April 2, 2016

An Artificially Produced Scarcity

A weekend topic on Australia, starting with the Sydney Morning Herald. “Sydney’s housing affordability crisis is being artificially inflated by up to 90,000 properties standing empty in some of the city’s most desirable suburbs, experts say. Vacant properties were among the ‘perverse outcomes’ of tax incentives that encouraged some investors to favour capital growth over rental returns, according to the analysis by the UNSW’s City Futures Research Centre. ‘Leaving housing empty is both profitable and subsidised by government,’ researchers Bill Randolph and Laurence Troy said. ‘This is taxation lunacy and a national scandal.’”

“The results suggested property investors in some of Sydney’s most sought-after areas were focusing on growing the value of their properties, with losses offset by tax incentives such as negative gearing and capital gains concessions. This could leave investors indifferent to whether the dwellings were occupied, Dr Troy and Professor Randolph said. ‘If you choose to accept that there is a housing shortage in Sydney, then the sheer scale and location of these figures strongly suggest that this is an artificially produced scarcity,’ they said.”

“Chris Johnson, the chief executive of developer lobby group the Urban Taskforce, said the Census findings likely reflected the fact that those at the higher end of the market had the luxury of keeping their property empty for part of the time. ‘The supply issue is actually about affordability,’ he said. ‘You can well say there are a whole lot of $2 million apartments that aren’t fully used at the moment …but people just don’t have the money to be able to move into that sort of apartment.’”

The Daily Telegraph. “ABS figures show that Sydney took over the mantle from Melbourne as the leading capital for apartment developments with 35,538 approvals recorded over 2015 compared to 33,023. Across Sydney, Melbourne and Brisbane this year alone, almost 45,000 apartments are due for completion and settlement by the end of 2016 according to figures from planning consultancy MacroPlan Dimasi. Next year the amount is set to jump even further.”

“But for Melbourne the tables are starting to turn. Figures out today from WBP Property Group show that off-the-plan units in the Victorian capital have fallen about 11per cent in the first year between their original purchase and pre-settlement valuations. ‘There’s an apartment boom but where is the foundation? If we look at supply and demand a year ago, apartments were in demand mainly because of the investor boom and many owner-occupiers were priced out of purchasing a family home. What I want to know is — are we building the right course for the right horse?’ said Douglas Driscoll CEO of real estate group Starr Partners, which operates in Sydney’s western suburbs.”

From Radio Australia. “Formerly rampant south-east Australian real estate markets are losing steam, while mining states keep struggling, the latest home price index has confirmed. Sydney has slowed down from breakneck annual growth approaching 20 per cent to a more modest 7.4 per cent, with further deceleration likely. Australia’s most populous city is suffering from a 19.2 per cent surge in the number of homes for sale, increasing choice for buyers, while listings are up 8.5 per cent nationally over the past year.”

“Melbourne is now the fastest growing capital at 9.8 per cent annual growth, although its over-supplied apartment sector is showing strain. ‘Nearly 20 per cent, or one-fifth, of all Melbourne inner-city apartments are reselling at a gross loss, meaning they’re selling at a price lower than what the owners paid for them,’ observed CoreLogic RP Data head of research Tim Lawless. ‘So we are seeing a few cracks appearing in the inner-city apartment market, which I think we can safely attribute to the fact that we are seeing a lot of new housing, particularly high density housing supply, coming into the Melbourne inner-city.’”

From Manly Daily. “One in ten homes on the northern beaches is empty, fuelling fears that large chunks of the area will resemble a ghost town. Some areas are worse than others, with Avalon-Palm Beach topping the list with 20 per cent of homes unoccupied. This is followed by Bayview-Elanora Heights with 16 per cent of homes ­unoccupied and Manly-Fairlight with 14 per cent empty, University of NSW researchers reveal.”

“Associate Dr Laurence Troy said there was a definite trend for owners to sit on an empty property and wait for the capital growth, rather than make an ­immediate income from rent. ‘There is not a great incentive to rent them (the expensive empty properties),’ he told the Manly Daily.”

“A study in Melbourne last year, which analysed water usage, suggested more than 80,000 properties, or 4.8 per cent of the city’s housing stock, appeared to be unused. The issue of ‘ghost houses’ left empty by often foreign buyers willing to forgo significant rental income has been a cause of controversy, although much data remains anecdotal. Jason Anderson, chief economist with leading property advisory MacroPlan Dimasi, has estimated that a further 10,000 new homes will be purchased and left empty by Chinese buyers over the next five years.”

The West Australian. “The extent of the challenge faced by post-boom WA is beginning to emerge in the Pilbara, with empty homes, big debts and taxpayer-funded white elephants. More than 140 Housing Authority homes are vacant in Karratha — 114 of which are set aside for State Government employees but no longer required. And fears are growing in Port Hedland that showpiece Royalties for Regions projects could fall into disrepair or be bulldozed after the local council admitted it had concerns about its ability to fund their upkeep. Population figures released yesterday reveal the Pilbara’s first population fall since the mining boom began, losing 445 people in the past year.”

“Real Estate Institute of WA figures show the median house price in Port Hedland is $599,000 – less than half of its 2013 peak of $1,222,500. Property owners faced similar losses in Karratha, where the rolling median house price has dropped from $815,000 in 2011 to $400,000.”

“Last week in Parliament, shadow housing minister Fran Logan called on Treasurer Mike Nahan to launch a financial audit into the ‘wasteful use of taxpayers’ money’ on housing projects in the Pilbara. Mr Logan said the amount of waste on high-end property development in the Pilbara was ‘just extraordinary.’ ‘Anyone who tries to say this reckless waste can be justified is completely out of touch, especially when the government is cutting nurses and doctors from our hospitals and they have failed to address the public housing waitlist,’ Mr Logan said.”

From Bloomberg. “Just as China’s industrialization helped reshape Australia’s economy, the Asian giant’s pivot toward consumer-led growth is challenging Down Under anew. Central bank Governor Glenn Stevens acknowledged last week it’s impossible to know how China’s transition will unfold given nothing on the scale has been tried before, signaling elevated risks ahead for the developed world’s most China-dependent economy.”

“‘The Australian economy at the moment is being buoyed by the confidence that comes from extraordinarily low interest rates driving up asset prices,’ said Andrew Charlton, director of consultancy AlphaBeta in Sydney and one-time adviser to former Prime Minister Kevin Rudd. The subsequent housing boom and wealth creation ‘have been temporary policy stimulus holding up what will be a long-term negative impact of the changing Chinese economy on Australia.’”

“The tourism boom from China’s cashed up visitors won’t be enough to fill the gap left by the commodity slump, argues Andrew Batson, an economist at GaveKal Dragonomics in Hong Kong. ‘Australia’s resilience in the face of the mining bust does not actually owe much to a surge of new demand from Chinese consumers,’ he said. ‘To put it simply, Australia dealt with the end of the Chinese housing boom by unleashing a housing boom of its own.’”