Melbourne Growth Area Land Market: March 2017 Quarter
Six months ago, the average lot price in Melbourne’s growth area land market was $228,000 and the volume of sales were levelling out from new record highs of around 1800 sales per month. What was suggested at the time is that there were signs that supply could have been somewhat constrained, which was likely to put further upward pressure on price escalation.
The latest research from NLSP has revealed that the strong activity has indeed continued, with median price jumping to over $250,000, or over 10% in six months, and sales volumes reaching record levels yet again in the march 2017 quarter of nearly 6400 lots, or over 2100 lots per month.
The demand remains high, and dwindling supply levels (less than 1 month of stock available for sale) seem to be putting more pressure on housing affordability. The result is likely to be a continued slowing of sales volumes and significant price growth, which will unfortunately push more and more first home buyers out of the market.
Victorian Government Moves on Housing Affordability
The industry has been concerned about housing affordability for some time now, and the Victorian Government responded with a new policy to help first home buyers by providing stamp duty concessions, but many are suggesting that it’s the wrong move, as it will simply keep putting upward pressure on house prices.
So was it the right move or another band-aid solution? Interestingly the federal government sees things a bit differently, blaming the planning system and all the red tape as the real fuel to rocketing prices because of supply shortage.
Echoed by UDIA Victoria CEO Danni Addison recently, the issues surrounding the affordability problem in Melbourne seem to be more about a serious supply and production shortage, and like the HIA, are calling on government for supply based solutions as demand based solutions are simply going to add more fuel to the fire.
Balancing supply and demand are fundamental to stable and sustainable growth. Supply shortages increase competition amongst buyers, and naturally the greater the shortage, the more pressure gets put on prices.
So what is happening in Melbourne’s residential property market that could be causing this shortage?
Re-Zoning and Structure Planning Delays In Growth Areas
One of the more major problems we see is that growth area land structure planning and re-zoning in certain areas does not appear to be keeping pace with the demand. The Precinct Structure Plan (PSP) process replaced previous rezoning processes some years ago through the introduction of the then Growth Areas Authority (now Victorian Planning Authority).
This was implemented by the Victorian Government at the time with the aim to improve and streamline the re-zoning process, suggesting that an 18 month to 2 year re-zoning process was achievable. In reality, although the outcomes of this new process has provided consistency and certainty about what the future urban structures would look like and their respective feasibilities, these processes are taking more like 3 to 5 years.
Adding to that was what went on with the former government in 2009 and 2010, with the introduction of the Growth Areas Infrastructure Contribution. It wanted to implement this additional tax on developers in order to fund ‘necessary infrastructure’. Naturally the industry pushed back, sighting that development contributions were already being paid to local government to fund infrastructure and that these costs would ultimately need to be passed on to the end user.
This was going on at the same time that the Urban Growth Boundary needed shifting so that more land could be re-zoned to provide for future growth. Sure enough, the then government decided it would not move the growth boundary without GAIC being introduced. So not only did we end up with another development cost (which is another topic in itself), but effectively lost another couple of years on land being re-zoned.
What we believe we are seeing now is the compounding aftermath, where there just isn’t enough zoned land to meet the demand, and the only way to fix this is for government to find a faster way to get structure planning and re-zoning done.
Thankfully the Federal Government have stepped in as part of the recent budget release, announcing some initiatives to set housing supply targets and facilitate planning and zoning reform.
It’s not going to fix things right now, but might go significantly further in preventing the same happening during future market cycles….. a less ‘bumpy’ ride is what we need.