Immigration Figures

The Northern District Times Opinion page has been debating the immigration issue. A letter by Mr Peter Ross in the 14 April edition said that the US takes in a million migrants, implying this justifies Australia taking in a mere 300,000. Several letters this week make the obvious point that the US has a population of 309 million, whereas Australia has only 22 million, so we are taking five times as many immigrants per head of population.
Admittedly USA's total area of 9,629,091 sq km is not that much larger than Australia's 7,692,024 sq km, but anyone who has flown over America's endless verdent plains and Australia's endless deserts will recognise the huge difference in habitable land available.
Meanwhile in the same issue of the NDT Greg Smith makes the point that he is now 62 yet intends to continue working in politics well into the future. This blog has earlier stressed the need to take advantage of the resources of the active and able elderly, as an alternative to retiring them and bringing in people from abroad to support their retirement.

Watching with Interest

A thought-provoking letter in the Northern District Times by Mr Clive Troy, a Beecroft resident, says "Council moved the bulk of proposed high-rise to Thornleigh, Beecroft and Cheltenham after serious protests from people in the top end of the Shire. Has this strategy got anything to do with political ambitions related to the next state election and the seat of Hornsby?"

Maxine McKew says Strategy doesn't make sense!

Bennelong Federal MP Maxine McKew met Hornsby Shire Mayor Nick Berman and others to discuss the Hornsby Shire housing strategy. Commenting on the traffic problems, she said "The proposed redevelopment around Carlingford Court makes no sense to me". Ms McKew is Secretary for Infrastructure, Transport, Regional Development and Local Government so this issue is directly in her remit.
Meanwhile Epping State Liberal MP Greg Smith says "the garden suburb of Beecroft, the pride of the electorate, is also set for destruction in certain areas when dwellings are replaced by ugly home units".

Rudd Backflip on Foreign House Buyers

The federal government’s decision to reinstate the foreign investment guidelines has been welcomed by Australia’s real estate industry body. The Real Estate Institute of Australia (REIA) president David Airey yesterday said the government’s backflip on foreign investment guidelines was exactly what Australia needed.
Late last week, the government announced that foreign investors may only purchase new housing stock and temporary residents may only purchase existing housing for use while they reside in Australia. “We support measures that facilitate access for overseas investors to participate in the property market, however it has come to our attention that since 2008, the changes were not being effectively policed by the Foreign Investment Review Board (FIRB),” Mr Airey said.
REIA undertook a survey which showed that agents, particularly in Melbourne, were suspicious of the number of foreign entrants into the market place and whether those entrants were strictly adhering to the guidelines. “We are looking forward to working with the government to achieve an outcome that meets the expectations of the Australian community and does not place undue stress on housing affordability in Australia,” Mr Airey said

Sydney Building Costs

The National Housing Supply Council estimates there is a shortfall of 178,000 properties across the country.
Meanwhile the NSW Planning Department claims there is plenty of land available for residential development in Sydney - "the highest level of released land since 1981".
So why the discrepancy? A breakdown of building costs shows it costs almost $200,000 more to build a green-field house (ie, on land not previously used for housing) in Sydney than in other capital cities, mostly due to state government taxes and the raw cost of land.
The Urban Development Institute of Australia, the developer lobby group, blames the government for not providing services, roads, public transport, and easy DA approval processes. Their spokesman asks "if you are a developer, are you going to invest where there is all this uncertainty?"

Unoccupied Houses

The 2006 census found that approximately 830,000 private dwellings were vacant, representing almost 10% of the total housing stock. Earlier this month, in a blog about foreign buyers, I reported how a house in my street, purchased last year by a foreign buyer, was still empty. I am pleased to report that the owner has now authorised Ray White Beecroft to put tenants in the property. Only 829,999 to go!

Tracking House Prices

A most excellent article in Sydney Morning Herald's BusinessDay explains why it is so difficult to determine trends in house prices. This blog has commented before on the danger of quoting median house sale prices, which are influenced by the nature of purchasers and the increasing size of new houses. The article reminds us how "the flood of first-home buyer properties onto the market last year would have produced a price fall on a simple median reading due to the lower average value of those properties". So as higher-value properties return to their natural proportion of the market there is bound to be an apparent but entirely artificial increase in median house values.
RP Data-Rismak seeks to distinguish homes by their attributes, comparing the trend of prices for four bedroom houses with pools and so on. Obviously this is a far more valid approach, but is greatly hindered by the paucity of sales of similar houses.
Even when the same property is sold twice in a short period the difference in price might be because house prices have gone up, but could be because the new owners did substantial renovations. Not surprisingly, the article's main conclusion is that "house price information is pretty poor".

Which Plan Next?

I liked this extract from a paper by Chris Berg, research fellow with the Institute of Public Affairs:

"The first major plan for Sydney, the 1948 County of Cumberland Plan, was supposed to be in place up to 1980. It was supplanted by a new plan in 1968, supposed to last until 2000. Then came one in 1988, another in 1994, in 1997, in 1998 and in 1999. That last plan should have lasted until 2016. It didn't. The planners imagine that the next one will last till 2036. It won't."

Makes you wonder whether the states and shires of Australia should go ahead with the latest plan, to re-zone large tracts of the capital cities of Australia for multi-storey residential development, in preparation for the federal government's anticipated population in 2050! Trouble is, once those re-zonings have been approved, they are unlikely to be reversed by the next Major Plan for Sydney. The damage to the character of our city will be permanent.

And of course the pressure to implement the latest plan "demands" that the state has the power to compulsorily acquire people's property to make way for all the new developments. And sure enough those powers are now being drawn up, or extended, and will also no doubt remain when the next plan comes out.

Is there a housing shortage?

The following is a quote from a recent government report analysing housing needs:
"A likely response by government and the private market to the emergence of a large housing shortage would be the construction of a larger number of smaller, low cost dwellings. Therefore, the trends towards larger dwellings with fewer occupants discredit the existence of a national housing supply shortage. These trends indicate that the housing market has been driven more by the demand for increasing housing quality, rather than the demand for increasing quantity. It also shows that there is significant capacity in the existing housing stock to absorb more people."

The Hornsby Shire is indeed proposing to build large numbers of small units in their five-storey residential developments. But as explained in this report, the focus of that activity is at best questionable. The report points out that the average number of persons per bedroom has fallen from 1.15 in 1976 to 0.87 in 2006. Not only do kids now expect their own room, the household also expects to have a spare bedroom for visitors.

If this is what buyers want, Hornsby Shire's proposal to build small units seems to go against the market trend.

First Home Buyer concerns

According to the Bankwest/MFAA Home Finance Index, more than half of Gen Ys say they are shelving their plans for buying a home because of how much debt they would need to carry to afford a property. According to the latest Bankwest/MFAA Home Finance Index, a “two-speed” property market is emerging, with more young Australians expecting to be life-long renters. Hmmm, not convinced this is breaking news. I remember when, many years ago, I was intending to buy my first home, it seemed an impossible dream, and yes, I rented for some years before finally buying. Have times really got worse, or is it just that for a short period people really thought the world owed them a nice shiny new house when they leave school? Back to reality, Gen Ys.
How does this affect the demand for new housing? A report in 2009 makes the important point that “The formation of new households by young people is significantly influenced by the price of housing and social trends, such as the young adults remaining longer in, and often returning to, the family home”.

Are Developers delaying projects?

SMH BusinessDay had a full page article about the number of projects in and around Sydney that are ready for building but have been waiting for years for the developers to start building homes. Land at Werrington has potential for 240 homes, but nothing has been done by the developers, Becton, since they bought the land three years ago. Why? Becton says it is because the state government didn't put a railway station in at UWA. Of course, if there was a railway station next door the homes would be enormously more attractive, but can that really justify the developer not building?
Becton also have a site in Waterloo, known as Sydneygate, approved in 2005 for 280 units, with 30% already sold off the plan, but apparently work has not yet started. Development consent will lapse in November.
Peter Icklow, CEO of Monarch Group, denies developers are sitting on vacant land waiting for prices to rise even further.
Tony Kelly, Minister for Planning, says "Land supply is there ... it exceeds the requirements for forecast population growth". Greenfield stock is at its highest level since 1981.
But Aaron Gadiel, CEO of the Urban Taskforce, says "the government figures are nonsense because they don't reflect where land is commercially developable".
The article specifically says that the upper north shore unit market is experiencing problems. All this seems to call into question the central tenet of the Hornsby Shire Housing Strategy - it's no good rezoning land for development if the developers don't want to build! Is there real evidence of demand for hundreds of small units in multi-storey blocks in places like Beecroft and Carlingford? If the demand isn't there then why would the developers build them?
It's worth remembering a quote from an article in 2009 - "Home builders and land developers do not have an incentive to increase the supply of housing and land to significantly above anticipated demand, as this would increase the likelihood of dwellings and lots being unoccupied, undeveloped, remaining unsold or falling in value, and therefore reducing profit."

Converting Offices to Apartments

SMH BusinessDay reports that a number of big redevelopments are planned on the fringes of the Sydney CBD, converting older style office blocks into upmarket residential towers. Developers can make more money on strata apartment sales then they can by leasing the offices.
In the Beecroft area, there is a good example of this with the Waldorf Apartment block on City View Road, which used to be the Waldorf Hotel and was converted to up market apartments a few years ago. Ray White Beecroft have an apartment on the top floor of that block for sale, and it certainly offers a great lifestyle for a single man or someone commuting to Sydney from elsewhere. Close to the railway station, and with gym, swimming pool, bar and restaurant all part of the complex, as well as being surely a great investment!

Housing Investors Take Up Slack

So says SMH BusinessDay today. "Investors are being lured back into the market through the prospect of higher rents and price growth, helping to pick up the slack from departing first-home buyers. Investors are taking a bigger share of the market, 31% compared to last year's low of 24%.investors are taking a bigger share of the market, 31% compared to last year's low of 24%. RP Data's Tim Lawless attributes this partly to investors being able to negatively gear their interest payment, whereas other buyers are being scared off by the continuing interest rate rises.
This investor interest is despite rents rising more slowly than expected, actually flat in Sydney last month, according to ANZ. Average rental yield fell across all capital cities to 3.2% in December, down from 3.48% in June last year. However Ray White Beecroft's property management department is continuing to raise rents, and having no problem renting vacated properties at higher rents than the previous tenant was paying.

"Lots of land available"

A spokesman for the NSW housing minister, Tony Kelly, says there are 30,000 lots that were ready and serviced in Sydney, and they are waiting for developers to lodge applications and start building.
Putting that into perspective, only 13,000 new homes were built last year.
So what is going on? Mr Kelly says "Frustration is growing among developers, who say they are being held back by the high cost of land, infrastructure charges and an inability to build enough dwellings on some land blocks to achieve a 20 per cent return."
Or putting it another way, the developers want house prices to go up a fair bit more before they will resume building?

Land price surging

According to the Housing Industry Association and RP Data, land prices are growing at their fastest rate since 2004. The report blames the rise on lagging land supply, but that needs to be coupled with the rate of immigration and also foreign buyers who are now allowed open slather in purchasing Australian property without even bothering to rent it out.
How does the Rudd government justify that relaxation of foreign purchase rules, other than as a sop to the developers?
Interestingly, the article in the SMH business section says that some councils say they have large amounts of zoned land up for sale, but developers are not buying!

Australian Housing Market "pushing the envelope"

CEO of Hometrack says the Australian market has been pushing the envelope in terms of leverage. "We have been willing to assess people's ability to repay a loan in a very accommodating way", he says.
Meanwhile the number of new housing starts is some 25% lower than it has been over the last decade. The value and number of new home loans were, for much of last year, at record levels, due to the various stimulae. But as interest rates have risen and the government grants have diminished, new home loans are falling in both value and number.
Comsec's chief economist places NSW at the bottom of the states in terms of economic performance.

Is this why we need more immigrants?

Mr Nicholas Cowdery QC, highly respected Director of Public Prosecutions, is being forced to retire at age 65 against his wishes, because under government regulations he would lose his pension if he worked on. What a desperate waste! No doubt he will find other employment, probably in private industry where his remarkable talents will be put to good use for many more years. But he could just retire and live on his pension, swelling the ranks of those the government says need to be supported by the younger Australian working population. And that argument is used to justify the need for 300,000 immigrants each year.
Present retirement policies were set before the effect of modern health and welfare policies so dramatically increased our ability to work on beyond 65, yet we still have policies like this which force people like Mr Cowdery to leave his job long before his physical or mental age justifies it.
We really should be altering our employment and pension practices to positively encourage able bodied and willing senior citizens to go on working as long as they are able to contribute to our society.

Real Estate Sector Overheating

So says Gail Kelly, Chief Executive of Westpac. She is particularly concerned about what is happening in Melbourne, where prices have jumped 19% over the last year. She predicted that the Reserve Bank would raise interest rates again. The RBA prefers managed growth and wants to stop the development of housing or other bubbles.
In the meantime funding costs, that surged during the Global Financial Crisis, remain above the RBA adjustments and will not return to pre-crisis levels. Westpac is making sure that their lending rates are priced to reflect this.

Civic Trust Meeting on Strategy

The Civic Trust is holding an open meeting on the Hornsby Shire Revised Housing Strategy, and Beecroft's inclusion in that strategy, in the Cheltenham Recreation Club at 7:30pm tonight Thursday 15 April.

Foreign Property Buyers

The Australian says that "overseas buyers may be crowding locals out of the market"! "Anecdotes abound about cashed-up Chinese investors "land banking" by collecting houses, only to leave them vacant while desperate first home buyers lose out at auctions to these foreign buyers.
This situation largely results from a change implemented rather quietly, a few days before Christmas 2008, by the Rudd government relaxing Australia's previously stringent restrictions on foreign purchases of residential real estate. The Australian says that barely a year later, property prices have surged so strongly that the RBA is having to raise interest rates to dampen the buyers' desires.
Under the changes, called "administrative" by the FIRB, visitors on 12 month visas are allowed to buy one property to live in while they are here, and are no longer required to sell that property when they leave Australia. There are typically 300,000 visitors eligible under these new rules each year.
The author of this blog lives in a street where a Chinese visitor last year bought a property before auction for well over the expected price, and the property is still empty. We understand that Ray White Beecroft, the selling agent, has written to the new owner offering to put tenants in, so far without result. Meanwhile the neighbours are getting very distressed by the growing weeds in the front garden!

House Prices to Plateau?

Peter Martin, economics correspondent of the Sydney Morning Herald, says buyers are deserting the Sydney property market at the rate of 1000 a month, causing real estate professionals to predict an "exhausted market" with prices plateauing for the rest of the year.
The number of loans to buy houses fell 27% between September 2009 and February 2010.
Bureau of Statistics figures show February was the worst month for home loans since 2001!
In NSW, in February just 2293 first home buyers took out loans compared with 5941 in July 2009.
The proportion of people who believe "now is a good time to buy a dwelling" fell from 62% in December to 42% in March. 27% of those surveyed now say the wisest use for savings is to pay down debt.

Home Loan Situation could lead to House Price Falls?

Home loans fell in February, slumping for the fifth straight month, prompting Moody's Analytics' economist Matt Robinson in an article in Sydney Morning Herald's Business Day to suggest the extended decline may herald house price falls over the next half year.
The number of home loans dropped 1.8 per cent in February to 50,287, after January's slide was revised downward to a 7.3 per cent drop. Analysts had tipped a 1 per cent fall in February home loans, according to Bloomberg.
The picture of a lacklustre housing finance comes as the Reserve Bank embarks on a series of interest rate hikes and house prices continue to rise.
Mr Scutt of Arab Bank Australia said home prices have risen so much over last nine months they could be swaying people away from buying - and if they continue to rise, based on this data, there will be more questions about the impact of foreign buyers in the local market. The Foreign Investment Review Board currently has 50 investigations under way into suspicious purchases of local property, the government said last week.

Housing Strategy Meeting in Kilpark Park

There was a very large turnout in Kilpark Park for a meeting discussing the planned 5-story residential zoning recently included in the Hornsby Shire Housing Strategy (2010). Greg Smith gave his views, questioning the need for the foreseen massive increase in population, and advocating decentralisation away from Sydney, with frequent loud applause. A petition was circulated and seemed to be collecting lots of signatures.
Kilpark Park was an excellent setting for the meeting, a delightful tranquil setting surrounded by trees so at present houses can hardly be seen, but which will, if the Darling Street rezoning is approved, have five storey blocks of units towering over its western boundary.
Regarding Darling Street, the housing stategy states "Traffic signals at intersection of Carlingford Road with Rembrandt Street are at capacity", and "Future traffic conditions in Rembrandt Street can be improved by road widening to enable provision of an additional right turn lane". I think most people who use the present shopping centre would agree with that, but one more right hand lane will hardly compensate for the increased traffic from all those new five storey residences lining the eastern side of Rembrandt Street! The document implies that the new residents will all access their properties via the widened Rembrandt Street intersection.

Property Bubble Spurs Spending

This is from the SMH. "Surging property prices appear to be driving a spending spree with home owners taking out bigger mortgages to help fund the purchase of big-ticket items from new cars to holidays."
Regulators and economists fear the borrowing binge could leave home owners vulnerable to rising interest rates, while any reversal of housing prices could leave many with negative equity! This brings back memories of 2008 in USA!

Job situation, NSW

The key to recovering from the Great Slump is of course employment. If people can't find work they can't pay their mortgage. So it's great news that Australia is creating new jobs at the rate of 1000 a day! Not so heartening is to find that NSW is only creating 200 of them. Indeed the latest employment figures show the performance of NSW is actually going backwards compared to the other states, Victoria approaching 400 new jobs per day, most of them being full time, whereas half of NSW's new jobs are part time. Even worse, the Bureau of Statistics shows that NSW actually lost 2600 jobs last month!
Craig James of Commsec predicts unemployment at 4.75% by end of the year and says "Businesses are now largely coasting, concerned about the implication of stimulus measures being withdrawn." He says that Australia's very high rate of population growth helps business, but adds that because of immigration and aging "employment needs to rise by around 25,000 per month to prevent the jobless rate from rising". One could argue that cutting immigration and helping older people to work longer would reduce the pressure to create new jobs!
Statistics show that youth unemployment is particularly bad, with 16% of 15-19 year olds unemployed. "Prolonged unemployment for young people can have life-long consequences," says Toby Hall, CEO of Mission Australia, advocating urgent steps to help school leavers transition into the workforce.

Rent vs Buy

An interesting article in the economist about the US economy says that houses for sale in USA now often display the "no-tricks" monthly mortgage payment. This used to be taboo, says Mr Hilton, boss of Meritage Homes, but nowadays people are looking for a place to live, not an investment, and want to compare the cost of buying the house to renting a similar place.

No tricks? Mr Hilton uses as his example "eg $1,480 per month for a three bedroom two bathroom new Harrison home". The internet tells me that an equivalent home in Pensylvania would rent for $1,600 per month, which makes buying sound a great deal. But the figure quoted equates to a $200,000 loan at average rates. In other words it looks as if he is advertising the repayments on the house alone, not the land, whereas most people want a home on land. If so, his salespeople need to stress that the purchaser will also have to buy, and presumably borrow money for, the land for the house which is often worth more than the house you put on it!

Majority Oppose Rudd's "Big Australia"

A survey by the Lowy Institute has found that nearly 70% of Australians disagree with Kevin Rudd's plans for population growth to 36 million by 2050. Lowy asked what was the best target population growth for the next 40 years, and reports that 43% favoured 30 million, and 22% happy with the present size of 22 million.
Opposition immigration spokesman Scott Morrison said immigration is out of control and needed to be cut.