After yesterday questioning the Victorian planning minister’s plan to limit new development in established inner “areas with significant local character”, the Victorian Government has moved to expand Melbourne’s effective land supply by 60,000 lots by the end of 2014. From the AFR:
Mr Guy said the 60,000 lots were within the city’s urban growth boundary and would be released with precinct structure plans by the end of next year.
While Melbourne’s land market had been subdued for the past two years, and there was no under supply, Mr Guy said it was important for the land pipeline to be primed for a potential upswing in buying.
“There is no use in having growth areas if you don’t have land available for construction,” he said.
Speaking at the Urban Development Institute of Victoria’s national congress in Melbourne on Tuesday, Mr Guy said Melbourne’s growth areas combined produced the highest construction levels in Australia, a rate he wanted to maintain…
Brian Haratsis, chairman of economics and strategic planning company MacroPlan Dimasi, told the conference that more land released to market would improve housing affordability.
“It is always better to be in slight over supply,” he said.
Robert Pradolin, Victorian general manager residential for Australand, said more land rezoned for development helped to hold prices steady.
He said that while an over supply could cause short bouts of negative equity for land owners, the medium and longer-term price stability was important for when the market strengthens and in case demand spikes as it did in 2010.
Last year, the Victorian Government announced that it would extend the Urban Growth Boundary (UGB) by 7,000 hectares, effectively opening-up enough land to ultimately accommodate an additional 100,000 people. The move to expand Melbourne’s urban footprint followed the extension of the UGB by 41,000 hectares in 2009, which opened up enough land to eventually accommodate an extra 284,000 homes.
It’s important to note, however, that while land within the expanded UGB has been ‘zoned’ for development, much of it is many years away from being serviced and ‘development-ready’. The opening-up of the UGB was only the first step in the land supply process, with Precinct Structure Plans (PSPs) needing to be developed and approved before housing-related infrastructure and new homes can be built. As shown by the below flowchart, which comes from the Growth Area Authority (GAA), the PSP process typically takes between 2 to 3.5 years, depending on the application, thus slowing the supply process:
In its 2011 planning report, the Productivity Commission, noted that it typically took between 2.5 to 5.0 years for a Melbourne housing development to move from the site acquisition phase to the construction phase, with most of this time chewed-up by planning processes (see next table).
In light of the slow development approval times, the announcement that the planning minister would bring 60,000 lots online by next year, through the completion of various PSPs, is a positive move and should ensure that a ready supply of development-ready land in Melbourne is available to meet any unforeseen surges in demand, such as through another Rudd-style first home buyers’ grant or another late-2000s-style population influx.
The expansion of development-ready land should also put increased competitive pressure on developer land banks and place continued downward pressure on lot prices.
The Victorian planning minister should be commended for recognising that the planning system is inherently slow and unresponsive, and acting pre-emptively to boost ready supply in anticipation of future demand.
unconventionaleconomist@hotmail.com
Count me a HUGE cynic of “expanded UGB’s” and “releases of more land”. Only total liberalisation will work.
http://www.macrobusiness.com.au/2013/01/is-nz-getting-serious-on-housing-policy/#comment-209763
http://www.macrobusiness.com.au/2013/03/is-foreign-money-inflating-australian-property/#comment-220419
“Releases of land” in quantities that are still all “held” by participants in the supply process: land bankers and developers; will do NOTHING for affordability and will merely risk an Ireland-like combination oversupply-and-price bubble; the worst of all worlds.
I’m with you on this one Phil.
Apart from the the revenue boost to govt, what is the benefit to “retail supply” of a “wholesale” land release into the swelling landbanks of the large developers, to sit there indefinitely.
If we are not going to completely liberalise the constraints, wouldn’t it be better for competition to limit the sales to those developers with landbanks <10yrs or attach "use it or lose" conditions to the sales.
I prefer capping the landbanks because it encourages the developers to immediately release some of their own "retail ready" holdings on to the market, immediately increasing retail supply.
Yes, you simply shouldn’t have any “quota” scheme at all in the first place in land for urban development, without some other mechanism to keep the prices down to similar levels that would apply in totally liberalised markets.
But regardless of the mechanism, the developers are the meat in the sandwich between land vendors – developers must bid against each other for the supply of land just to stay in business – and the ability of the consumers of housing to pay. Hence the prices will always find their level at the point at which the population’s ability to pay for housing, is maxxed out; and developers are being sorted into winners and losers in the gaming of the land supply, with some going broke and the rest making a killing.
Setting time limits on land banks won’t change this. Neither will land taxes or capital gains taxes. The process will still end up with housing prices maxxed out, developers playing a gladiatorial game, and all the gains being captured by the original land vendors.
Compulsory acquisition would work – when a UGB is set, the government should compulsorily buy the land within it at the same prices as what still apply outside it, and then seek proposals from developers re what they would put on the land and what prices they would sell it for, if they were allotted some at the government’s cost price.
Horrible? Yes. But not as horrible as the status quo.
What about the property rights of the raw land owners within the UGB, you cry? So what? What property rights did they have when they were OUTSIDE the UGB? And what property rights do those still outside the UGB now have? We can’t have this both ways.
The urban planners giveth, the urban planners taketh away, blessed be the name of the urban planners.
We COULD just make total liberalisation the core principle, and achieve the results we want re containing urban sprawl with cleverly designed land taxes and fiscal incentives.
To PB – your paragraph starting at “Compulsory acquisition would work – “. I think you’ve finally (tongue in cheek)written a sensible comment about a “solution”. Governments already compulsorily acquire land for roads, bush, utilities etc, so why not agricultural land at agricultural value. Then extend the UGB around it. The newly acquired land could be “auctioned” to developers who must submit not only a price, but also a release and pricing schedule. If they fail to meet it, then penalties apply. Obviously devil is in the detail, but your comment at face value is quite a sensible idea (in my view).
+1 Landeveloper.
I think something like this is going to be needed – essentially the government looking to take the first land development step itself.
Arm twisting and threatening (and imagine the scream of political interference in a ‘market’) it is. But viable.
+1
Rather than developers bidding up the wholesale price, why not fix it and have them bid down the retail price and holding time?
Go for it……
The idea comes from Alan W. Evans, whose books are almost like “the Bible” for urban economics.
It is also done in the Netherlands. But it has not prevented prices bubbling recently, probably because the Netherlands lacks sufficient land for “food security” and the government simply has not been allowing enough urban expansion.
Superimpose a map of the Netherlands on some part of Australia (greater Sydney?), and understand that they have about as many people as the whole of Australia; and the heated opposition over “a big Australia” starts to look pretty wussy.
But hey, if Aussies are so convinced they need to “preserve the land from urban sprawl”, go for compulsory acquisition of land. I have floated this before but perhaps not quite so succinctly.
I’ve told the story on here before about the NSW politician that told me that he went into that noble profession “..because then the’s know when and where the land was next going to be free-up”. Why would Victoria ( or anywhere else in the Western World!) be any different….
It isn’t different, but it’s always been that way, and it’s the same worldwide, so you can rule that out as a reason.
in fact greed and corruption is more likely to bring land to the market early by speeding up approvals. Big Russ Hinze never allowed any other interests hold up developments or approvals.
A little cronyism is probably less costly for a society than being strangled by greenies.
A little cronyism is probably less costly for a society than being strangled by greenies.
What utter nonsense! Cronyism leads to oligopolic behaviour and rent-seeking by a few big developers. It speeds up approval only for a select few, leading to an artificial shortage.
Like communism and fascism, they are almost the same thing. What we need is to cut-out the rent seekers and extremists.
Cronyism leads to oligopolic behaviour and rent-seeking by a few big developers. It speeds up approval only for a select few, leading to an artificial shortage.
Artifical shortage indeed. Welcome aboard Mav.
I didn’t say they have been successful at creating an artificial shortage.
You’re getting carried away guys, I said “a little”
Now show me a society that doesn’t have “a little” because I can’t think of one.
If you think that you live in a society without corruption, you are not sufficiently engaged in the harsh realities of life.
That is the way it works mate.
A little
and I guarantee you in every last instance there is always a perfectly valid case for ‘a little bit more’
‘and a little bit more’
‘and a little bit more’
and then one day you hear about public servants building palaces by the shores of Lake Como and wonder where the dough has come from.
+10 LOL.. Gunna, you put it better than I did.
Peter, so a little fascism is ok, eh? It is this wink and nod “Peace in our times” attitude that put us on the slippery slope to full blown fascism..
For the record, I don’t think a lil communism is ok.
Gee Mav this isn’t like you to blow every statement out of proportion, you are usually such a balanced poster.
I don’t recall ever mentioning fascism or communism.
I was just expanding on UE’s metaphor.
Yeah next time I am back in Russia or China I’ll palm that one off for the masses when asked about the benefits of western democracy……
The benefit is that in this country we have far lower levels of corruption, but not so in all western countries.
Peter
I used to think we had low levels of corruption, however certainly in NSW, it has become endemic through all three levels of government by both political parties to different degrees.
The Terrigals have been able to corrupt the labor party at all levels and their leader has been discovered to be a big Liberal party donator and has benefited by a 25yr contract to monopolise a vital infrastructure asset.
We are talking on the scale of billions of dollars. Just this morning there is an article re Peter Costello and how his counsultancy firm that has erstwhile clients like Serco Pacific will benefit from the sale of Qld assets.
Until we see politicians gaoled like what is occuring in Thessalonki with three politicians including the ex mayor gaoled for life for embezzling more than 17 million euro we will see more and more corruption. There should be no tolerance to corrupt behaviour and all Australians should be bloody angry.
I agree and disagree
Corruption as we tend to think of it is far less overt here than it would be in much of the world.
But then what is corruption?
In the last six months I have helped a Russian legal firm develop a brief for one of their clients advising them on how to deal with corruption, what forms it takes, and what companies can do about it. The company in question is global and comes under the US and UK anti corruption laws – so that if they get found involved in corruption anywhere in the world they can be sued in either UK or US with some mega penalties applying.
Corruption across most of the world takes 3 basic forms
Kickbacks (most notably for government purchases but can also happen extensively in the private sector)
Gifts/payments for bureaucratic or regulatory approvals (certificates permissions, whatever you want to call them)
Tips (just straight out gifts for getting things done – often just a part of the culture in many countries)
In my view the one of these least present in Australia is tips and the simple reason for that is that there is a GST, absence of a gift giving/tipping culture, and customer service charges for just about everything.
Kickbacks certainly happen here – particularly in the property development world. Governments are more accountable with their spending in Australia but the auditory functions and lengthy approval processes which generally work best at mitigating kickbacks are generally the first under attack from ‘red tape’ cutting conservative types.
The Gifts and payments for regulatory approvals happen here too. Just that most people dont come across them (as they arent in a regulatory approval seeking process) and pay for them only as an end consumer. Just about every local council, and most state government approval functions would know the experience well. Sometimes gifts appear harmless but never really are and they cultivate behaviours.
I think we may think we have far lower levels of corruption. But that is largely because Australians dont generally think about corruption at all (they will simply see a process and assume it is square), and assume (generally nebulously) that the red tape they face when dealing with government is replicated in any circumstance dealing with purchasing or where corruption may deliver a valid outcome (when it invariably isnt – a punter applying for family tax benefit would face more scrutiny than someone from overseas applying to buy an existing house in Australia for example). In much of the rest of the world the average punter is much more alert to any possibility of corruption (often – including in much of Europe and the US, and certainly through Russia China and the usual suspects – with a view to how a ‘little bit’ of corruption will help them)
I spent a session with a Chinese academic about a week ago who explained to me in some detail about how Chinese people (and it isnt only Chinese) get around FIRB. There isnt much to get around there, but he related circumstances where payments were made and outcomes obtained.
I suspect the difference in the levels of corruption between Australia and many other nations will be less than the average Australian thinks it is.
Corruption is rife in the land of Oz…!!!
.
This country has gone to the dogs!
Gunna, that is an excellent comment.
“the PSP process typically takes between 2 to 3.5 years, depending on the application, thus slowing the supply process”
Good grief!
How hard is it to put together a list of general development requirements and get a map and draw some lines showing reservations for main roads, power supply lines and public transport corridors.
In most cases we are talking about converting old paddocks to housing.
All the delay does is increase risk and cost.
It is worth noting that the most desirable parts of our cities are usually the inner suburbs that were built when there was little or no planning.
It is not surprising that organic natural development with only minimal controls produces urban landscapes that are interesting and desirable places to live.
Part of the affordability success story in the affordable US cities, is that besides there being no quota scheme in the land itself, the process of funding and supplying infrastructure is also about as “free market” as it is possible to get.
Developers work out for themselves what is the most efficient way to get water, dispose of stormwater and waste, get utilities in, etc. They then sell development bonds, backed by the government, to pay for it. The bonds are paid off over the next decade or three out of the local taxes paid in the new suburb.
Hugh Pavletich and a few other most enlightened lobbyists on this issue have been awake to this implication all along. Liberalising the land supply but leaving other choke points on the supply of new housing, risks Ireland/Spain type oversupply plus price inflation – the worst of all worlds.
I can see some merit in the arguments of people like Raveswei, who do not see liberalisation of land supply as “the” solution. But I totally disagree with them that their alternative “solutions” such as CGT’s and credit constraints would bring about housing affordability on THEIR own. I say “do everything”, but it will ONLY work if liberalisation of the land supply, and of the supply of infrastructure, is part of the “everything”.
(OR, as I say above, compulsory acquisition of land within the planners UGB’s and the compulsory passing of it on at zero capital gain, would work).
Interesting discussion this morning on the ‘burbs at The Conversation
http://tinyurl.com/apdx3mu
Melbourne’s Urban Growth Boundary is not a constraint, it is the Precinct Structure Plans – mere postage stamps that direct households to a handful of locales. Matthew Guy’s supply stimulus was needed years ago.
That is a crappy article by the Conversation. Chock full of factual areas, blatent bias, and wrong assumptions.
Thank you for the slapdown, UE, I earned it. The piece highlights an urban planning dilemma – which attracted me – but skates fact-lite. Apologies to MB readers. Sincerely.
HS reporting larger hit to Melbourne prices than first thought – based on VG data (which can now be accessed free!). Decent lag in the data though.
http://www.heraldsun.com.au/realestate/new-data-shows-big-dip-in-property-prices/story-fnczi4hc-1226591856204
……tractor production gloriously exceeds the 5 year plan targets… All hail our motherland and it’s glorious leader Kim Ted Bail^H^H^H^H
It is utterly ridiculous, that Conversation article is a rehash of the usual bien piensant drivel posing as justification used by central planners everywhere. We’re just doing this for your own good….
LOL
To those who say “but you can’t do without planning”, I say, fine; look at “The Woodlands” near Houston. That was “planned”. But it was planned by someone working for a developer, who bought the land at agricultural prices, and created amenity on huge portions of land that were NOT sold to the consumers of housing; and the opportunity cost of sacrificing this land was so low that the resulting housing was still affordable.
The result: affordable housing, large sections, abundant green space, parks, reserves, schools, public amenities, jobs-housing balance, wide roads, good connectivity, low congestion and short average commute times.
To the “urban planners” working in City Hall imposing their top-down visions on everybody, I say: “beat that”. Where in the world have ANY OF YOU beaten that?
Probably so much better because the planner was paid 3 times as much as the City Hall drones, and was 3 times as good.
I don’t understand, what’s so great about it?
The wikipedia page has a picture of a chain restaurant (PF Chang’s), says a bunch of corporate headquarters moved in and that the residents are 90% white (1/3 the non-white population of the state).
One of the broad criticisms of the US that it’s too easy for rich people to segregate themselves in suburban enclaves and to never interact with those unlike them, contributing to a lack of social cohesion, a breakdown of empathy, and identification of those with alternate sociodemographic or cultural characteristics as being ‘other’, as opposed to being ‘like me’? That would be suburban enclaves, like ‘The Woodlands”.
“The Woodlands” certainly is not an example of what you are referring to, given that its housing prices are around one third of the prices of REALLY exclusionary suburbs in Californian cities.
The prices might be higher than the median in nearby Houston, but of course they only started building 10 years ago, so they don’t have old houses dragging the median down yet. Given time, the numbers of racial minorities will increase just as they have everywhere in affordable Southern US cities.
The rate of home ownership among racial minorities is the highest in the USA, in the Southern States, and lowest on the West Coast where they claim to be most touchy-feely about “racism” and “equal opportunity”. The difference is roughly “double”.
And it is a bit ironic calling “The Woodlands” an example of “exclusionary” suburbia when its housing prices are still well under half anything being done in Aussie, even on sections a fraction of the size.
Sorry I embedded a Wiki link. The home page is HERE, but I assumed that might seem a bit “biased”:
http://www.thewoodlands.com/
And look at it on Google Earth, to confirm the pleasant visual aspect.