450 $219,000 11,925 $278,750 14% 27%
Matusik Ready Reckoners, ABS, Qld + NSW Govt.  Financial years.

Table 2: SEQ urban land sales 2009 vs 2019, median lot size + $/m2

LGA area 2009 2019 Ten year change
m2 $/m2 m2 $/m2 m2 $/m2
Brisbane (C) 500 $556 410 $1,015 -18% 83%
Gold Coast (C) 700 $355 475 $611 -32% 72%
Ipswich (C) 510 $333 450 $451 -12% 35%
Lockyer Valley (R) 480 $170 525 $285 9% 68%
Logan (C) 575 $298 410 $553 -29% 86%
Moreton Bay (R) 600 $358 450 $564 -25% 58%
Noosa (S) 800 $344 665 $512 -17% 49%
Redland (C) 650 $453 460 $694 -29% 53%
Sunshine Coast (R) 660 $364 600 $459 -9% 26%
Toowoomba (R) 890 $123 850 $212 -4% 72%
Tweed (S) 725 $372 700 $543 -3% 46%
South East Qld 620 $353 475 $587 -23% 66%
Matusik Ready Reckoners, ABS, Qld + NSW Govt.  Financial years.

Two take outs

Table 1 shows that land sale volumes are up 14% across south east Queensland over the past decade, whilst end prices have risen by just 27% over that same time frame. At first glance this price escalation looks middling at best.

But table 2 explains that median land sizes have fallen by 25% in this neck of the woods since 2009, whilst the price paid by the punters on a price per square metre basis has risen by 66%.

So, across SEQ, lot sizes have fallen by a quarter and the real land price (best measured a rate/m2) has increased by two-thirds.

This reflects two trends:

  • tightening land supply and rising associated costs of land development, and
  • changing housing demographics and lifecycle preferences.

We won’t rehash the land supply story – go here if you aren’t convinced – but I want to include in this post a note about the people stuff.

The people stuff

There are two major housing demographic shapers over the next decade. These two forces apply across most of the Australia, including south east Queensland.

These two next big waves are first home buyers and downsizers.  Both these markets are looking for affordable housing outcomes and more often than not, smaller homes with less maintenance.

Smaller lots – especially those near high quality offsets like parks, cafes and views – are in increasing demand.

Most of us have busy lifestyles these days and much of a family’s spare time is now structured around kids’ sport, after school activities and homework.

For the adults going to the gymnasium is more popular than kicking the footy in the backyard.

And when we have a catchup with friends or relatives, the local café or boutique pub beats cleaning up the house post event (and having your house and possessions critiqued by others).

How can they live like that?  Oh, I thought they would have better stuff?  Did you see the state of the bathroom?  Who needs the aggravation!

Besides we are spending more and more time in front of our digital screens and less leisure time outdoors or with friends/relatives. Well at least not face to face.

And if the car hiring and car sharing trends are taken up by the mainstream, then less private land will be needed for the second or third car.  Well maybe.

Cars aside, these trends are also driving allotment sizes smaller.  Pun intended.

The next ten years

Table 3 below outlines the more commonly used allotment typology.

Our recent work suggests that we are likely to see further shifts towards more smaller allotments.

Table 3: SEQ past and future new allotment mix

Urban lot type Median lot size Past decade Next decade
Terrace allotment 250m2 5% 15%
Cottage allotment 350m2 10% 25%
Villa allotment 400m2 20% 25%
Courtyard allotment 500m2 35% 25%
Traditional allotment 650m2 30% 10%
Matusik, Qld + NSW Govt.  Past decade = 2009 to 2019.  Next decade = 2021 to 2031.

Matusik estimates for next decade.

Pricing benchmarks

Some think this is just a scam, a means by which developers can charge more per metre of dirt sold, and yes, they do charge more per square metre for the smaller allotments.

Table 4: SEQ past and current pricing benchmarks

Urban lot type Median lot size 2009 2019
Terrace allotment 250m2 130% to 140% 145% to 150%
Cottage allotment 350m2 120% to 125% 130% to 140%
Villa allotment 400m2 110% to 115% 120% to 125%
Courtyard allotment 500m2 105% to 105% 110% to 115%
Traditional allotment 650m2 100% 100%
Matusik, CoreLogic + PriceFinder.

Yet developers can only charge what the market will bear and table 4 shows that over the past decade, buyers are placing a premium on the smaller allotments.

This trend, I think, will accelerate in the future.

A lucky dip

This post is about new dwelling settlement valuations.

Such valuations have always been a lucky dip, but the situation seems to be getting out of hand.    There is a growing inconsistency with these valuations.

In a recent case, a new 26 apartment complex in inner Brisbane received settlement valuations ranging between 4% and 21% lower than the purchase price.

Sadly, this is not an isolated outcome. It is becoming the norm.

As a consequence, buyers of new dwellings are forced to seek several valuations and developers are obliged to pick and choose valuers in order to help buyers obtain their approved finance.

Despite some developers dropping the original contract price to help facilitate settlement, buyers are becoming understandably angry and the inconsistent valuations are leaving many in financial distress.

Yet the banks originally provide finance at the contract price and under certain terms but are now instructing many valuers not to put that price on the settlement valuation.  This, of course, often adversely affects the buyer’s payment terms at settlement.

This forced price reduction is eroding the values of each dwelling in a complex or estate and, in turn, is having a negative impact on new housing development.

Fewer buyers will be willing to buy off the plan unless this is sorted out and therefore less new housing projects will be able to start.

Many small to medium sized developers have already left this space as this trend has resulted in too much sales risk. The housing industry is suffering as a result.  Trades have limited work and many property related businesses are putting off staff.

The big guys will probably kick on, but the small to medium sized developer may soon disappear.

I think things need to happen here and fast.

If I had a magic wand I would:

1. Make the banks man-up and honour their original loan terms.

2. Spread the sales and marketing monies to property professionals like valuers.  They don’t get paid enough, especially when compared to the amounts paid to those selling and financing a property.

3. Limit the reliance on algorithm based sales data.  In-depth local knowledge is required, and each matched property needs to be actually comparable to the product being valued.

4. Loosen the comparison criteria that valuers are allowed to use.  It’s difficult to value a new product if you cannot use a comparable sale in the same development and/or cannot use the sale of a new dwelling in any nearby equivalent complex or estate.

5. Make each new project’s valuations subject to a peer review of at least three independent experts plus allowing for valid input from the developer.

6. Set up a simple panel system to help resolve project valuation issues.

7. Loosen the Professional Indemnity insurance noose that is currently around the valuation industry’s neck.  PI insurance is way too onerous for many professions these days and especially for valuers.

End note

Buying a property is often the biggest decision a person or family makes.  To many it is a very stressful experience.  The level of uncertainty and stress is even higher for those buying a property, off plan.

Yet it is really quite telling when right at the end of the process, once all that energy and effort has been expended – by the developer and buyers alike – that a property transaction is treated as a lucky dip.

More certainty is required at the onset.  A better way forward is needed.  The current situation can be changed.  It can be improved.  It must be.

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.

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