Tag Archives: Speculative Vacancies report

Speculative Vacancies Report release

Thursday June 21st, 6.30pm
Presenter: Philip Soos
Prosper rooms, 1/27 Hardware Lane, Melbourne

RSVP – gold coin donations

Exciting young researcher Philip Soos is set to release our 5th Speculative Vacancies report. In the past, this report has been a lonely voice shining a light upon the lazy use of land in prime locations. Phil has surveyed over 1 million homes and has extensive findings on commercial vacancies. The figures are jaw dropping in light of the recent re-zoning windfalls handed out to developers.

Read the report

Epitomising the poor use of land is the associated picture. This location (corner of Barkly St and Commercial Rd, West Footscray) has been vacant for over 5 years and is not included in current vacancy calculations. This allows property speculators to create a media atmosphere that there is nowhere to live. ‘We need more land’ is the catchcry. Over time, sections of the site have been drip fed to the market to maximise profits.

Now that the land market is plummeting in Melbourne (with a 42% fall in land sales over 12 months to March 2012 ), the cheeky land baron has decided to put the location up for lease! This epitomises the real estate 4 ransom mentality and the importance of more accurate vacancy figures.

Philip is a highly rated writer with:

Read Earthsharing’s past Speculative Vacancy Reports and associated media.

Windfall Welfare

Planning Minister Matthew Guy has just handed his mates a conservative $420 MILLION dollars.

The 7000 hectare expansion of the Urban Growth Boundary is the equivalent to a golden pen tick, turning those who are lucky enough to own land in the right locations into millionaires. Urbis calculates that a $60,000 windfall is delivered to each re-zoned hectare near the UGB. This re-zoning results in a $420 million windfall.

Quite simply, this is welfare for the wealthy.

Thanks to the golden pen tick, this is a leakage in economic wealth from publicly created land value into private hands.

The windfall will be lightly taxed, with one hectare to pay $95,000 in a one off fee, which at 16 dwellings per hectare takes close to $6,000 per dwelling.

As previously stated here, the GAIC is less than perfect.

Urbis calculates the golden pen tick’s value at:

  • Land outside but near urban growth boundary $50 000 – $100 000 per hectare
  • Rezoned urban growth zone away from existing development:$250 000 –$400 000
  • Rezoned urban growth zone next to existing development: $60 000 hectare

There was talk that land bought prior to 2005 was exempt from the GAIC. This would suit the old land game players nicely. Many a fortune has been made by those ‘buy and wait’ proponents of ‘wealth creation’. I cannot confirm this exemption at this point (awaiting answer from the GAIC) but can confirm that land holdings of less than one acre are exempt.

The tragedy of this handout is that with Melbourne’s already large overhang of land supply, this sprawl-athon is destined to be held as Real Estate 4 Ransom for the next 20 – 30 years. If not, the extra supply guarantees that Melbourne’s property market will continue to fall. Which behaviour does the Liberal Party support? Or have they called the development industry’s bluff?

Compounding this is the supply of speculative vacancies held by investors in lieu of expected future capital gains. The use of Self Managed Super Funds to buy real estate and pay zero capital gains tax is the latest nifty move by the lucky few to avoid paying their fair share in windfall profits back to the people. Day by day we are being conditioned to accept a GST on our food and medicines rather than collect this naturally rising value of the earth.

Anything less than a 30% fall in land prices over the next two years must be seen as a policy failure.

This is possible because land sales on the fringe are already plummeting , with a 42% fall in volumes between the March 2011 and 2012. As Royce Millar notes in the Age article, the land supply coming through the system will douse expectations with some 200,000 lots to be ready in 2013/14 (according to Oliver Hume).

For those listening to our Dont Buy Now Home Buyers Strike, we are being gifted an interesting economic spectacle. With demand brought forward by the June 30 axing of the First Home Onwers Grant, will market forces prevail on the dwindling existing demand to force prices down to long term averages? Or will the daunting 200,000 lots coming through the pipeline in the next two years be held to ransom and drip fed to the market to maintain prices? The concern is that few will notice.

Repeat – anything less than a 30% fall in land prices will confirm that real estate is being held for ransom.

Please note that Land Taxes on an average 1/4 acre block are barely $460, when capital gains delivered by the naturally rising value of land have dwarfed this over the last decade. The paltry $460 fee is the only thing applying any pressure on land holders to make valuable locations available to the market. With falling land values amidst current behaviours, we will see plummeting construction rates (as currently witnessed) rather than plummeting prices.

In closing, this extra supply must finally prick the bubble of expectations and result in the steep land price falls we need. So far, land prices have only fallen by 2 – 8%. Is Minister Guy smarter than we think and called the development industries bluff and said ‘the game is up’, or confident that the have’s can hold the market to ransom?

For the locked out generations, this is your future at play.

Check the press release from our colleagues at Prosper Australia.

photo by: romana klee

Housing Glut Interest

Adam Schwab wrote up our fourth report on speculative vacancies in Crikey yesterday.

Shortage or glut? Feast or famine? The question of whether Australia is suffering a housing shortage continues to be hotly disputed, with the real estate and construction lobbies arguing a desperate shortage exists, while other independent bodies, such as Prosper Australia, disputing the notion of a shortage.

The housing glut argument is led by Earthsharing Australia, which last year produced a report suggesting that the vacancy rate in Melbourne (until recently, one of Australia’s hottest property markets) was about 5%. In fashionable suburbs, such as East Melbourne or the Docklands, vacancy rates exceeded 8%. Earthsharing’s report, which was based on water statistics provided by City West Water and Yarra Valley Water, suggested that more than 60,000 properties lay vacant in Melbourne — substantially more than the reported vacancy report suggested by the real estate lobby.

While not a perfect measure, there is a degree of commonsense to Earthsharing’s report. Rather than attempt to guess whether there is a housing shortage based on economic assumptions, the group simply checked whether to see water was being used in a property — it is not unreasonable to suggest that if no water is being used for a length of time, the property is unoccupied.

That view was contrasted by a report released by the National Housing Supply Council, which echoed the sentiments of construction groups and claimed Australia was in the midst of a housing shortage. In fact, according to the council, the shortage actually increased by 28,200 to 186,800 during 2011. Even worse, the alleged shortage is forecast to widen to 640,000 within 20 years.

The National Supply Council is a strange beast — formed by the federal government in 2008, the organisation is a strange mix of academia, property developers and the even respected Saul Eslake. Included in the council are Mark Hunter (CEO of Stockland Residential), Nigel Satterley (property developer and BRW Rich List member), Ruth Spielman (executive officer, National Growth Areas Alliance) and Simon Norris (Clarendon Homes Queensland).

The council’s rationale for deeming a housing shortage is worth considering further. That is because rather than look at actual demand for housing, the council uses “underlying” demand. This leads to strange results.

Last year, the population of Australia increased by 320,000 — this was through a combination of immigration and births (less deaths). This figure is sourced from the ABS, so we can assume it is about a correct a figure as we can locate. According to the council’s report, there were 131,000 dwellings added last year (this figure is lower than what other sources claim, but we’ll accept it).

The council’s own report noted that there are 8.7 million households in Australia — with a population of 22.4 million, that means there are 2.6 people per household. Using fairly simple arithmetic, that means with 2.6 people per dwelling, and 131,000 new dwellings, enough housing was built last year for 340,000 people.

But wait, the population only increased by 320,000 people — that means, despite the council’s claims, there is a surplus of housing being built (even with dwelling construction being less than forecast). This appears to contradict the council’s finding that the shortage increased in 2011.

The council claimed that “on the demand side, at any given point in time underlying demand may not feed through directly into effective (actual) demand” — basically, what that appears to mean is that while there isn’t really a shortage, it will make some assumptions that allow a shortage to appear.

Later, the council noted that “the level of underlying demand is driven mostly by migration and other demographic factors”. Essentially, it appears the council is claiming that demand may increase in coming years (even though immigration levels are falling, rather than increasing), and that is why a shortage exists. The fact that a surplus of housing was built last year is disregarded.

More mysteriously, the Supply Council also claimed that “there were about 8.7 million households in Australia in June 2010. The number of households is projected to be 12 million by 2030, representing a net increase of nearly 3.3 million households between 2010 and 2030″.

This alarming forecast again doesn’t appear matched by recent facts.

Based on household numbers, the council is predicting an Australian population of 31.2 million in 19 years. That’s an increase of 9 million from the current level. The problem? That would require Australia’s population to increase by 473,000 per year — 42% more than the population increased in 2011. In fact, that’s a higher population growth rate than Australia has ever recorded. The claim is more difficult to justify given that Australia’s population growth and migration is slowing after spiking in 2008 and 2009 (see table below).

Year Ending Net Overseas Migration
June 2008 277,400
June 2009 299,800
June 2010 198,300
June 2011 170,300

House prices haven’t increased because of increased demand from migrants outstripping dwelling construction — rather, prices have risen because bank lending has created false demand. Supply factors have played little, if any role in the recent house price growth. As soon as bank lending is restricted (and this is happening already), it is likely the illusion of a supply shortage will disappear. Just like what happened in Japan in the 1990s, or California and Ireland after the recent financial crises.

If you owned all the money in the world…

That was the statement Red Symons of ABC breakfast radio ran as a lead in to our 6.45am discussion this morning. It is also the opening line in the film, attempting to settle those who blame banking and the money system for everything.

Listen to the interview with Red promoting our debut documentary Real Estate 4 Ransom.

Tickets are available at ACMI for the preview screening of Real Estate 4 Ransom this Wednesday at 7pm. A short Q & A will follow with myself and Co-Director Gavin Emmanuel.

Check our R4R facebook group or twitter for more.