Why do we tolerate land rationing by vested interests?
The ninth UDIA State of the Land report on residential land development shows 57,381 new house lots were produced and 53,107 sold in 2016, up 8 per cent on 2015. Meanwhile, national land prices rose 13 per cent.
The stock of land available to builders and homebuyers in Sydney, Melbourne and SE Queensland is sorely below the four months’ supply the UDIA considers optimal:
“Near 40,000 land lots are needed in the eastern seaboard capitals to bridge the gap between the land supplied between the land supplied over the last five years and the new detached housing required under the metropolitan population and planning targets.
Sydney and Melbourne with only one month’s supply are in market failure. They beg for comprehensive government intervention, such as a major expansion of supply by instructing Places Victoria and UrbanGrowth NSW to develop residential land as they used to.
Sydney’s significant supply constraints lifted median advertised land prices by 35 per cent or $120,500 in two years.
Generous supply in Perth and Adelaide reflects the near-depression levels of activity in WA, and SA’s weak economic growth – no one is buying. The UDIA drily observes:
“In Perth, the supply was boosted by the return of lots previously allocated to buyers, particularly volume builders. In fact, the cancellation rate in the city was equivalent to 27 per cent of all sales. In Melbourne, the cancellation rate was just 4 per cent.
Lot sizes continue to shrink, to 407 square meters at end 2016.
“The reduction in lot sizes, coupled with the rises in lot prices, has delivered a significant increase in the price of land on a square meter basis. The national median price, at $602 a square meter, is 13 per cent higher than a year ago and 20 per cent higher than December 2014.
Buyers in new estates face comprehensive disamenity: poor infrastructure like roads and schools and block sizes with minimal private open space. Infrastructure may catch up over time, but the miserable lot sizes are set forever.
Why are developers doing this? Because they can.
They observe buyers willingness to compromise on lot size – just to get into the market on Fear Of Missing Out – and adjusted down the size of their offerings, again and again and again. After all, there are millions to be made this way.
UDIA has a list of policy recommendations for government, mostly self-serving of course.
They don’t want changes to negative gearing or capital gains tax, as this would allegedly reduce new housing supply. Never mind that this much-repeated alternative fact has been comprehensively rebutted, see here and here.
The UDIA is keen on removing Stamp Duty, but want to replace it with both land tax and a higher GST.
“Among more efficient and reliable alternatives to stamp duty, a broadened GST, and lower rate, broad based land taxes stand out. Both are much less distortive and much more economically efficient than stamp duty, and have the ability to provide governments with the stable and predictable source of revenue they require. Additionally, removing exemptions to GST and land tax regimes would not only raise additional revenue, but would also make them both more efficient and simpler to administer.
Exchanging a tax on property transactions (Stamp Duty) for a holding charge in land (land tax) offers great benefits and is long overdue. Prosper welcomes the UDIA’s initiative. But increasing the GST is simply a