Depending on the carbon price per tonne adopted, and its rate of increase, there will be some radical changes to the range of materials used in residential housing. High net carbon emitters such as asphalt (roads), clay bricks, steel roofing and timber flooring and framing, will be replace by concrete roads, concrete bricks, composite board roofing, flooring and framing.
House prices are dictated by affordability and supply/demand, not by “cost plus” factors. So, higher cost materials affected by the carbon tax will ultimately be replaced by materials not subjected to the tax.
There is a high demand for inflammable sheeting for walls and floors, and this technology will improve and become more competitive in price over block work and render. A high cost contributor to housing is roads, and asphaltic concrete (AC) will become user-competitive as the carbon tax increases, it being a derivative of coal.
Concrete roads will need to become more cost effective, with innovative construction methods such as polystyrene infill (known as “waffle” slabs) to compete more effectively with asphaltic concrete.
Sunday, July 24, 2011
Monday, July 4, 2011
Direction of Interest Rates Critical to Property Markets
With the property market Australia-wide on its knees, we have the Reserve Bank talking up interest rates. And at the same time we have bank lending margins at record highs coinciding with record profits.
The concentration of bank power, exacerbated by the Global Financial Crisis, has allowed the banks to collude on lending margins because there is virtually no second tier bank lending.
The current level of mortgage rates is working against investment in rental accommodation because the spread between borrowing rates and net returns is too high. We have not seen any significant investment in rental accommodation in Queensland since 2003, which has seen rents driven up at the average rate of 10% per annum.
So what is needed is a reduction in interest rates of at least 1.0% over the next 12 months.
The housing industry is a much bigger employer than the mining industry (with all its multiplier effects), but it is depressed due to unrealistic bank lending margins in a mega-bank profit environment.
The concentration of bank power, exacerbated by the Global Financial Crisis, has allowed the banks to collude on lending margins because there is virtually no second tier bank lending.
The current level of mortgage rates is working against investment in rental accommodation because the spread between borrowing rates and net returns is too high. We have not seen any significant investment in rental accommodation in Queensland since 2003, which has seen rents driven up at the average rate of 10% per annum.
So what is needed is a reduction in interest rates of at least 1.0% over the next 12 months.
The housing industry is a much bigger employer than the mining industry (with all its multiplier effects), but it is depressed due to unrealistic bank lending margins in a mega-bank profit environment.
Monday, May 9, 2011
Australia Simply Riding a Commodity Boom
Preliminary budget “leaks” and announcements contain no joy for the property development or tourism industries in Queensland or Australia.
The property investment industry, particularly residential investment has recently seen a cutback in the NRAS scheme (National Rental Affordability Scheme,) which has not worked because the incentives to developers were not there. There needs to be tax benefits available for developers of rental accommodation under a certain value, say $400,000.
Tourism is being strangled by the high Australian dollar and needs more funding for promotion overseas, but we have the car industry being rewarded for inefficiency instead. The car industry nationally employs 150,000 people compared to 500,000 in the tourism industry.
The Government is basking under the low unemployment numbers, but the savior has been the mining industry which has soaked up many workers from the building industry. This has been the result of unsustainable commodity prices, rather than structural economic drivers to sustain and create employment opportunities.
Australia is simply riding a commodity boom, which inevitably ends abruptly and without notice.
The property investment industry, particularly residential investment has recently seen a cutback in the NRAS scheme (National Rental Affordability Scheme,) which has not worked because the incentives to developers were not there. There needs to be tax benefits available for developers of rental accommodation under a certain value, say $400,000.
Tourism is being strangled by the high Australian dollar and needs more funding for promotion overseas, but we have the car industry being rewarded for inefficiency instead. The car industry nationally employs 150,000 people compared to 500,000 in the tourism industry.
The Government is basking under the low unemployment numbers, but the savior has been the mining industry which has soaked up many workers from the building industry. This has been the result of unsustainable commodity prices, rather than structural economic drivers to sustain and create employment opportunities.
Australia is simply riding a commodity boom, which inevitably ends abruptly and without notice.
Wednesday, May 4, 2011
Tough banking killing 'spec home' market
See today's Gold Coast Bulletin article on our latest Prodap Report figures for Gold Coast vacant land and new packaged housing supply and demand here.
Monday, May 2, 2011
New QLD Land Value Act is Discriminatory
The Queensland Government will on 30 June 2011 enact a new method for valuing residential land within the state based on “site value”. This replaces the system used since 1944 where the land valuation was based on “unimproved value”, where the raw land value was calculated without any improvements, such as land fill, drainage, revetment walls or retaining walls. The new system applies only to residential land, not to commercial, industrial or retail land.
The new “site value” system is not a blanket increase in values as the Gold Coast Mayor, Ron Clarke, suggests, but a selective increase if you happen to own canal-front, lake-front or steep residential land that has been filled and/or revetted. I doubt whether Council will be applying varying rates in the dollar to compensate such property owners. This is a typical State Labor move without an election mandate to alter the “unimproved” land valuation system to increase taxation, but the cost of administering the new system could well offset the additional revenue.
Valuers employed within the State Government’s Environment and Resource Management Department will need to obtain engineering advice to determine the value added to any block of land. This will require individual assessment of properties “en masse”, particularly in the Gold Coast where canal and lake-front properties are most common.
Local councils do not have to roll over and accept this change from the State Government. In fact, councils are not compelled to use the State Government’s valuations. Councils could just index last year’s valuations by say 3% (or CPI) across the board.
We have until 30 June to stop this. What was wrong with the old system which has stood the test of time for 67 years?
The new “site value” system is not a blanket increase in values as the Gold Coast Mayor, Ron Clarke, suggests, but a selective increase if you happen to own canal-front, lake-front or steep residential land that has been filled and/or revetted. I doubt whether Council will be applying varying rates in the dollar to compensate such property owners. This is a typical State Labor move without an election mandate to alter the “unimproved” land valuation system to increase taxation, but the cost of administering the new system could well offset the additional revenue.
Valuers employed within the State Government’s Environment and Resource Management Department will need to obtain engineering advice to determine the value added to any block of land. This will require individual assessment of properties “en masse”, particularly in the Gold Coast where canal and lake-front properties are most common.
Local councils do not have to roll over and accept this change from the State Government. In fact, councils are not compelled to use the State Government’s valuations. Councils could just index last year’s valuations by say 3% (or CPI) across the board.
We have until 30 June to stop this. What was wrong with the old system which has stood the test of time for 67 years?
Sunday, April 17, 2011
Infrastructure Charges Should be Zero
The state government has recently announced a ceiling on Gold Coast infrastructure charges of $28,000 per residential lot (for a house with three or more bedrooms), or $20,000 per unit (for a unit with one or two bedrooms). The intention is to provide “certainty” and “consistency” across the state.
On those scores, the scheme fits the bill. Once can always criticise, but the truth is that infrastructure charges should really be zero. This is because the state government has decided to transfer the cost of infrastructure (roads, stormwater drainage, regional parks etc) to the developer who already pays for all internal services in a subdivision. Not only does he pay for them, he hands them back to the local Council, free of charge. Council then proceeds to raise income from the assets in perpetuity. Not a bad deal.
On top of that, developers now contribute to external roads, stormwater drainage and parks. They immediately pass those costs onto the retail purchaser. Hence, house prices go up.
The alternative could be that all infrastructure is funded by general revenue, for example petrol tax in the case of roads. This would keep housing costs down and make Queensland a more competitive place to live.
On those scores, the scheme fits the bill. Once can always criticise, but the truth is that infrastructure charges should really be zero. This is because the state government has decided to transfer the cost of infrastructure (roads, stormwater drainage, regional parks etc) to the developer who already pays for all internal services in a subdivision. Not only does he pay for them, he hands them back to the local Council, free of charge. Council then proceeds to raise income from the assets in perpetuity. Not a bad deal.
On top of that, developers now contribute to external roads, stormwater drainage and parks. They immediately pass those costs onto the retail purchaser. Hence, house prices go up.
The alternative could be that all infrastructure is funded by general revenue, for example petrol tax in the case of roads. This would keep housing costs down and make Queensland a more competitive place to live.
Monday, April 11, 2011
Gold Coast Water Pricing – Effects of Restructure
The Premier’s recent statement allowing the newly created water authorities to return where they came from, i.e. the Councils, will have no effect on water prices.
This is because the increases proposed by the new water authorities reflected the high bulk water changes imposed by the State Government – and they will not change under the “return to Councils” scheme.
The bulk water charges are based on repaying $7bn with interest over 20 years, to pay for the “water grid” for south-east Queensland. This is supposed to insure against drought by interconnecting the Gold Coast to Brisbane and the Sunshine Coast. The bulk charge is $1.57 per kilolitre, and rising in successive years.
But why 20 years, when water supply infrastructure (the desalination plant and interconnecting pipe work) have an economic life of at least 50 years?
Minister Robertson says it’s because the government wants to minimise interest charges and not delaying these charges for the next generation to pay. That’s an honourable objective but what if the outcome is to increase water charges in the Gold Coast, for example by 15% in year one? That unfairly hits existing users, who happen to be today’s voters. Not a politically savvy policy.
This is because the increases proposed by the new water authorities reflected the high bulk water changes imposed by the State Government – and they will not change under the “return to Councils” scheme.
The bulk water charges are based on repaying $7bn with interest over 20 years, to pay for the “water grid” for south-east Queensland. This is supposed to insure against drought by interconnecting the Gold Coast to Brisbane and the Sunshine Coast. The bulk charge is $1.57 per kilolitre, and rising in successive years.
But why 20 years, when water supply infrastructure (the desalination plant and interconnecting pipe work) have an economic life of at least 50 years?
Minister Robertson says it’s because the government wants to minimise interest charges and not delaying these charges for the next generation to pay. That’s an honourable objective but what if the outcome is to increase water charges in the Gold Coast, for example by 15% in year one? That unfairly hits existing users, who happen to be today’s voters. Not a politically savvy policy.
Sunday, April 3, 2011
Population Growth No Longer Queensland’s Saviour
With net interstate migration down to under 10,000 per annum in Queensland (it has been as high as 52,000 per annum historically), and the cut in overseas migration, the state’s population growth rate of 2.5% per annum is likely to fall below 2.0% per annum over the next five years.
Some would say that this is a good thing (Treasurer Andrew Fraser already has) so as to give some breathing space for infrastructure to catch up. If the state government privately believes that a slowdown in population growth will be good for us, then there needs to be another driver of the state economy in the major cities, which do not benefit from mining.
Employment in Queensland remains our weakness and what we need is incentives, not disincentives, to employ people. Payroll tax is an obvious target and should be abolished. It is an old chestnut that Labor has never addressed. All stamp duty on residential housing transactions should also be abolished. Construction is one of the largest employment sectors in Queensland, mines included, and has huge multiplier effects throughout the economy.
A tourism marketing levy should also be introduced (taxed on the users, not facilitators) to fund more promotion and marketing of our state.
Fiscal policy can be used to stimulate certain sectors of the economy but it is virtually non-existent in Queensland these days. It should be a key policy target for Campbell Newman’s “Can do Queensland”.
Some would say that this is a good thing (Treasurer Andrew Fraser already has) so as to give some breathing space for infrastructure to catch up. If the state government privately believes that a slowdown in population growth will be good for us, then there needs to be another driver of the state economy in the major cities, which do not benefit from mining.
Employment in Queensland remains our weakness and what we need is incentives, not disincentives, to employ people. Payroll tax is an obvious target and should be abolished. It is an old chestnut that Labor has never addressed. All stamp duty on residential housing transactions should also be abolished. Construction is one of the largest employment sectors in Queensland, mines included, and has huge multiplier effects throughout the economy.
A tourism marketing levy should also be introduced (taxed on the users, not facilitators) to fund more promotion and marketing of our state.
Fiscal policy can be used to stimulate certain sectors of the economy but it is virtually non-existent in Queensland these days. It should be a key policy target for Campbell Newman’s “Can do Queensland”.
Wednesday, February 9, 2011
Gold Coast Land Supply More than Sufficient
My latest Prodap Report, released last week, confirms that vacant land sales on the Gold Coast fell to just 175 in the latest December quarter. This compares to 316 sales of vacant land in the September 2010 quarter and 324 sales in the December 2009 quarter. This is the lowest number of quarterly vacant land sales on record in 16 years!
The fall in the latest quarter reflects both diminishing activity by “spec” builders and the low level of assistance to first home buyers in the Gold Coast compared to other regional Queensland areas and also Victoria.
Currently, Gold Coast, Brisbane and Sunshine Coast first home buyers receive only the Federal Government grant of $7,000 when building or buying a home. Regional areas of Queensland, excluding Ipswich, Lockyer Valley, Logan, Moreton Bay, Redland, Scenic Rim and Somerset, receive an extra $4,000 on top of the $7,000 for new homes only. In Victoria, the first home buyers grant totals $20,000 for a new home and $26,500 for a new home in regional areas, including the Federal Government’s $7,000. Stamp duty rates are comparable in both states.
So, the Gold Coast is about $15,000 behind Victoria for first home buyer incentives, in addition to Victoria’s lower median house prices.
The Prodap Report also confirms that there is approximately 13 months supply on the Gold Coast for vacant land lots at current take-up rates, and approximately 11 months supply for new packaged housing lots.
But further significant land development in the immediate future could easily lead to over-supply, assuming demand does not improve over the next 12 months.
Indications from developers are that future land production over the next 12 months will reach twice the current level of annual demand.
New house and land package sales held up in the latest December quarter, but are still very low. This is despite the encouragement given to developers of new rental accommodation under the Federal Government’s National Rental Affordability Scheme, which is taking some time to sprout wings.
Want a copy of the latest Prodap Report? Visit our website at www.prodap.com or call on +61 755228755.
The fall in the latest quarter reflects both diminishing activity by “spec” builders and the low level of assistance to first home buyers in the Gold Coast compared to other regional Queensland areas and also Victoria.
Currently, Gold Coast, Brisbane and Sunshine Coast first home buyers receive only the Federal Government grant of $7,000 when building or buying a home. Regional areas of Queensland, excluding Ipswich, Lockyer Valley, Logan, Moreton Bay, Redland, Scenic Rim and Somerset, receive an extra $4,000 on top of the $7,000 for new homes only. In Victoria, the first home buyers grant totals $20,000 for a new home and $26,500 for a new home in regional areas, including the Federal Government’s $7,000. Stamp duty rates are comparable in both states.
So, the Gold Coast is about $15,000 behind Victoria for first home buyer incentives, in addition to Victoria’s lower median house prices.
The Prodap Report also confirms that there is approximately 13 months supply on the Gold Coast for vacant land lots at current take-up rates, and approximately 11 months supply for new packaged housing lots.
But further significant land development in the immediate future could easily lead to over-supply, assuming demand does not improve over the next 12 months.
Indications from developers are that future land production over the next 12 months will reach twice the current level of annual demand.
New house and land package sales held up in the latest December quarter, but are still very low. This is despite the encouragement given to developers of new rental accommodation under the Federal Government’s National Rental Affordability Scheme, which is taking some time to sprout wings.
Want a copy of the latest Prodap Report? Visit our website at www.prodap.com or call on +61 755228755.
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