Speculative Vacancies Distort Supply & Demand

Karl FitzgeraldPress Releases9 Comments

Australia’s endless debate about property prices pivots on the balance of supply and demand.

Earthsharing’s Speculative Vacancies in Melbourne 2010 Report demonstrates that nearly five percent of all houses in Melbourne are simply empty and unused.

The report identifies and measures the scale and extent of speculative vacancies – properties held out of use in the pursuit of capital gains – using water meter data collated by the various utilities.

“The REIV consistently points to it’s Rental Vacancy rate of 1.7 per cent as the sole measure of vacancies in Melbourne,” Earthsharing Research Director Karl Fitzgerald said today at the release of the report. “Our survey shows one in twenty houses and apartments are just sitting there vacant.

“Recent increases in house prices have been driven by speculation, not a housing shortage. Property owners are restricting the supply of housing by holding properties off the rental market.

“We estimate the Speculative Vacancy Rate for Melbourne in 2011 to be 4.94 per cent or 46,220 of 935,305 properties surveyed.

“More than 20 suburbs surveyed had estimated vacancy rates in excess of 8 per cent. There are notable hot spots in Docklands, Williams Landing, East Melbourne and Truganina,” Fitzgerald said.

“Supply and demand in these suburbs is significantly mismatched and should be monitored carefully for distress as housing prices recede.

“Docklands (23.3 per cent vacant) is particularly interesting as builders there have been obliged for some years by their financiers to offset risk by pre-selling a very substantial proportion of apartment before commencing construction. The vacancies there are largely owned by individuals, many of whom paid a very small deposit and signed a water-tight contract obliging them to pay the remainder on completion. These contracts are coming due just as the price trend turns down decisively,” Fitzgerald concluded.

Read the report

9 Comments on “Speculative Vacancies Distort Supply & Demand”

  1. Who are these speculators that don’t rent out their investment properties? Why do they do it? Aren’t they missing out on significant income to help pay their interest payments?

  2. HI Steve,

    why be bothered with tenants who can kick holes in walls when you could hold it empty and enjoy capital gains of 50 – $120K during these past boom years? I must re-post some graphs along these lines. Attend a Tax Minimisation for Lawyers seminar and you will hear more along these lines.

    The big investors drip feed the market to assist scarcity as well. Just look at any major development and see the 12 or so properties they put to market each month. Check Mirvac post GFC……but yet poor Dick Pratt gets done for doctoring the price of….cardboard boxes.

  3. Interesting thought, Karl but I do still wonder why they wouldn’t want to receive the rental income as well (just get good tenants). I do hear that down in Melbourne a $1 millon house rents for $450 or so. That’s seems a much bigger risk. Up here in Brisbane, rental yields are a little better (if still low).

    I had the thought that because alot of renovating is going on that those houses may be vacant for a few months and turn up in your figures. Of course, it’s speculation that fuels the reno/flip.

  4. Good questions, but with many landlords infamously tight, some don’t like paying for agents to filter out the roughies. We aren’t saying all landlords, just some.

    The other point is that many have just entered the property game and are post code hopping, changing their electoral address and a bill or 2 to their investment property so they can claim it as their primary residence and thus avoid paying capital gains tax (when they sell it in the 13th month). A bit of DIY helps their budget too (perhaps thats what all those ‘Backyard Blitz’ shows were good for after all these years).

    The latest housing finance figures show that renovations are at a 9 year low. Many have blown their budgets on the land price/ mortgage, whilst others are more conservative than many mainstream economists, saving at rates that few thought possible just a few years ago.

  5. Thank Karl. It’d be great to understand where the renovation figures are amongst the housing finance figures. I’ve never seen them. btw I’ve been saving for my first home for over a decade so I’m pretty sick of waiting for this bust 😉

  6. Hi Karl,

    The problem with this Vacancies Report is that there has always been a 10% vacancy rate for decades, rather than just over the last several years, especially when prices have rapidly increased. Take a look at the ABS Census figures for the last few decades and you’ll find that the number of vacant dwellings has always been within the 8-10% band.

    Yet house prices have moved all over the place in the last few decades.

    How do we know that dwellings are purposely kept vacant now due to the expectation of capital gains when the same percentage were kept vacant over the last few decades?

    The Vacancy Report doesn’t seem to make sense.

  7. HI Philip,

    from what I can see the ABS stats are only listed from 1996 online. The 100,000 figure is a controversial figure as so many people aren’t home on census night and so many properties are also holiday homes, so we can’t hold that up as an accurate figure of vacancies. That said, you are right it hasnt varied much since 2001. However, land banking and the inefficient use of prime locations is as old as the hills – thus the term ‘the land game’.

    With the huge increases in populations in recent years and prices rising so rapidly, that has had a moderating effect on overall vacancy rates.

    Our prime purpose with this report is to point to the symptoms of a mis-directed tax system that rewards speculation over affordability. We are trying to open up a conversation that dispels the dribble that Australia faces a housing shortage. If we are to be having discussions on effective housing policy, then we need to consider the state of the total housing supply, not just the properties that are up for let. Spin-meisters have dominated the media cycle for too long. There is a huge vacuum of properties sitting there that are hitting the market as we speak. SQM does a good job on identifying this supply swell.

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