Tag Archives: Speculative Vacancies report

Housing shortage questioned again

With recent doubts on Census data winding in the mainstream opinion on housing shortages (down from 228,000 to now just 23,000) we were pleased to have our 5th Speculative Vacancies report written up by Chris Vedelago on Fairfax’s Domain blog:

A study by Earthsharing Australia estimates there are 90,730 vacant properties around the city, enough homes to provide housing for 35,000 families.

It amounts to a vacancy rate of nearly 6 per cent, challenging industry claims the city is facing a housing shortage.

It must be noted the report did not include land banks that have unmetered water mains. 47,000 hectares have been re-zoned to residential here in Melbourne but yet some such developments have an unemployment rate for land of 99.94% ie Lend Lease’s Atherstone development.

So why is it happening?

Earthsharing Australia, which is affiliated with tax reform group Prosper Australia, believe it’s the direct result favourable tax and incentive-driven housing policies that encourage speculation, land banking and drive up house prices.

”The rapid run-up in housing prices has provided a lucrative torrent of windfall gains via capital appreciation for investors while rents have not kept pace,” Soos writes.

”Faced with this set of circumstances, investors may conclude that renting properties make for dubious investments when factoring in the wide array of costs associated, including time and effort.”

In other words, it’s a better deal to turn a viable home into a lock-up-and-leave investment.

This is exactly the outcome our tax system is designed to encourage.

Why bother working on a 45% income tax rate when you can adopt a Self Managed Super Fund and pay ZERO capital gains tax? The incentives for hoarding over housing are extortionate at all levels of housing policy. For some reason few dare talk about the role of speculation on affordability.

Vacant land is another matter. Some councils already charge a premium to rates for residential land left fallow.

Others do not, meaning owners are able to reap a windfall in rising land prices while paying less than others to hold their property.

In one case, a vacant 167-square-metre block was charged $991 for the year, while the liveable house next door on a 158-square-metre allotment paid $1540.

Valuers will also tell you that vacant blocks and derelict homes can hurt the values of other property holders in the street, especially direct neighbours.

For their part, Earthsharing Australia and Prosper Australia argue that a ”substantial” land value tax would help ”blunt” capital growth and encourage owners of unused homes to put them on to the rental market.

We do not support differential rates on vacant land. It leads us down the dangerous wealth-envy path of politicking as Wayne Swan and K-Rudd know so well post the mining tax bash. Victoria should return to a flat but higher rate on land value alone – Site Value Rating.

The Vedelago reference of higher council rating on the family home than the larger block of neighbouring vacant land is due to Capital Improved Valuations. This sees the family home paying about 30% more in council rates than a land banking speculator. This distortion actually provides a motivation for investors to smash down what could be affordable rental housing. With no improvements, the land banker gets a tax discount under CIV/ NAV.

So called ‘progressive’ politicians have decided that anyone with a large home is wealthy. They should be penalised. Anyone with solar panels or a water tank faces the same maddening fate. No wonder people don’t like the rating system. KISS.

This goes against the grain of decades of research showing that municipalities that actually encourage improvements to a house or shop encourage higher employment and economic activity. Location as represented by land value is a better indicator of ‘capacity to pay’. This is our timeless reminder to municipalities like Ararat, where moves are afoot to remove council rates. Perversely, it is the poor utility of the council rating system that sees local ratepayers wanting the regressive GST to replace the subversive CIV/ NAV system.

The core issue is that land in prime locations benefits from improved community services. A new community library or a redeveloped train station can add tens of thousands to a property owner’s land value. Those who benefit by living closer should pay for that improvement by the increased windfall gain they did comparatively little to receive. The rating system naturally does this over time – not in one hit.Can one argue with these principles? Instead, we are seeing a growing move to replace beneficiary pays with a regressive user pays system. When the windfall gains to land owners is significant, it is within their interest to squash chances of a more equitable system of public finance. For this reason we see fraudulent economic analysis published as mainstream news.

The fact is a land banker pays about $450 in Land Tax and about $1,000 in rates on an average location in Melbourne. When the windfall gains have been over $30,000 per annum for most of the last decade, we have to ask who are rising property prices good for? Banks and speculators win, whilst the community struggles to pay for services.

Earthsharing’s Speculative Vacancies report finds that 19 of the 20 highest vacant suburbs were in Melbourne’s west. As economists of note could tell you, the price has followed the change in the Land Tax threshold, having increased from $85,000 – $250,000 over the last decade. This western trend has grown because land is barely $250,000 in value. Thus investors pay next to no Land Tax.

The usual argument for investment is that when price goes up, supply will follow. Investment in land, no matter by how much, cannot produce any more land. It is as if neo-classical economists believe in flat-earth economics.

There are 842 vacant properties in Footscray. 860 in Essendon. 90,700 in total – about a year’s auctionable supply of property. But yet we sprawl further. With a higher holding charge on land holdings (Land Tax and Site Value Rating), these properties would put significant pressure on prices. However, with the Real Estate 4 Ransom mantra we live under, ‘developers’ can simply remove stock off the market to choke price falls.

The most affordable land was in Mitchell at $171,500 and a median lot size of 512sqm. Mitchell recorded the largest shift in supply, dropping from a 20-month supply in the March quarter to 8.5 months in the June quarter. However this was due to stock being withdrawn from the market, rather than sales.

With that in mind, we hope this report helps raise the importance of penalising lazy land use so that land is used for housing not hocking.

Read past reports.

Listen to Karl Fitzgerald on the weekly Renegade Economists podcast

photo by: Bilal Kamoon

Housing Oversupply Evidence Builds

The Financial Review’s Ben Hurley has revealed an absolute game changer in the age old housing supply debate:

Adjusted by Morgan Stanley researchers to allow for a potential census under count, the 228,000-home undersupply becomes a 341,000-home oversupply.

This adds to the imperative for better checks and balances in housing supply analysis. Our recent Speculative Vacancies report revealed Melbourne had 90,700 empty homes. This adds to the concern that housing prices are higher than they should be.

Most markets see additional supply putting downward pricing pressure. However, land and location is a different animal. There is only one GPS location on this planet. Land doesn’t age and can’t be replaced. We all want to live in amiable locations and communities. This gives the owner of land, the most precious of resources, a dominant advantage. This challenges our ability to determine our place on this planet.

The drip feeding of the market must be questioned as ethical behaviour. Our film Real Estate 4 Ransom critiques this behaviour and the tax system that encourages it.

Consider the staggering fact that Lend Lease (in the press for their higher than expected profits) have released just 29 properties to market over at least 18 months out of the council approved 4900 vacancies.

Akin to the unemployment rate, that is a lazy land use of 99.94%. This has helped maintain a land price of $157,000.

Marc Pallisco, from the Age’s Capital Gain section writes (June 23, 2012):

The developer negotiated with council to create a community with 4900 blocks, but instead will offer just nine to the market this weekend, priced from $157,000. This stage follows the late 2011 launch when 20 blocks were offered using a ballot method to prospective buyers who registered an interest online.

Critics of the current taxpayer-funded public housing building boom, and housing affordability advocates, argue a dent could be made if developers were prevented from self-regulating supply, otherwise known as land banking.

Developers, however, argue land values are preserved selling land this way.

What would happen if supply was opened up? The question then is – who is Lend Lease responsible to – their shareholders or the community? One look at their Our Values, Our Promise page and you are inundated with all the Corporate Social Responsibility needed to put one at ease:

Respect, Collaboration, Integrity, Excellence, Innovation, Trust

The ledger between shareholder and community responsibility was once re-balanced via Land Taxes. The longer these locations were held for ransom, the more they paid. As a percentage of holding cost vis capital gain, these have been ratcheted down to such an extent that they barely equate to a months rent these days.

As Speculative Vacancies author Philip Soos states:

Since 1996, Australia has experienced yet another boom in housing prices (specifically land prices), fueled by the loose lending standards of financial institutions and generous tax subsidies for property. These two factors have ensured that property speculation is an immensely profitable activity, becoming a national pastime for Australians. Melbourne has become a focal point of frenzied debt-financed speculation, resulting in the greatest escalation of housing prices in its history.

One can only hope that the hundred’s of thousands of people who have taken on an inflated mortgage for the next 25 years will take an interest in the way such information is portrayed and understood.

As the ramifications of the global property bubble continue to remind us, asset bubbles always end in tears. It is time the public took matters into their own hands to ensure this doesn’t happen again.

Over 90,000 Empty Houses Amidst Housing Crisis

20 June 2012

There are 90,700 vacant houses in Melbourne – 5.9 per cent of the total – according to Earthsharing Australia’s 5th annual Speculative Vacancies Report.

“Our lazy land use makes a mockery of the drive for affordable housing,” researcher Philip Soos said today.

Vacancy hotspots include: Docklands 14.1%, Williams Landing 13.5% and Truganina 12.9% where construction has clearly outstripped demand; and a wide swathe of western suburbs with vacancies around 10%.

“The eye opener is that the latest REIV vacancy of 2.3% must be added to these findings. Politicians should be concerned that a 9.1% unemployment rate for our most precious resource exists in the CBD. Idle land leads to idle labour.

“The Earthsharing survey measures actual activity based on water consumption. It reveals widespread vacancies, despite the strenuous efforts of the real estate industry to convince us otherwise.

“The REIV rental vacancy statistics on which the media and public rely are fragmented, incomplete and contain a significant downward bias. They do not include properties held by speculators. They do not include properties being drip fed to the market in ‘staged releases’. They are misleading and should be condemned.

“Would it be ethical for your local pharmacist to drip feed life saving cancer drugs to the market at progressively higher prices? Would it be acceptable to do this against a fabricated background of drug shortages? The national outcry would end this immediately.

“First home buyers and renters are being deceived. In an affordability crisis, they deserve better information on which to make the biggest financial decision of their lives.

“Reporting artificially-lowered vacancy rates hoodwinks renters into accepting rent increases, prompts over-investment in property, and cows government into adopting policies agreeable to the real estate industry.

“Our survey tells a different story. Australia has one of the most generous residential property taxation regimes in the world. Capital appreciation has dwarfed rental income for years. Withholding properties from the market is a rational investor strategy.
The National Housing Supply Council claims a 228,000 housing shortage nationwide. We say, there is nearly half that locked up here in Melbourne.

“Given the towering value of the land market and its central role in all human activity, government is remarkably apathetic about investigating its workings, preferring to further expand the urban growth boundary and enrich land bankers.

“High quality statistics are possible in the information age at relatively little cost. If a little NGO like Earthsharing can do it, why not the Victorian and federal governments? The importance of accurate housing vacancy information is of heightened concern as we see California, Ireland and now Spain bulldozing houses in regions that were reported to have property shortages before their housing bubble burst.”

Download the Speculative Vacancies in Melbourne Report 2012

You are invited to attend this Thursday’s Speculative Vacancies Report release, 6.30pm, 1/27 Hardware Lane, Melbourne

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