Ghost towers a sign of supply success?

The ninth Speculative Vacancies report continues to make waves with a live cross yesterday on Sydney’s ghost towers (ABC TV 24) and a further interview on Sydney’s ABC 7pm News bulletin. This followed on from the ABC online story – Sydney hit by Ghost tower phenomenon.

Prosper continues to ask if supply-side solutions are the best approach to affordability. Ghost towers in Sydney are a living example where we can measure the effectiveness of rezoning policy. What sort of public policy return should we expect for so much rezoning? Will vacant apartments continue to be held until the market strengthens, or will this supply hit the market in a manner that pushes prices south?

In terms of a cost-benefit analysis, the public will bear witness to the results over the next year or so. With national housing prices increasing by 55% (2012 – 18), what would a reasonable affordability outcome reflect? Sydney prices have already fallen double what they did during the GFC, but is this all they should fall?

Some would suggest that our economic system does not have the flexibility to deliver such outcomes. Others, nor the political process.

As outlined in the interview, the increase of the NSW land tax threshold from $406,000 (2013) to now $692,000 hands a free pass to investors holding apartments empty. All they need is a shelf company to avoid the agglomerated land holdings of other investment properties they own pushing them into a higher land tax bracket.

Some impositions have been enacted to curb vacancy. The federal government’s vacancy tax is a flat fee determined by the Foreign Investment Review Board. It increased from $5,000 to $5,600 for properties valued up to $1 million in the last year. There is also a surcharge land tax rate for foreign investors of 0.75 per cent from the 2017 land tax year and a two per cent rate from the 2018 land tax year onwards. However, without a land tax applying holding pressure on properties valued under $692,000, there is little incentive for vacant properties to enter the market.

The ‘build more houses’ philosophy was strongly questioned in Prosper’s recent Unspoken Alternatives to Expensive Housing report. It highlighted how land based models such as the Canberra Land Rent Initiative can deliver a 37% saving, compared to the trickle down housing supply approach, which according to the leading modeling would deliver only a 10-15% affordability saving over a decade. To achieve the necessary supply, a workforce the size of the Gold Coast would be required.

Dr Cameron Murray has delved into supply side theory with a number of theoretical critiques. Watch Cameron summarise the Unspoken Alternatives report in this 4 minute highlight reel from our 127th Annual Henry George Dinner.

As suggested in the Speculative Vacancies report, we expect savvy investors to be snapping up vacant properties during this current market downturn. They have the advantage of Australia’s record immigration agenda driving desperate renters into their hands. Is this the sort of economic model we want our nation to aspire to? As we can see from this key graph from the Speculative Vacancies report, land and housing supply is consistently massaged to manufacture scarcity. What a business model!

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https://prosper.org.au/2019/06/12/ghost-towers-a-sign-of-supply-success/