Sydney Property Bubble

[greengiraffe]

Sydney leads surge in land prices
Larry Schlesinger
424 words
21 Feb 2015
The Australian Financial Review
AFNR
English
Copyright 2015. Fairfax Media Management Pty Limited.

Property Undersupply of residential land pushing prices up.

The average price of a Sydney residential lot increased by 20 per cent to $390,000 in 2014, according to figures compiled by Fairfax-owned Domain Group.

Melbourne and Perth also recorded double-digit surges, but still offer significantly more affordable land prices - although lot sizes are smaller. Prices rose modestly in Brisbane and were virtually unchanged in Adelaide and Hobart.

The surge in Sydney land prices (Sydney house prices rose 14 per cent by comparison) has turned traditional mortgage-belt outer suburbs such as Kellyville - where the median land price for a 700-square-metre block increased by 38 per cent to $643,000 last year - into million-dollar neighbourhoods once the cost of building a home is added to the cost of land.

The cheapest Sydney growth suburb is 75 kilometres south-west at Appin (near Wollongong), where a 700-square-metre block averages $275,000.

Domain senior economist Dr Andrew Wilson said rising land prices was putting some Sydney growth areas out of the reach of first-home buyers. He said more developers would choose to auction lots given the demand.

"It's another sobering reminder of the undersupply of residential land in Sydney. Over the medium term and longer term the problem will remain and prices will continue to rise," he said.

Kellyville real estate agent Greg Mann, of Acquire Property, said some lot prices had risen 65 per cent since they were first sold. Some owners, he said, were choosing to sell their lots on - and take an early profit - rather than build a home on them.

"We are selling lots quicker than developers can release them," Mr Mann said.

In its interim results Stockland said it had sold out its latest releases at Willowdale in Sydney's south-west and Elara in the west and was ramping up production to meet demand.

The developer is targeting the more affordable end of the market with 484-sq-m lots priced at $241,000 and entry-level house-and-land packages at Willowdale priced at $500,000. A spokesman for Stockland said there was a lot of "hysteria" about land prices with lots and house and land packages available well below the median.

In Melbourne lots remain $145,000 cheaper on average than in Sydney.

Dr Wilson said Melbourne's more affordable market was a function of better supply relative to demand, the city's topography that made it easier to expand outwards.


Fairfax Media Management Pty Limited

Document AFNR000020150220eb2l00003

[Boon]

If Australia Has a Housing Problem, It’s Mostly in Sydney
By James Glynn
Apr 2, 2015
http://blogs.wsj.com/economics/2015/04/0...to-sydney/
________________________________________________________________________________________________________________

Sydney price growth to be even stronger than forecast: SQM Research
Jonathan Chancellor
1 April 2015
http://www.propertyobserver.com.au/findi...earch.html

[greengiraffe]

Sydney undersupply heats property market
THE AUSTRALIAN APRIL 24, 2015 12:00AM

Greg Brown

Property Reporter
Sydney

GPT chief ­investment officer Carmel Hourigan, above, says ‘there needs to be some stimulus’. Picture: Dan Himbrechts Source: News Corp Australia
Stockland chief executive Mark Steinert says talk of a Sydney housing bubble is misguided, but acknowledged the hot market for both housing and development sites.

Some sites were selling at prices Stockland, Australia’s biggest residential developer, would not pay, he said.

“People are getting into pre-bidding and gazumping — it’s all back on,” Mr Steinert told a Committee for Economic Development lunch in Sydney yesterday.

But the city’s undersupply of housing, which could take at least five years to fill, and the need for infrastructure would create opportunities with Sydney to see a “golden decade”, he said.

In response to Meriton Apartments’ founder Harry Triguboff’s comment this week that the city’s apartment prices were topping out, Mr Steinert noted that some of the site values were “punchy”.

“It is clear that some of that capital is looking to deploy in development at total returns of a level that we wouldn’t entertain,” Mr Steinert said.

“What you would be worried about is if there was enough of it to be systemic (which it isn’t) at this point in the cycle.

There are already sites that have come back to market because they underestimated the planning complexity; so markets typically have a way in sorting through these things,” he said, adding that the extra supply would help make housing more ­affordable.

Mr Steinert was part of a panel that discussed the NSW property market, along with GPT chief ­investment officer Carmel Hourigan, UrbanGrowth chief executive David Pitchford and Commonwealth Bank head of real estate Graeme Ross.

On next month’s budget, Ms Hourigan and Mr Steinert both urged that the federal government be cautious, with pragmatic policies that will add to certainty.

“We still think there needs to be some stimulus coming through, so not too much negative news, not too much of a negative impact on household consumption. (The budget) is obviously very critical in terms on what goes on in business sentiment and also consumer sentiment, particularly down the east coast,” Ms Hourigan said.

Ms Hourigan, who is a candidate to replace Michael Cameron as GPT’s chief executive, added that the cancellation of recent infrastructure projects, such as the East West Link, made investing in Australia more risky.

“We need a way that we can push through the political system and the (short) terms of the governments, so we can actually encourage offshore investment,” Ms Hourigan said.

Ms Hourigan said that the prices of Australian commercial property would continue to rise despite slow rental growth, due to the wave of new offshore capital looking to invest in Australia.

[specuvestor]

^^ Simple suggestion like what other asian countries do: restrict mortgages for sydney properties. And suddenly undersupply will be no more.

It's pretty remarkable that policy makers are so blinded by free market dogma even with so much history and case study as a guide. I'm not even sure why in the first place policy makers would let hot money speculate on properties, one of the most basic factor of production

[greengiraffe]

Million-dollar median a real risk
Samantha Hutchinson
460 words
15 May 2015
The Australian Financial Review
AFNR
English
Copyright 2015. Fairfax Media Management Pty Limited.
Sydney's rising property values could trigger a social crisis of an entirely different order: labour.

The median house price in Australia's most expensive city is on track to surpass $1 million before the end of the year, according to the Real Estate Institute of NSW.

A $1 million median will put the city at risk of losing essential service workers, including teachers, nurses and firefighters, and women who cannot afford to buy homes in the city where they work, experts say.

Sydney's median now is $914,056, after rising 3.6 per cent in the first quarter of the year.

"If the current trend continues, by the end of the year we will see property prices hit the $1 million mark," REINSW chief executive Malcolm Gunning said.

"Given the average person in NSW had yearly earnings of $77,600 in the last quarter of 2014, even in a two-income family, who can afford a house in Sydney?"

The middle class has increasingly been pushed to the city fringes in past years as asset values and rents on properties close to the city rise, resulting in long commutes and a growing preference for regional centres where property is more affordable and jobs can be found.

The ultimate damage is wrought on productivity, National Shelter chief executive Adrian Pisarski said.

"We've got a major structural problem here, where it's increasingly expensive for people to take jobs, even if they exist," he said. "They're getting pushed further and further out of the city, and they're travelling longer distances to get to work - and its a major brake on productivity."

Mr Pisarski believes taxation arrangements, including a 50 per cent capital gains tax exemption for property investors and allowances for negative gearing, must be reformed to stave off a worsening crisis of affordability and skills exodus in large cities. The government should focus on investing in public transport, rather than roads, to connect communities on the city fringe to jobs at the city centre, he said.

Mr Gunning says the problem can be tackled at a state level by removing property taxes, a step he believes would lower the price of housing.

Both experts want planning reform so more people will live in suburbs closer to the city centre.

"Land releases on the city fringe won't help; they just exacerbate the problem," Mr Pisarski said. "They need to do something to tackle density and it has to be in a way that accounts for families and creates communities."

More than 90 per cent of 18- to 29-year-olds who live in Sydney believe rising prices mean home ownership is no longer achievable for their generation.


Fairfax Media Management Pty Limited

Document AFNR000020150514eb5f0004k

[greengiraffe]

Lessons in Auckland for Sydney housing
Robert Harley
427 words
12 May 2015
The Australian Financial Review
AFNR
English
Copyright 2015. Fairfax Media Management Pty Limited.
Auckland's house prices, which have surged even more than those in Sydney, will continue to rise strongly according to global financial services group, CoreLogic.

The firm's director of research in New Zealand, Jonno Ingerson, said Auckland house prices would rise by 10 to 13 per cent a year for the next two years, at least.

"You have a massive undersupply, you have a migration bubble slowly coming off, and interest rates are only slowly going to rise," he said after a presentation at an Australian Banking & Finance breakfast in Sydney.

The Auckland house prices, which are now 48 per cent above their pre-financial crisis peak, according to CoreLogic, have challenged the Reserve Bank of New Zealand, even more than the Sydney house price surge has worried the Reserve Bank of Australia. Auckland, which has very little inner-city apartment development, has a chronic housing shortage that the Reserve Bank and the NZ government hoped to address by more land releases, and faster construction approvals under the Auckland Housing Accord. The initial success of the scheme has been stymied by shortage of labour. Mr Ingerson said the number of approvals had started to decline in the March quarter.

At the same time demand continues to rise, driven by offshore buyers unimpeded by any foreign investment requirements, by investors (about 40 per cent of buyers in Auckland are investors compared with 60 per cent in Sydney) and from a high level of migration.

"Migration is the big story," said Mr Interson. Net migration, including those not moving to Australia and those returning from across the Tasman, is now at record highs.

In October 2013, the Reserve Bank introduced loan-to-valuation macroprudential controls. After a pause, and a marked reduction in high debt to value loans, Auckland prices accelerated again, said Mr Ingerson.

Most recently the Reserve Bank has suggested further controls, raising the spectre that the banks would have to hold more capital and treat investor loans as a separate class of lending.

"The banks are saying that even though this seems easy, it is not easy; few think it will work," Mr Ingerson said.

The RBA faces similar challenges but CoreLogic's research director in Australia, Tim Lawless predicted Sydney's house price growth would be more restrained, slowing markedly after 12 to 15 per cent growth this year. "I cannot see the growth being sustained," he said. "There will be a downturn in the investment numbers due to APRA restriction and falling yields."


Fairfax Media Management Pty Limited

Document AFNR000020150511eb5c0000m

[greengiraffe]

Treasurer wonders how his kids will afford to buy Sydney houses

Jacob Greber
490 words
5 Jun 2015
The Australian Financial Review
AFNR
English
Copyright 2015. Fairfax Media Management Pty Limited.

Treasurer Joe Hockey, who has praised surging property prices, conceded he wonders how his children will afford a home, given average prices in Sydney are nearing $1 million, but said he would not support government intervention to deflate prices.

Treasury secretary John Fraser said this week Sydney's property market was "unequivocally" in a bubble. But his boss, Mr Hockey, suggested a property construction boom would stop the market turning into a bubble.

"I, like many others, if you have a home, even with a mortgage, you wonder how your children are going to get a home," he said on Thursday.

"The best way to respond to elevated house prices is to increase supply. What we've seen is a massive increase in housing construction in the last year. It's up 18 per cent, 30,000 new dwellings ... that is the best way to respond to elevated prices, that is happening."

The Organisation for Economic Co-operation and Development warned the Reserve Bank of Australia to be careful about inflaming the housing market by cutting interest rates even lower, highlighting the central bank's difficult choice between stimulating business and stoking a housing bubble.

"The net gains from further monetary expansion in the near term are finely balanced," the Paris-based think tank said in a report. "The momentum in the housing market and possible need for expansionary firepower given uncertainties in the macro-economic outlook suggest caution."

The OECD said it expected the Reserve Bank to begin raising interest rates in early 2016 as the economy improved.

Financial markets were pricing about a 60 per cent chance of another rate cut in the next year, and some analysts said the Reserve Bank would need to add to cuts in February and May to maintain downward pressure on the dollar, which it wanted to be low to help Australian companies compete with foreign companies.

Mr Hockey said Australia's position was different from the United States and Ireland, where property prices collapsed during the sub-prime mortgage crisis. "It's not inflated demand," he said. "We've got very low vacancy rates in places like Sydney. We have put in a much stricter regime in real estate for foreign investment.

"If you look at what happens around the world, bubbles burst in real estate where there is too much supply. We are a very long way from that in Australia."

The Treasurer said high prices existed "mostly in Sydney, and parts of Melbourne" while in Western Australia, houses prices were moderating.

The economy would expand 2.25 per cent this year, the OECD said, which would be the weakest annual pace since 2010, before strengthening to 3 per cent next year. On the budget, the organisation said the government should keep allowing its "automatic stabilisers" to continue by borrowing more to offset falls in revenue.


Fairfax Media Management Pty Limited

Document AFNR000020150604eb650001g

[greengiraffe]

New homes fail to dampen prices
THE AUSTRALIAN JUNE 11, 2015 12:00AM

Mark Coultan

State Political Correspondent
Sydney
Sydney property prices have skyrocketed at the same time as near-record amounts of new homes have come on to the market, contradicting Treasurer Joe Hockey’s suggestion that the ­answer to housing ­affordability is more supply.

Sydney housing prices have risen 39 per cent over the past three years, as housing approvals have risen almost 60 per cent.

In April housing approvals were the highest in two decades, up 32 per cent compared with the monthly average over the past five years. Housing starts, completions and land releases are also up.

Sarah Hill, an adviser to the NSW Minister for Planning and a member of the government’s housing affordability taskforce, said supply was an element of the problem, but there was no one ­silver bullet.

“This is going to be a multi-generational problem for us. This is not a problem which is going away with a quick-fix on supply,’’ she said. “The truth is that some ­people, no matter how hard they work, will never be able to afford a property, and that’s because their income doesn’t cover the cost of building a property — let alone land. Key workers, such as nurses and teachers, can work very hard in good jobs but it will never be ­affordable for them to live and work in areas they chose.

“We have a real conundrum. Supply will certainly ease that, but the truth is we now have three times the amount of supply coming on the market that we have had. But we still have a afford­ability crisis.

“This is because of underlying land values in Sydney. It’s a very attractive place to live and invest. Obviously negative gearing as an element to play in that. So does overseas investment.”

Ms Hill said it was not in ­developers’ interests to flood the market with new houses. “They won’t be building until they completely exhaust demand.”

She said that although investors, who outnumber owner-occupiers, were an element in increasing ­demand, there was a flipside, as they helped reduce pressure on the rental market. But anecdotal evidence suggested there might be a problem with overseas investors sitting on empty properties.

Property Council of Australia NSW executive director Glenn Byres said that although housing supply had risen to about 23,000 new units a year, Sydney was still catching up after years of under- investment. And in the future, Sydney would have to average 31,000 new houses a year to keep up with ­demand.

Housing Industry Association chief economist Harley Dale agreed, saying a recent surge in prices had followed a decade when prices rose only 16 per cent.

Grattan Institute chief executive John Daley said the value of economic growth was being capitalised in the housing stock of those who already owned homes, locking out non-homeowners. Low-­income groups were just as likely as the rich to own their own home decades ago, but this was no longer true. He advocated a reduction on government reliance on stamp ­duties and an increased emphasis on property taxes. Stamp duties were a disincentive to selling, while property taxes encouraged people to sell to the someone who valued the property more highly that them.

[greengiraffe]

Sydney house price boom "crazy"
AAP JUNE 10, 2015 5:11PM

Reserve Bank of Australia governor Glenn Stevens says Sydney's house price boom is crazy. Source: AAP

RESERVE Bank governor Glenn Stevens is concerned about Sydney's booming house prices, describing the market as "crazy".

MR Stevens says he finds the steep rises in property prices in Australia's biggest city "acutely concerning" and that the issue is a social problem.

"Yes, I am concerned about Sydney. I think some of what's happening is crazy," he told a business lunch on Wednesday.
His comments came as HSBC research found Australian home prices have risen 24 per cent in the past three years, though the gains have mostly been confined to Sydney and Melbourne.
Sydney prices had jumped 39 per cent, while Melbourne prices were up 22 per cent while the average price for the rest of the country was 10 per cent.
Mr Stevens said Sydney's housing boom was not simply a result of record low interest rates and noted that the RBA was focused on ensuring lending standards improved.
He said the RBA took into consideration what was happening in all property markets across the country, not just Sydney, when deciding whether to adjust the cash rates.

[greengiraffe]

Glittering global city lacking a vision
THE AUSTRALIAN JUNE 13, 2015 12:00AM

Bernard Salt

Social Editor

Better planning could make Sydney more inclusive. Source: News Corp Australia

In 2005, the then premier of NSW, Morris Iemma, wrote in the foreword to City of Cities, a new strategic plan for Sydney, that “Sydney is Australia’s only global city”.

As a Melburnian, I found the premier’s comments presumptuous and infuriating.

Presumptuous because Melbourne and other Australian capitals also see themselves as “global cities”.

And infuriating because deep down I knew then, as I know now, that the premier was right.

Sydney is, and has been for a generation, Australia’s portal to the global economy.

Qantas is headquartered in Sydney. So, too, are the Commonwealth Bank, Westpac, the Reserve Bank, the Australian Securities Exchange, Macquarie, AMP, Lend Lease, the ABC and dozens of other national and global businesses, including News Corp Australia, publisher of The Weekend Australian.

The nation’s prime minister and the governor-general may officially live in Canberra, but both retain taxpayer-funded weekenders in Sydney, not Melbourne.

Sydney is a global city. It is Australia’s biggest city, with 4.8 million residents. (Melbourne has 4.4 million.)

The largest job market on the Australian continent, with the biggest complement of high-end “good” jobs, is based in Sydney.

It costs a lot of money to live in Sydney, as it does to live in any global city. And the reason is simple: global cities attract the best and the brightest talent to compete for and to participate in a global-city lifestyle.

The issue for Sydneysiders, as it is for New Yorkers, Londoners and Parisians, is that even swanky global cities need everyday workers to make the city work: taxi drivers, waiters, teachers, nurses, labourers and other low to middle-income workers who deliver functionality to glittering metropolises.

In New York such workers might live in Queens or New Jersey and travel into Manhattan. Sydney’s Manhattan is the harbour city; the west has been the city’s New Jersey.

But with median house prices across Sydney now pressing towards the million-dollar mark the concern is that the city is failing to deliver affordable housing.

A three-bedroom, two-bathroom townhouse in Pellizzer Boulevard, Kellyville, 36km northwest of the central business district, is on the market for $785,000.

On the southwestern edge of Melbourne, 35km from the CBD, the Dennis Group has a three-­bedroom, two-bathroom house and land package in Bregman Esplanade Manor Lakes (Werribee) for less than $380,000 including stamp duty.

There is a premium to be paid to buy into the Sydney housing market and that premium is measured in hundreds of thousands of dollars.

Go to Paris, the largest city in the European Union with 11 million residents, which, like Sydney, has a culture-rich core (inside the Boulevard Peripherique) enveloped by a far drabber suburbia.

A four-bedroom, two-bathroom separate house on 500sq m of land (half a quarter-acre block) in Maurepas, 31km west of the Eiffel Tower, is on the market for the equivalent of $696,000.

Go to London, a city of eight million residents inside the M25 orbital, which has a diameter of about 60km.

In Carlton Road, Sidcup, near Bexley, some 27km east of Trafalgar Square, there is a three-bedroom, two-bathroom townhouse for sale at $706,000.

On the one hand, the argument is that if London or Paris or Sydney is too expensive for your tastes then there are regional cities offering cheaper options.

But on the other hand, global cities really do need workers to make things work.

And we Australians see ourselves as an egalitarian society that offers scope for social mobility. We don’t like the idea that middle Australia might be excluded from any city.

The question is, how come Melbourne can deliver affordability on the city’s edge whereas Sydney cannot?

Well, the reason is a combination of strategic planning decisions taken two decades ago and geography.

In the late 1990s the strategic vision for Melbourne opened vast tracts of developable residential land to the city’s west and north. New infrastructure projects such as the Western Ring Road, opened in 1998, delivered fluidity to the west.

And city planners had a genuine 30-year vision.

In the late 90s Sydney took a different tack.

The city was “full up”; there was no need to open vast tracts of developable residential land, which would have required an investment in infrastructure comparable to the Western Ring Road.

Doing nothing is the easiest option in strategic planning.

The consequences of these two approaches to city visioning and provisioning are now evident in the affordability issue. Melbourne has attracted more net new residents every year since the Olympics. Last financial year alone it added 96,000 residents; Sydney added 84,000.

Melbourne delivers better affordability than Sydney and has done so for more than a decade.

Then again, Melbourne sprawls across a flat, unbroken terrain; it’s an easier city to get around than Sydney.

Sydney’s “good job” market is concentrated in the CBD, which is off-centre with regard to the city’s elongated western flank. To get access to Sydney’s this good job market requires close proximity to the CBD, which of course comes at a premium.

By comparison, Melburnians living in the suburbs have easier access to Victoria’s good jobs.

So, what can be done?

Sydney will always struggle with housing affordability because of its geography. Good jobs clustered at the pretty end of a 70km corridor between Bondi and Penrith will always result in the haves outbidding the have-nots.

What is required is either massive investment in transportation infrastructure to allow the western have-nots access to Sydney’s best jobs. Or massive densification of the harbour-city precincts (infuriating the nimby set) so as to bring the have-nots closer to the good job market.

Or decentralisation of knowledge-worker jobs to key nodes along the 70km corridor: take the good jobs and seed them throughout the city.

The other option, of course, is to simultaneously pursue all three objectives. That way the have-nots of Struggle Street will be provided with access to a broader range of local job options.

This could start with government department relocations to Parramatta, Blacktown and Penrith. Maybe institutions such as the ABC could be enticed out of Ultimo to Parramatta.

(The BBC recently relocated 2000 jobs out of London to Manchester’s Salford.)

Sydney is Australia’s largest and most important global city. It should offer its residents quality of life, a range of job options, and scope for home ownership.

These things aren’t easy in global cities, but with the right strategic plan and a boldness of purpose, Sydney could possibly be reimagined as this nation’s socially inclusive, functionally efficient global city within a generation.