iscover
iscover 
CoreLogic’s head of research, Eliza Owen, has analysed the latest housing policy proposals introduced by governments to address Australia’s housing supply issues.
According to Owen, there is a contradiction “at the heart of our housing challenge”, being that more supply is needed to help housing values come down; however, the residential construction sector is struggling to deliver housing “with a reasonable profit margin”.
“Cheaper homes don’t make for more homes,” Owen said.
“For private sector developers and builders, arguably home values need to rise further to support some repair in profit margins, or costs associated with delivering new housing supply need to fall.
“The cost of buying and holding land, developing it, putting up buildings and financing projects have all increased in recent years.”
She said that this means that to make new supply work, residential construction must somehow be distanced from the pressures of profitability and feasibility.
“There’s not one approach to this, but the Coalition has responded to industry groups calling for funding of housing-related infrastructure, such as the connection to water, sewage, and roads,” she said.
“Prior to the 1980s, it was not uncommon for state governments to fund this kind of infrastructure in partnership with land developers, which has gradually shifted to the private sector over time.”
Owen said that this effective subsidy for infrastructure costs related to new housing developments “should help reduce the cost burden on developers” and kick-start shovel-ready projects.
“A ‘use it or lose it’ condition of 12 months would also help to bring forward commencement of approved dwellings, which according to the ABS sat at around 34,000 in the June quarter of this year (down from a high of 46,000 in the December quarter of 2017, but drifting up from a five-year average of 32,000),” Owen said.
Additionally, the Victorian government has made recent moves to increase supply, focusing more on infills.
The state government announced 50 transport areas where local planning laws would be overridden to allow construction of high-rise apartment developments of up to 20 storeys in some areas.
However, Owen questioned the feasibility of such a project and whether this was the “right kind” of supply for increasing home ownership.
“High-density unit development in Melbourne was common in inner-city areas throughout the 2010s, but these were largely bought by investors and have not exactly led to prosperity and wealth creation for their owners. For example, in the suburb of Melbourne, CoreLogic data shows unit values are still -8.4 per cent below the record high in May 2017,” Owen said.
“For Millennials having kids and seeking a family home, high rises are also not traditionally a popular option.
“2021 census data shows just 1.7 per cent of one-family households resided in units in a nine or more-storey block, compared to 82 per cent of one-family households living in a detached house. However, units in established, affluent areas could provide an excellent downsizing option for empty-nesters, freeing up more family homes.”
This came as the Victorian government also announced an uncapped 12-month concession on stamp duty for off-the-plan town house and unit purchases with immediate effect.
Lending data from the Australian Bureau of Statistics (ABS) showed that the largest spikes in first home buyer activity occurred during temporary and uncapped buyer successions because they concentrated first home buyer activity under the period the concession is available, according to Owen.
“These included the temporary boost to the First Home Owners Grant in 2008 and 2009, and the HomeBuilder scheme, which was available to all buyers but had strong take-up from first home buyers,” she said.
“This actually does serve to improve the feasibility of unit projects in the areas earmarked for upzoning.
“Even without the stamp duty concession, younger Australians would likely be incentivised to take up unit living because of the cost blowout between houses and units through the pandemic. In September, CoreLogic data shows a $313,500 gap between the median house and unit value in Melbourne, up from $208,500 in December 2019.”
Owen said that the “common threads” from federal and state government announcements were to enable more housing supply and there is no doubt that there will be more announcements in the lead-up to the next federal election.
“But all levels of government need to be careful about getting that supply right if it is going to have take-up from buyers,” she said.
“For example, the Coalition’s proposed pause on construction code updates could have implications for the standard of new homes coming to market.
“The Victorian state government should take heed from the high-rise development of the 2010s, where an effective ‘glut’ in unit supply has brought down prices and rents, but it won’t deliver the same wealth creation as detached houses have for previous generations, especially if quality and size are compromised for project feasibility.”
[RELATED: Coalition commits $5bn to infrastructure under election housing plan]
ISCOVER 
