Morris on Property

Effect of Carbon Pricing on Housing Costs

2011-07-24T18:14:00.001-07:00

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.

Direction of Interest Rates Critical to Property Markets

2011-07-04T19:48:00.000-07:00

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.

Australia Simply Riding a Commodity Boom

2011-05-09T20:42:00.000-07:00

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.

Tough banking killing 'spec home' market

2011-05-04T20:57:00.000-07:00

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.

New QLD Land Value Act is Discriminatory

2011-05-02T18:48:00.000-07:00

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?

Infrastructure Charges Should be Zero

2011-04-17T18:06:00.001-07:00

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.

Gold Coast Water Pricing – Effects of Restructure

2011-04-11T18:47:00.001-07:00

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.

Population Growth No Longer Queensland’s Saviour

2011-04-03T23:23:00.001-07:00

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”.

Gold Coast Land Supply More than Sufficient

2011-02-09T17:31:00.000-08:00

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.

Gold Coast Average House Prices Hit $600,000

2010-10-03T20:11:00.000-07:00

The latest data from the Queensland Department of Environment and Resource Management (ERM) confirms that (mean) average house prices in the Gold Coast have risen to over $600,000.

Data for 2,094 sales in the Gold Coast over the six months to 30 June 2010 showed an average (not median) house price of $600,110, an increase of 4.2 percent over the previous six months and 12.2 percent from the lowest point in the GFC cycle (the six months to 30 June 2009 with an average of $534,924).

The latest data is confirmation that house prices have recovered from the fall experienced during 2008 and into early 2009.

The curious thing about the Gold Coast’s housing market is that despite very low sales volumes over the past 12 months, average house prices have risen by 12% in that time.

Normally, rising house prices reflect stronger demand and rising sales volumes. This is a fundamental law of demand push inflation.

The Government data indicates a chronic under-supply of new and existing housing to meet even less than average demand. The same situation does not apply to units, where prices are still falling - to an average of $476,614 in the June 2010 half year.

The current level of house sales on the Gold Coast is the lowest since the 1981-82 recession. It has affected real-estate agents, conveyance lawyers, removalists and all those businesses that rely on property sales.

Where Would We Be Without Immigration?

2010-08-01T18:30:00.000-07:00

With interstate migration into Queensland down to pre-1985 levels, overseas migration and natural increase is propping up Queensland’s population growth of 117,000 per annum.

The Federal Government forecasts that whilst natural increase will continue to grow, overseas migration will fall by some 120,000 over 2011-13 in Australia. The effect of this on Queensland is likely to be a fall of 25,000-30,000 in net population growth per annum.

Interstate migration to Queensland has moderated since 2003, and is unlikely to increase over the next few years because of the relative price of housing between Brisbane, Sydney and Melbourne (Victoria now being the more affordable state) and the generally weak economic growth in Australia.

Queensland’s economy is driven by coal mining and population growth, the latter affecting the major cities in particular. Declining population growth will have a negative effect on Queensland’s economy, particularly in South-East Queensland.

Does this kind of commentary interest you? Then visit www.midwoodaustralia.com to gain access to a 33 year historical library of Queensland facts and figures.

Resources Super Profits Tax (RSPT)

2010-05-16T23:20:00.000-07:00

Did you know?

1. The 40% tax applies only to profit earned over and above the long term bond rate, currently 6% return on assets per annum, but could be as high as 10% per annum

2. The current royalty regime will continue, but all payments made will be credited by the tax office

3. Normal company tax will be credited against RSPT in the year payable

4. In most years, there will be no RSPT payable; in fact where there are losses, they will be “carried forward” to offset future RSPT liabilities

5. The objective is to tax only “windfall” profits generated by boom commodity prices, so it is based on the age old taxation principle of ability to pay. In “normal” years, little or no RSPT would be payable, nor would royalties be payable.

The Henry Tax Review and Property

2010-05-03T22:31:00.001-07:00

Property issues remain virtually untouched in the Henry Tax Review, released on 2 May; no change to negative gearing or capital gains tax (although Henry did recommend a national land tax including the family home, which the Government dismissed).

The Report recommends that COAG meetings review development zoning procedures that inhibit affordable housing. The issue arose out of the National Rental Affordability Scheme (NRAS), where out-dated zoning densities often restrict development to low density in otherwise high density areas, which have infrastructure. The Government has not taken up these issues from the Report. It is doubtful whether COAG is the most suitable vehicle to decide these issues. The NRAS scheme needs to be extended beyond its forecast two year horizon if any real progress is to be made in affordable housing.

The Report could have done a lot more to encourage investors to build residential investment property, because the returns aren’t that attractive, even allowing for depreciation allowances and negative gearing. Issues such as tax credits could have been raised in the Report, along the lines of the National Rental Affordability Scheme (NRAS), which is only a very short run program (2-3 years). The high costs of land tax also act against afforability for larger developers holding multiple land parcels.

There has been a dearth of investment in rental accommodation throughout Australia over the past ten years. This is because face rents rarely exceed a 5% yield per annum, and net rents, 3% per annum before interest. Unless an investor has a substantial separate income for negative gearing, the benefits are small. And investment in residential rental accommodation is quite risky. Pre-interest and tax returns should really be in the order of 15-20% per annum. Small investors just don’t achieve that level of return because they don’t have any economies of scale.

Gold Coast Land & Packaged Housing Market Update (PRODAP Report)

2010-04-22T19:12:00.000-07:00

The latest PRODAP Report, which I author and my team conduct research for, confirms sales of vacant land and new packaged housing in the Gold Coast fell by a marginal 8% in the December 2009 quarter, down from 510 to 468 sales. Therefore, it's safe to say that demand over the latter half of 2009 remained relatively steady. But average (not median) land prices have also fallen by 3.5% in the March 2010 quarter, from $307,542 to $296,660, a positive for new house and land buyers.

The Gold Coast land and packaged housing market has slowed at the lower priced end due to the end of the Federal “boosts” given to first home buyers, but the effect has been very marginal. There is now more sales activity spread across the middle and higher priced end.

Aggregate land and packaged housing stock levels of 1,404 lots represent approximately 16 months supply, which is not high given normal lead times for land development.

New production forecasts for 2010 by Gold Coast developers total almost 4,000 lots and houses. This level of production is equivalent to almost twice the level of current annual demand, indicating that supply should not be a problem in the year, given a responsible level of development funding. However, the supply of stock can change quickly when demand recovers to normal levels.

Medium to high density sites are often economically constrained from supporting affordable housing by the allowable densities specified in the Town Plan. These densities in many cases were set 30-40 years ago when site coverage and building separation were paramount. Most had 40% site coverage, which restricts density and therefore affordability. The Gold Coast City Town Plan is scheduled for renewal by 2012, and if history repeats, this could extend into 2013-14, up to four years away. The current policy is to encourage affordable housing, but densities need to be more flexible and negotiable.

The PRODAP Report is published quarterly and contains a database of sales and stock levels on the Gold Coast, in addition to market analysis & forecasts. See www.prodap.com for more information.

Sustainable Planning Act Permits “Outsourcing”

2010-01-17T21:29:00.000-08:00

The first of many breakthroughs in local government outsourcing of planning issues has occurred in the new Sustainable Planning Act for Queensland, albeit on a limited scale.

The Act came into effect throughout Queensland on 18 December 2009. For development applications which are “as of right” and for which technical assessment is clear cut, they will be categorised as 'compliance assessment'. Many code assessable development applications, which are deemed compliant assessment, will be able to be outsourced to a suitable qualified entity.

It is likely that Councils will soon call for nominations from Planning Consultants to become accredited qualified entities.

Brisbane House Prices Recover to Pre-GFC Levels

2010-01-17T20:47:00.000-08:00

The latest data from the Queensland Department of Natural Resources and Water confirms that (mean) average house prices in Brisbane have returned to their pre-GFC level.

Average house prices have recovered in the December 2009 half year to $560,000, which is 10 percent higher than the average of $511,223 recorded in the June 2009 half year.

The new data follows a fall of 10 percent, which occurred from the pre-GFC peak in December 2007 to the trough ending in June 2009. The fall in average house prices has now been matched by the recovery of similar magnitude.

However, sales volumes have not improved in the latest six month period and are still at their lowest levels since 1980.

This reflects the ‘credit squeeze’ for residential housing finance, despite the effects of the first home buyers grant. Credit continues to be a serious problem in housing and low sales volumes have a negative impact on associated industries, such as real estate agencies, removalists, valuers, solicitors, financers and the furniture/white goods/electrical sectors.

This blog is copyright to Midwood Queensland Investment Report.

Gold Coast House Prices Recover to Pre-GFC Levels

2010-01-17T20:45:00.000-08:00

The latest data from the Queensland Department of Natural Resources and Water confirms that (mean) average house prices in the Gold Coast have returned to their pre-GFC level.

Data for 2,029 sales in the Gold Coast over the six months to December 2009 showed an average house price of $575,739, an increase of 7.6 percent over the lowest point in the GFC cycle of $534,924 recorded in the June 2009 half year.

The latest data is a positive sign that average Gold Coast house prices have recovered from the fall experienced during 2008 and into early 2009.

The previous high of $580,670 was recorded in the December 2007 half year and with the average now at $575,739, average prices have all but returned to their previous levels experienced in 2007.

But this is not so with sales volumes, which continue to wallow around the record low volumes experienced in the 1982-83 recession.

Low sales volumes reflect a general difficulty in purchasers being able to obtain finance, even with the Federal government’s first home buyer’s subsidy.

The impact on the local economy has been most severe on real estate agents, removalists, valuers, solicitors and financiers as well as the furniture and white goods/electrical industry, which revels in high property turnover.

Sales turnover is a better measure than prices as a means of monitoring the general health of the housing industry.

Queensland property: Projections for 2010

2010-01-06T20:54:00.000-08:00

• The population in Queensland will grow by 110,000 in 2010, equivalent to 48,000 additional dwellings but we will only see 30,000 new dwellings constructed. This downturn in new dwelling commencements will affect employment and all ancillary industries such as finance, trades, white goods, electrical and furniture.

• Housing finance will be difficult to obtain and interest rates could rise a further 1.0% to 1.5% in the year.

• House prices will generally increase at less than the rate of inflation.

• Commercial property (except retail) will continue to perform poorly, with high vacancy rates and little or no capital growth.

• The regional areas of Toowoomba, westward to Chinchilla, Dalby, Argyle, and north to Hervey Bay, Gladstone and Rockhampton will perform better than the south-east in terms of price growth and dwelling construction.

$3,000 Boost for FHB out of South-East Queensland

2009-11-19T18:29:00.000-08:00

Anna Bligh’s proposal to provide $3000 to first home buyers who choose to establish themselves outside south-east Queensland is an admirable objective, however her proposal will never be a long term solution. Queensland has become far too focused on Brisbane and the Gold Coast, where 60% of the population live. This has stressed infrastructure in the south-eastern corner far beyond its capacity to keep pace.

There are lots of similarities: in Australia, Sydney faced the same situation at the turn of the century, and so Canberra was created. In Brazil, Sao Paulo and Rio de Janeiro were replaced by Brazilia as the new capital in the 1960’s.

The Trouble with Council Infrastructure Charges

2009-10-11T18:22:00.000-07:00

Infrastructure charges are probably the least understood tax we have. Basically, they are a tax on developers (big and small) who are held to ransom at the point of obtaining title to newly subdivided land, to pay charges which are calculated on an undisclosed basis. The calculation of the tax is not made public. There is a published schedule but without explanation of how they are arrived at. This is a most unusual circumstance in a democratic society. The only way they can be challenged is in court.

It is not surprising that infrastructure charges are highly controversial, particularly when they have risen in the Gold Coast by approximately 100% per annum since 2003. You have to pay them or you don’t get titles. You can’t question them, or even obtain a copy of the calculations.

So the whole basis of charging has to change. May I suggest a flat charge across the city in each category (residential, industrial, commercial etc), which is reviewed each year by an independent arbiter such as the Ombudsman? In addition, the charges should compensate some types of developments such as shopping centres, which although they impact on infrastructure, provide a positive community benefit. Current charges for shopping centres consider only their impact on infrastructure and are consequently prohibitive in most cases (e.g. Aldi and Westfield at Coomera).

Council has not been acting illegally but the current system is not transparent and very expensive to administer because of its complexity.

Avoiding a Housing Bubble

2009-09-29T20:32:00.000-07:00

The Reserve Bank’s Tony Richards has today (30th Sept) urged local Councils and the QLD State Government to create the environment for the supply of more new homes in order to prevent a house price bubble from occurring. But the real problem is the lack of sufficient development finance for new subdivisions and apartments.

The Federal Government should urgently make it easier for second tier financiers to attract capital by removing the Government’s deposit guarantee granted to the ‘four pillar’ banks. This would redirect investment deposit monies toward specialist property financiers who offer higher interest rates to investors, and specialise in lending for new property development.

At the moment, most investor deposit funds have flowed to the four pillar banks because of the protection offered to investors by the Government’s guarantee of all deposits less than $1 million. But what is needed is a level playing field, allowing second tier and traditional property financers to compete for investor deposits to use for lending on property development, which will flow into new housing supply.

Political lobbying and “Donations”

2009-08-05T18:29:00.000-07:00

The lobbying of politicians to support better business conditions has, and always will be, an integral part of the democratic system.

In the case of property development, the stakes are very high, as are the risks, the most common of which is the rejection of a particular proposal. So developers are entitled to spend large amounts of money to present their project in the best way possible. This includes professional fees to lobbyists and public relation firms. No problem so far. Even ex-politicians are entitled to a life after politics, and they should not be excluded from working as lobbyists.

But when direct payments are made for “contact” with politicians, an immediate conflict of interest arises. Politicians are supposed to be paid adequately to represent their constituency without the need for additional payment. In fact it is against the law for politicians to accept bribes, and for anyone to pay politicians for favours (except the unions).

The difficulty is that as much as it is policed, brown paper bags will continue to surface, and many more are not even detected.

The capitalist system and the disproportionately high levels of value adding which is commonplace in property development will ensure that “money talks”.

All that we can hope for is that the legal system works and continues to make political bribery illegal. This should be extended to include all political donations to individuals and parties, including invitation only lunches and dinners. It should also include donations from trade unions.

The end result might be that less money is spent on election campaigns which may not be a bad thing. The more political parties have available to spend on campaigns, the more they will spend. This also works in reverse. With smaller budgets, more cost efficient campaigns will emerge, perhaps with more extensive use of the electronic medium.

South-East Queensland Regional Plan (SEQRP)

2009-07-28T19:02:00.001-07:00

The SEQRP became law on 28 July 2009. It has been in the making since 2005, coinciding with Terry McKenroth’s abrupt exit from Parliament. Following his considerable influence in its content, Mr. McKenroth went on to consult to property developers as to where the opportunities to seek development approvals were.

The SEQRP was conceived out of Labor’s chronic 20 year ignorance since its election in 1989 (interrupted briefly in 1999) of the need to continually up-date infrastructure. It was driven from an economic perspective more than a market perspective.

The theory is that it is not economically viable to provide infrastructure to outlying areas. Given that developers fund most of the infrastructure (water, sewerage, drainage, roads and parks), this theory is not easy to defend. There is the argument that the State Government provides hospitals and police stations, however just about every other piece of infrastructure is funded from developer contributions. The government gets off lightly.

So the argument runs that it is more economical to have infill development (meaning apartments/townhouses) within existing residential areas. This creates two problems:

1. The neighbours don’t generally like a change to their amenity, particularly if the locality has been conventional detached housing for a long time, and

2. It is very costly to upgrade water, sewerage and stormwater mains to accommodate increased densities, because the pipes are generally laid at depth within existing road reserves. So, in reality it is no cheaper to provide infrastructure in infill areas.

Market Considerations

The SEQRP has not evolved out of market needs, rather out of a government funding crisis. There is no evidence that the assumption of 60% of new development being infill will eventuate. People won’t necessarily be attracted to apartment living simply because the Town Plan has large areas dedicated to it, and neither will developers, if the market doesn’t respond.

Over a long period of time (30 years), the proportion of Australians living in attached dwellings has been constant at 28%. The SEQRP is assuming that this will change to 50% of new house buyers over the next 20 years. This is a very brave assumption, totally unsupported.

Demographics are constantly changing. The baby bonus has resulted in the natural population increase (births over deaths) in Queensland increasing from 25,007 in 2004 to 35,799 in 2008 (ABS 3101.0), overtaking interstate migration. This has increased the number of traditional young families, who overwhelmingly do not want to live in apartments.

High-Rise Preferences

The Gold Coast’s fascination with high-rise apartments is unrelated to residential development preferences, because they are primarily holiday apartments. It makes perfect sense to build high density near the beach, but not in the suburbs, where residential amenity is paramount.

High density brings with it parking and traffic issues, shadows, and that insidious feeling of a city in decline.

Tourism Australia’s Bar Needs to be Raised

2009-06-15T21:51:00.000-07:00

The Chairman of Tourism Australia, Rick Allert, in his letter to the editor in the Gold Coast Bulletin on 16 June 2009 titled “Australia Still has enduring tourist appeal”, has invited evidence to show that his group’s performance has been below par in recent years.

Mr. Allert rests his case on the success of Tourism Australia’s promotion campaigns on the fact that in four of the last five years ‘record’ numbers of visitors have arrived in Australia. The fact is there should be a record set every year, if for no other reason that the world’s population is continually increasing at about 1.2% per annum. To maintain market share, Australia must increase its visitor numbers by at least 1.2% per annum.

Over the past three years (to December 2008), the Australian Bureau of Statistics recorded that annual growth in visitor arrivals to Australia have been 1%, 2% and -1%, which is less than the world’s population growth over the same period. World tourism grew by 2% in 2008 despite the global recession (UNWTO World Tourism Barometer, January 2009).

So, if Tourism Australia measures its performance on setting new records every year, it hasn’t done so in aggregate over the past three years. It has failed its own test.

Perhaps Tourism Australia needs a new performance indicator, like 3% growth in visitor numbers each year. This would be real growth.

Women in Tourism June Breakfast

2009-06-01T18:42:00.000-07:00

I am speaking at the WIT Breakfast this Friday. Here are the details:

Guest Speaker: Mr Bill Morris, author of the Midwood Queensland Investment Report

Date: Friday 5 June 2009
Time: Guests arrive from 6.30am for a 6.50am start

Venue: Mantra Legends Hotel, Cnr Surfers Paradise Blvd & Laycock St, Surfers Paradise

Bill Morris will present a pre-release of the May 2009 Midwood Report including the latest property and tourism findings for the Gold Coast and Queensland.

Tix just $35pp, book now at www.womenintourism.org

Budget Implications – First Home Buyers Grant (FHBG)

2009-05-19T20:37:00.001-07:00

The Federal Government’s own advisors – the Australian Bureau of Statistics – advise that 93% of FHBG’s go to established home buyers and only 7% go to new home buyers. Therefore, the FHBG does very little to stimulate the economy or create jobs. The only beneficiaries of established home transactions are real estate agents, lawyers and financiers.

We need more new homes constructed in Queensland and around Australia, to employ more trades people and purchase more building materials. But the FHBG boost, which will extend until 30 September, and a further extension until 30 December 2009 is in the same form as before.

Even though there is a small incentive (+$7,000) to buy a new house, this obviously has not had the desired effect. The boost needs to be a lot more than $7,000 because new houses require landscaping, fencing, windows, carpets etc which are additional costs compared to established homes.

Effectively, the FHBG should give more incentive for new home buyers and less for established home buyers. The overall cost of the scheme would have been lowered at the same time because there are considerably less new home buyers than established home buyers in the system.

Upcoming Presentations

2009-05-06T23:33:00.000-07:00

Women in Tourism Breakfast - 5 June

I will be speaking at the forthcoming Women in Tourism networking breakfast at Legends Hotel, Broadbeach, Gold Coast, on 5 June 2009. I will present a pre-release of the May 2009 Midwood Report including the latest property and tourism findings for the Gold Coast and Queensland. For more information or to reserve your seat at this event, visit www.womenintourism.org. We hope to see you there!

Home Buyers Show - 13-14 June

The Midwood Queensland Investment & Prodap Reports will be exhibiting at the Brisbane Home Buyers Show on 13-14 June 2009 held at the Brisbane Exhibition Centre. Here I will be speaking at a free seminar during the show on both saturday and sunday (13 & 14 June). Contact my team on 07 5522 8755 for your half price ($7.50) entry ticket to the show. To find out more about the event visit www.homebuyersshow.com.au.

Hewson Off the Mark on First Home Buyers' Scheme

2009-03-25T20:22:00.000-07:00

John Hewson’s (ex-leader of the Liberal Party) latest remarks are surprising coming from one so well qualified in economics (he has a doctorate).

He is comparing Australia’s first home buyer’s scheme with the USA sub-prime debacle, saying that young couples are being falsely induced by the grant into long-term commitments they may not be able to fulfill.

The difference between the two is that USA mortgages were mostly non-recourse, whereas all the Australian mortgages are the opposite. In other words, Australian mortgagees would pay their mortgages first out of their pay cheque, rather than last.

The other point Mr. Hewson ignores is that house prices are currently at their lowest (or very near to it), so that capital gains over the next 2-3 years is more than likely, thereby increasing the borrower’s equity immediately.

State Government’s South-East Queensland Regional Plan Will Alter Our Way Of Life

2009-02-18T20:22:00.000-08:00

The Queensland State Government has just issued its second revision of its regional plan for SEQ 2009-2031 for public comment.

The current version incorporates increased dwelling density by providing for 735,500 new dwellings to the year 2031, up by 28% on the initial plan released in October 2004.

It is proposed that this increased density will be achieved by requiring a minimum density on all new subdivisions of 15 dwellings per hectare. This is equivalent to one dwelling per 600sqm (after deducting parklands but before roads). As a comparison, there was never any minimum density until now, but maximum densities were stipulated for Residential A (10 dwellings per hectare) and Residential B (40 dwellings per hectare).

The reasoning behind increasing densities is given as ‘smart growth’ whereby infrastructure costs are minimised. New communities or subdivisions will be designed as ‘walkable’ communities in which families will not be ‘automobile dependent’.

Queenslanders should be deeply concerned about the way its government is headed on these issues. It could change the way of life of your children and grandchildren, more so than Greenhouse issues.

Queenslanders have long cherished the quarter-acre block in Residential A subdivisions. Whilst this has whittled down from 1,000sqm to 600-700sqm (on average) over the past ten years, there is no evidence that Queenslanders want to go any further down to increased density. The government’s target will see newly developed lot sizes reduce to 300-400sqm, with no backyard, no room for a pool and no room for external storage.

Proponents of increased density say that there will be ‘common’ facilities provided by the developer and a designated central park. The proportion of Queenslanders currently living in detached housing is 72%, a figure which hasn’t changed over the past three Census periods (15 years). Hence, there is no trend toward attached, denser housing as is being implied in the government’s plan. I urge all Queenslanders to view the website where the Draft Plan is located at www.dip.qld.gov.au and respond before the closing date for comments by 3 April 2009.

Sunshine Coast Has Most Unaffordable Housing in the Western World

2009-01-26T16:58:00.000-08:00

An internationally accredited demographic research company, Demographia, has just released the findings of its fifth annual international housing affordability survey.

The survey covers Australia, Canada, Ireland, New Zealand, United Kingdom and USA. It compares regional housing affordability by calculating the median house price divided by the median household income for each region. A quotient of five or higher is considered to be ‘seriously unaffordable’. A quotient below three is considered to be ‘affordable’.

Affordability has improved in some regions over the past 12 months as house prices have weakened, however there remain some unacceptably unaffordable regions such as the Sunshine Coast, Australia (9.6), Honolulu, Hawaii (9.1), Gold Coast, Australia (8.7) and Sydney, Australia (8.3), all rated in the top five locations in the western world for unaffordability.

Many USA regions became more affordable over the past 12 months due to the severe downturn in house prices, which had occurred there. The USA had nine out of the lowest ten rankings (1.8 - 2.1).

The findings of this survey should ring alarm bells throughout Australia, and in particular Queensland.

The high levels of housing unaffordability are attributed to the lack of supply of serviced land in affordable locations, in particular town planning policies which aim to constrain housing development to areas within existing established areas. These policies are generally referred to as ‘urban consolidation’ or infill development, and are fundamental objectives of all State Governments.

Given that all of the States in Australia (except Western Australia) have Labour governments, it is difficult to understand why they would each seek to install planning policies which act against the best interests of their traditional constituents, i.e. higher house prices.

State Government planning ministers argue that there is sufficient land allocated within the ‘development footprint’ to satisfy demand for 20 years or more and therefore land supply is not restricted. But what they don’t say is that the allocated land is more expensive because it often has existing services which require upgrading, to accommodate increased density. Where existing services need to be amplified or new pipes laid under existing roadways, the cost of that work is very high, much higher than in ‘greenfield’ locations.

Additionally, infill sites are more expensive because they are better located. Hence, the stock of ‘entry level’ housing has diminished, and potential first home buyers are often forced to rent. Not surprisingly, the proportion of renters in Australia has increased from 25% to 32% over the past decade. This is the undesirable outcome of these State planning polices, quite the reverse of what Labor governments should be trying to achieve.

The answer is for Councils to permit more ‘out of sequence’ development where the developer funds the majority of the infrastructure. Examples of this are Forest Lake (Inala, Brisbane), Springfield (Ipswich) and Yarrabilba (Waterford), but there are not enough of these types of projects to satisfy demand for affordable housing in Australia. With a surplus of developable land this should be able to be accommodated with developer subsidies.

Population ‘caps’, such as is applied to Noosa on the Sunshine Coast, only exacerbate the problem of affordable housing because limited supply means higher land prices. Even though Noosa has yet to reach its ‘cap’ of 60,000 people, the expectation is there, and land has been valued accordingly.

National Rental Affordability Scheme (NRAS)

2008-12-18T16:28:00.000-08:00

This new Federal Government initiative will prove a boon to residential property investors and low income renters alike.

The scheme provides for a tax free rebate of $8,000 per dwelling per year for up to 10 years for new rental accommodation of 20% below market rent for the particular area. The net effect will be between $5,000 and $6,000 per annum tax free per dwelling on top of normal net income.

Developers need to obtain accreditation for each development of more than 20 dwellings. Round 2 accreditations close on 27 March 2009.

It is anticipated that the scheme will kick-start the residential property investment market, which has been in the doldrums since 2003 when sharply escalating house prices reduced rental yields, even though rents were rising during that time.

Residential Property Lending Will Drive the Recovery in QLD

2008-12-09T17:30:00.001-08:00

Why?

1. The residential property market generates more economic and employment multipliers than any other industry, e.g. furniture, white goods, landscaping, floor coverings, and most of all the trades (carpentry, plumbing, electrical, bricklaying, roof fixing and finance/banking).

2. Banks who are currently restricting lending on property will inevitably return to the mortgage market because this is the lowest risk and most profitable form of lending (lending margins are currently 3%). Capital required for lending will come from share issues and increasing retail deposits emanating from the Government deposit guarantee.

3. Record population growth should continue underpinning housing demand.

When?

The return to normal mortgage lending levels and development funding will take up to 18 months. This is the time it should take for the banks to re-capitalise their losses and maintain their capital adequacy ratios without the need to cut lending.

Property in 2009 Seminar

2008-12-02T16:02:00.000-08:00

Thank you to all those who attended the Midwood Australia seminar on Tuesday night, 2nd December. If you would like a copy of the presentation please copy and paste the link below into your browser.

http://www.midwoodaustralia.com/files/Midwood-Seminar-Dec-08-Property-in-2009.pdf

If you have any feedback from the night, please feel free to post your comments.

Regards,

Bill.

MIDWOOD AUSTRALIA GOLD COAST SEMINAR

2008-11-17T21:44:00.000-08:00

Don't miss an opportunity to attend the Midwood Australia Gold Coast Evening Seminar: Property in 2009 - Opportunities and Survival Techniques, which I am speaking at.

I will present a 'pre-release' of the latest property findings in the November 2008 edition of the Midwood Report.

Places are limted, so book early to avoid dissapointment.

For further information and to register for this event please visit www.midwoodaustralia.com

Rudd's Economic Tonic ($10bn)

2008-10-19T18:58:00.000-07:00

The $10billion stimulant to the economy announced by Kevin Rudd, aimed at retirees and the lower income sector, will only work if the funds are invested on deposit in the banks, and this is most unlikely.

What was really needed was a stimulus to bank liquidity because it is the cut-back in lending that has hurt the economy, particularly the property industry. Rudd should have required every recipient to put the money on deposit in one of any number of banks (not just the four “pillar” banks). In that way he could have satisfied his labour constituency as well as increasing bank liquidity.

By handing out a sum of $1400 to individual pensioners and $1,000 to carers and low income earners (per child) without directing it strategically the funds will go largely to retailers, which will do nothing for liquidity.

Another alternative could have been to use the $10billion to buy sank shares, which are at their lowest price now. They could have been sold at a later date when the share price has increased. A larger amount than $10billon could have been realised to effectively increase liquidity, perhaps $50billon, from the Future Fund.

As for the first home owner grant increases to $14,000 for established homes and $21,000 for new homes, this will increase consumer confidence if only for a short while. The problem is going to be the lending margins offered by the banks under the reduced liquidity regime. We may see 90-100% mortgage loans dissapear and instead the banks are likely to revert to 70-80% mortgage loans, which leaves first home buyers to gather up a 20-30% deposit. Considering the average home in Brisbane and Gold Coast is $450,000, a home buyer would need up to $135,000 for their deposit!

All in all, the Rudd crisis package will improve the circulation of money in the Austrlaian economy but will not cure the main problem of low bank liquidity and hence reduced lending capability. In addition, the package will be inflationary.

USA Has Coughed - Have We Caught a Cold?

2008-09-30T16:11:00.000-07:00

Australia is right in the middle of a classic liquidity crisis. A crisis not of its own doing but one borne out of a 50% reduction in the availability of funds borrowed out of the USA for financing property and business development in Australia.

More recently, the lack of confidence in the USA financial markets has caused a fall in the sharemarket by around 20% since June 2008. This in itself is not catastrophic because the sharemarket will inevitably rebound in the future and may even surpass its previous record highs.

The Australian economy is underpinned by record low unemployment, record high immigration, a stable trade union environment and moderate interest rates, which are not high by historic standards. The only real problem is liquidity and this affects new property development and re-financing of existing facilities. New projects on the drawing board are likely to be postponed until project funding can be accommodated.

Everybody wants to know the possible effects of this liquidity crisis on the value of their properties. In my opinon there will be alot less buyers around over the next 12-18 months, which will have a downward effect on property prices, moreso in the higher price brackets.

The extent of price reductions will vary on locality and price range. In prime locations (such as inner city or beachfront)with prices around $500-700,000 there should not be much change, however in fringe locations and higher price brackets there could be reductions in the order of 10-20%.

To put this in context, most property owners benefited from a 100% price increase in the 2003-04 property boom when we saw the highest rise in property values in Australia since the 1851 Goldrush! A 20% reduction now is more of a correction than a downfall.

In the Midwood Report, I have stated for some time that the next uplift in the property cycle is due in 2010 and the size of this lift is expected to be in the order of 30-40%. This will over correct the reductions we are seeing now.

In the long term property values in South-East Queensland increase at approximately 8%pa. This has occured over a long period, dating back to the 1960s. When added to rental returns of about 5%pa, the effective gross yield of investment properties is around 13%pa.

Have we caught a cold from the USA? Yes but its not terminal and with a bit of management it can be cured without too much pain.

Why are land prices in Australia so high?

2008-06-10T17:53:00.000-07:00

The Australian property cycle has historically been driven by land prices. Land has been in short supply due to:

• State Government policies which restrict land development within a footprint, termed 'urban consolidation'

• Long approval time by Councils (particularly in Queensland, 12 months or more for large properties)

• High Council charges for headworks and infrastructure

Serviced land shortages and increasing development costs have driven up prices by more than 100% since 2001.

(See page 25 of our May 2008 Midwood Report for my full story).

Queensland Property Market Softens

2008-06-10T17:40:00.000-07:00

Queensland's property market has softened since January 2008. This has resulted from:

- A long run of prosperity between 2001-07, which saw almost all property in Queensland increase in value by more than 100%
- The virtual satisfaction of pent-up demand for property
- Mortgage interest rates rose from 5.5% per annum to 9.5% per annum since the year 2000.

I state in my latest Midwood Queensland Investment Report (May quarter 2008) that there is no need to raise interest rates any further. Doing so would only stop the market completely and cause damage to borrowers, lenders, asset values and all of the ancillary industries which depend upon the housing industry.

Is Demand Inflation Really The Problem?

2008-04-23T22:27:00.000-07:00

We keep hearing that demand needs to be supressed, but price rises are the result of supply constraints, in particular housing, which has given rise to the largest rent increases in the nation's history.

Housing supply has been constrained in all Australian capital cities including the Gold Coast by State Government planning policies which encourage urban consolidation or infill development as opposed to decentralised development.

Consequently none of the States have produced sufficient housing to meet underlying demand over the past five years. This has caused serviced land and house prices to sky-rocket faster than ever before in Australian history.

The impacts are obvious, that is, higher mortgages and a much higher proportion of spending directed towards housing than ever before, hence supply-side constraint inflation.

The answer is to revisit our planning policies to open up more affordable land, and this means creating satellite suburbs, not neccessarily continuous urban sprawl. There are a number of Australia's largest public companies, for example Delfin Lend Lease and Stockland, who are equipped to do this but are being hampered by restrictive planning policies.

Gold Coast Land Sales Slump

2007-09-26T23:45:00.000-07:00

Sales of vacant allotments in the Gold Coast fell from 818 to 626 (24%) in the 3 months to June 30, the result of record low levels of stock. Just 700 lots were available for sale at June 30, or just over 3 months supply.

Many of the major developers have chronically low stock levels, for example, Pacific Pines (10), Genesis (0) and Coomera Springs (13). Normally, these projects hold at least 50 lots each.

Developers cannot obtain their subdivision approvals and plans sealed quickly enough to stay ahead of demand. There are major problems in Council with 9 day fortnights and other "flexible" working arrangements such as 2 and 3 day weeks which benefit the employee but not the customer. If your application happens to be processed by a 2 day planner, you receive a reduced service accordingly. There does not appear to be a well developed system of job sharing within Council.

The effect of these stock shortages will be increased land prices.

BIS Shrapnel Come to Town

2007-09-11T19:13:00.000-07:00

Economists BISS are reported in to-day's Courier Mail as blaming "greedy" developers for triggering a price boom of up to 40% within 3 years in Brisbane. Let's hope they were misquoted.

BISS are right in their forecast, but for the wrong reasons. Booms occur in cycles, generally every 7 years, as a result of the "natural" oscillations in the property market (the last boom occurred in 2002-3).This is a phenomenon of most capitalist economies. Booms are not caused by "greedy" developers colluding to exhaust supply in order to somehow distort the market with the aim of re-entering that market when prices have risen.

The building industry is very close to operating in pure competition. It consists of many players and subsidiaries, of different sizes, but mostly small operators who cannot afford to withdraw their services. They do not, and could not, contrive to run down supply to raise prices.

Queensland after Beattie

2007-09-10T17:17:00.000-07:00

Anna Bligh will be a vastly different Premier than Peter Beattie. She is low profile, media shy, left wing, without vision, and she will not be her own woman. It is not certain that she will win the next election, even with a 50 seat majority.

Anna Bligh will return Queensland to those cautious Goss days when every activist group (especially the Greens) was listened to, and projects deferred rather than delivered when needed.

She will have a new Opposition Leader in Ray Stevens from the Gold Coast very shortly. He will out-manouvre her and gain alot of ground for the Coalition, possibly enough to win government at the next election, if not the following one. The new Parliament will be full of Independents, mainly disgruntled local Councillors ejected from the amalgamations.

In the interim period under Bligh, Queensland will stagnate as did NSW under Unsworth and Victoria under Kirner. The infrastructure program will lag, and Queensland will become known as the "anti-development" state. The term "Smart State" will be long forgotten.

It will take Queensland at least 5 years to recover.

Queensland Migration On Track

2007-09-09T22:51:00.000-07:00

Despite media reports today, principally in The Financial Review (page 3), that net interstate migration into Queensland had stalled, the reality is that numbers are in fact "on track". Net migration for 2006-7 was 29,500 compared with 45,000 in 2002-3 and 50,000 in 1994-5.

Migration is cyclical, and follows closely Sydney property booms. Sydneysiders typically visit the Gold Coast for family holidays and after some years make a decision to move to Queensland. That decision becomes reality when a target selling price is achieved for their Sydney property, coinciding with a Sydney boom.

Hence current interstate migration levels are between cyclical peaks, which is perfectly normal. Queensland's average growth rate is 2% p.a. or about 85,000 persons p.a. Overseas migration has grown at the expense of NSW and this sector is likely to push the numbers beyond 100,000 p.a. by 2015. This creates an underlying demand for 40,000 new dwellings p.a, more than any other state.

Infrastructre Funding Is All Wrong

2007-09-06T17:17:00.000-07:00

For years local Councils have recovered "headworks" charges by levying the developer his proportionate share of marginal water storage and sewerage treatment costs. The calculation was based on forecasts of likely amplification of dams and treatment plants within the city and pro-rata that cost over new lots created over a certain time. So all purchasers of new lots bore the brunt of headworks charges. If you were fortunate enough to have purchased an existing house or unit, you escaped the headworks levy.

This distortion in the allocation of costs went largely unnoticed until infrastructure charges sky-rocketted from $6,000/lot to $31,500/lot in the Gold Coast, for example, this year. The increase has been factored into new house prices, which had already increased in price due to supply issues.

Hence the distortion in cost responsibility caused by the old "user pays" policy has implications for the housing affordability issue.

A "whole of City" approach is needed for infrastructure charges, even though a more equitable policy may trigger higher Council rates across the board. It may be politically unpalatable, but then so is unaffordable housing. The magnitude of rate increases could be modulated by amortising the debt over the life of the asset (in some cases 100 years) and accounting for the future income derived from the asset.

The current financial system was devised in the 19th century by public service accountants intent upon inheriting debt free assets totally funded by developers and generating positive income streams in perpetuity. Nice if you can get it!

Quarries Become Protected Species

2007-09-05T20:23:00.000-07:00

The Qld government have caved in to the mining industry by designating 100 Key Resource Areas (KRA's) with associated quarry buffer zones of up to two kilometres. Houses or land located within buffer zones cannot extend or subdivide, nor can any new residential development occur. No compensation is contemplated by the government.

The previous buffer was 300 metres, and the onus was on the quarry to properly manage fly-rock by efficient drill hole orientation and use of approved blasting mats.Quarry licences are issued by local Councils on the basis that they keep fly-rock within their property boundary. However, the industry complained that fly-rock could not be consistently controlled.

Land values within KRA's are likely to tumble. There would be many cases where houses were constructed outside the 300m zone, but are now within the KRA. Surely a good lawyer will win an "injurious affection" case which will flow on to many others who have been disadvantaged by this legislation.
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This is typical of the bullish legislation being pushed through Parliament before Beattie retires.

Urban Land Development Authority(Queensland)

2007-09-04T19:12:00.000-07:00

The State Government this week will enact the ULDA which will have powers to "assemble land,assess and approve development and market land for development by the private sector."

The purpose is to provide sites for affordable housing in cases where the normal processes have stagnated. ULDA will either acquire the property or enter into a joint venture with the developer, and will sell the site with approvals. The profits will be ploughed into acquiring other sites. It all sounds too entrepreneurial for a government department- a bit like WA Inc.

The need for this drastic action highlights the shortcomings of IPA, the Integrated Planning Act(1997), which has been identified as the main cause of delays in rezoning approvals. It may have been easier and less expensive to amend IPA than to create another monster.

This is a strange case of a Labor government acknowledging the shortcomings of its administration and then duplicating what the private sector does best,ie identify, rezone and develop land. It is not something that a Coalition government would normally do, and is likely to be dismantled come the next State Election.