This morning I was interviewed by ABC (radio) news regarding Planning Minister Matthew Guy’s ‘Super Tuesday’. The questions focused on “the largest number of private residential permits made on one day by the state government”. Will they make a difference?
I pointed to the mass of apartments built in Melbourne over the last five years. As this graph (above) from SQM Marketing shows, prices have barely budged over the this time (red line), stuck at $400,000 despite dozens upon dozens of new towers.
Prosper Australia is pro-development. We need to build up, not out. However, we raise concerns about the influence of property speculation and the resultant distortions placed on our economy. Why has the huge supply upkick in the CBD made not a dent on prices?
Over 40% of this newly announced development is next to useless for affordability. Why? Because investors have a controlling influence in the housing market, running at 40% of housing loans (up from barely 10% in the 80s). This does not include the large number of cash purchases coming in from overseas, with reports of many apartment towers being 80% sold off-the-plan to foreign investors. Cash is king. If not to them, then Self Managed Super Funds are expanding their investment portfolios with zero capital gains the incentive (for those in their pension phase).
Capital gains in many prime locations are double rents. Why would an investor risk having their kitchen wall kicked in by a renter when the capital gains deliver double the rental, virtually tax free? So the apartments stay empty.
The journalist was interested in our Speculative Vacancies report – which found 940 empty apartments in Southbank, 846 in Melbourne proper and 217 in Docklands. That equates to the same number as given permits today – 2000 properties.
Why don’t we have an economic system that encourages their efficient use?
There are 5,000 vacant homes in the northern suburbs, a subject of gentrification pressures again in the press this week.
Some may say ‘but at least Matthew Guy is creating all these jobs.’ Fair call. However, for those 12.2% of Victorian first home owners scraping together a deposit and taking out a mortgage, the financial pressure they place themselves under is immense. Corners are cut by buying less from local restaurants and at the supermarket. Small business suffers. That affects employment.
The economy has always handled a few cutting corners – but an entire generation or two? We are encouraged to think it is perfectly ok for more of our money to be channeled towards our mortgage rather than local communities. What would you prefer?
The commodification of real estate now seems to be set in stone. Speculation has trumped productive entrepreneurialism. We think this is risky for the economy and society in general. Such a trend ensures that future boom-bust business cycles are set to continue. It is the people on the ground paying for this largesse with austerity, union scaremongering and the continual concentration of economic power reducing our influence as voters.
A sensible world of development would see less spent on inflated land values, allowing more headroom for creative architecture. The effective use of already built apartments and houses would reduce pressure on struggling growth area councils. Lower debt burdens amongst society would channel money away from banks and speculators and towards the productive economy.
To do that we need to start by replacing Stamp Duty with Land Tax. Hopefully that part of the interview made it out into the ether.