ACT Government monopolises land supply

ScreenHunter_01 Jun. 02 20.31

By Leith van Onselen

I wrote last week (here and here) how the ACT Government is deliberately manipulating urban land supply in order to maintain exorbitant land/house prices.

Despite having an abundance of developable land, the Government has for a long-time drip-fed supply to the market, maintaining an artificial land shortage (scarcity) and, in the process, forcing buyers to pay high prices.

Today, reports have emerged that the ACT government’s Land Development Agency has chosen to go it alone in developing greenfield sites for housing, fully monopolising land supply in the process:

The government has quietly ended its policy of selling a third of its available land for housing to property developers and another third as joint ventures.

The territory’s land development body will take on responsibility for readying new sites for housing in greenfield areas such as Moncrieff and Throsby, putting a halt to the practice of selling large parcels of land to developers.

Industry groups have reacted angrily to the shift…

The Master Builders Association has also warned of a looming gap in the market for new sites for stand-alone houses as a result of delays in Commonwealth environmental approvals for greenfield developments...

[Chief Executive, David Dawes] confirmed the agency had ended its practice of selling large parcels of land to developers and would instead offer lots of varying sizes for sale to builders.

As noted last week, the ACT Government’s performance releasing land has been nothing short of dismal.

A 2011 report from the ACT Auditor General found Canberra’s land supply policies to be lacking, resulting in a structural undersupply of land made available for development and deteriorating housing affordability:

…the land supply and release process and programs to date have not been effective in achieving the Government’s stated objectives, which include meeting demand, providing affordable land and housing and establishing an inventory of serviced land….

ACT Government agencies have not used a robust model in identifying residential dwelling demand…

Agencies have consistently under-estimated the apparent demand for residential dwellings within the ACT, and ACT Government land release targets have been significantly and frequently revised upwards in recent years. Despite the current accelerated land programs, there was evidence of a shortage of the supply of residential land, capable of being built on, to meet the pent-up and on-going strong demand.

In 2010, at the height of the last housing boom, the ACT Government’s supply restrictions even led to buyers camping out for up to one week in freezing conditions in order to secure a lot.

Moreover, just last week, the careful release of a small parcel of lots by the ACT Government led to land prices being bid up to exorbitant highs, with blocks selling on average $100,000 over the reserve price (i.e. $500k for a 500 sqm lot).

And to prove the point that land supply is being restricted, a search on the Land Development Agency’s website for available lots yields the following result:

ScreenHunter_926 Jan. 20 15.34

Says it all really. Despite being one of the least densely populated cities in Australia, there are no residential lots available to buy. Hence, my claim that there is an artificial land shortage juicing ACT house prices.

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22 Responses to “ “ACT Government monopolises land supply”

  1. macrogt says:

    Is this how the Coalition intends to generate funds to balance the budget?

  2. mander says:

    It is the ACT Government which controls land supply in the ACT, not the Federal Government! It has been self-governing snce 1988.

  3. Bubbley says:

    Why would they do this? All it does is drive up the wage requirements of government staff in the ACT.

    Expensive housing requires a higher income.

    Such simple stuff. What they are doing is completely illogical.

    Does anyone know why they are doing it?

    • The Patrician says:

      Exactly. Unless the LDA has the substantial, unoccupied and skilled workforce and equipment ready to go to do this work, why wouldn’t you tender it out to the private developers who are ready, willing and able to do it now apparently?

      A detailed explanation from Barr/Dawes would be helpful.

    • PhilBest says:

      The Chinese do this as a substitute form of revenue to taxation, for local government.

      Nevertheless a painful re-adjustment will be necessary back to normal taxation methods after the inevitable crash comes.

      For a country with a mature developed economy like Australia’s, and a long standing transparent taxation revenue raising system to go down this path is a disgrace.

    • APD says:

      No expert, but Isn’t it the logical thing to do given they’re transitioning out of stamp duty and into land tax? Why would they have any interest in voluntarily reducing land values after they become the territory’s new tax base?

      • Alex Heyworth says:

        It’s completely irrelevant what the land values are when it comes to raising revenue from a land tax. All that is required is to set the rate of land tax commensurate with whatever the prevailing land values are, in order to raise the necessary revenue.

    • Rusty Penny says:

      Most politicians own a 2nd house in Canberra.

      Very few ever retire there, so they know it’s an asset they will dispose of.

      They have informed the ACT government to protect their investment(s).

  4. Monkey says:

    In fairness to the LDA, you have selectively quoted from the Canberra Times article. The Chief Executive of the LDA explains that in the past ACT land development has been monopolised by a couple of large developers and the aim of the new policy is to give small and medium size developers more opportunities. The LDA still plans to release. Parcels of land for development, just not whole suburbs in the way it did in the past. The LDA also says 2500 lots will be sold off in the next 6 months.

    • The Patrician says:

      Monkey,
      Can you identify where Mr Dawes says that there is any development (not building) role for anyone other than the LDA?

      Dawes and Barr need to explain fast why this is a good thing for the people of the ACT and how it will increase the speed and amount of residential land supply.

      Kudos for the 2500 lot sales forecast in the next 6 months, if it happens. 400+ sales per month required. 0 for January to date. Lets see how they go.

      • Monkey says:

        Thanks Patrician. The article is unclear. I took the comments about better access for builders and providing opportunities to small and medium developers to mean they would do the development, but you are probably correct that the LDA plans to do the development itself.

        It will be fun when the LDA starts flogging off 400+ blocks per month. I wonder if they’ll include a covenant preventing builders from land banking and requiring them to construct and sell within a fixed timeframe.

        Will everyday mugs be allowed to buy and builds will it be only licensed builders?

      • The Patrician says:

        You are right Monkey, the article is unclear. This whole LDA escapade is unclear.
        How does the LDA plan to fund and deliver the development of the 4000+ blocks per year required to supply the ACT market?
        Where is it sourcing the hundreds of skilled staff and equipment required to do this work?
        Do the LDA have ACCC approval to monopolise the development of residential land in the ACT?
        Where is the business plan/cost benefit analysis for this massive public sector endeavour?
        How many blocks does it plan to release per year?

      • The Patrician says:

        Correction: that should read “..2500 dwelling sites for town houses and units would be sold by June 30..”. Given that zero have sold in Jan to date the forecast is closer to 500 per month. This should be fun.

    • Pfh007 says:

      The only legitimate justification for monopolising the purchase and development of all land is if private developers in Canberra have a track record of buying englobo blocks from LDA outright or in joint ventures and then sitting on the land and drip feeding it to the market.

      If there is a history of that then there may be some merit in having the LDA service the land and pump new sections into a broader market of home buyers and builders.

      But having regard to the drip feeding antics of the LDA itself it sounds more like the LDA wants a tighter grip on the price and profits to be gouged from being the exclusive supplier of serviced land to the market.

      With a tightly controlled dribble of serviced land flowing into a broader market of home buyers and smaller builders the already fat profits of the LDA ($108M on 4354 lots) are likely to swell.

      The LDA should be required as a KPI to always have stocks of serviced land available ‘at cost’ to home buyers and developers.

      And the costs it does incur delivering serviced new land must be closely scrutinised to ensure there is no pork and waste. Already they spend an average of $117k per employee on staff costs for 94 employees.

      The government’s job is to ensure that the market for the fundamental economic input land is delivering land to end users at the lowest possible cost and NOT driving up prices to extract fat monopoly profits.

      If the government wants recurring revenue from land a land value tax is the way to go about it and introducing a solid LVT on new land (with municipal utility payments to pay for the servicing costs over 25 years) and getting plenty of new land to market is the way to go about it.

      Canberra is beautiful city but requires the economic energy that comes from private enterprise attracted by a low cost, flexible and efficient market in land.

      Canberra residents and the local media should be watching the LDA like hawks.

  5. meltfund says:

    Property, the only investment worth making. Reality is not enough for the 99%

    Foolish investors, and there are plenty of them – about 99% of the masses – are so blind they cannot see what is right in front of them. If they would only open their eyes, and just look at it without prejudice.

    Property is the only economic asset that always rises in value.

    All other assets – capital wealth in goods, services and commodities – and all the earnings paid for their production – wages, salaries and enterprising profits – always fall in value relatively.

    Did we mention the word always. Does anyone have a problem understanding the term – always?

    This observed fact, perpetuating all times in history, all locations in the world, occurring under all forms of government and tyranny, is evidently beyond the vision of the 99%.

    These 99% always end up bankrupt, holding only assets of misadventure, their children waiting for them to die, their grand children deeply ashamed of their foolish heritage.

    Yet the 1%, the child and wise investor, can see it with the greatest of ease. They are alive and wealthy. Their grand children will worship them like kings.

    Denial of this simple reality is nemesis of the investor. In response to the simple term ‘always’, the foolish 99% will say things like:

    “But property does fall in times of recession” or “I’ve made more out of non property assets than property”.

    Is this reality, or a belief masquerading as denial? Its already clear to all but the misadventurer that property grows in value more than any other asset during good times.

    But what about during recession? Look at the relative value of all asset classes and make a very careful comparison without prejudice. We hear you, this is an extraordinarily difficult commitment. Because you have been taught to believe, rather than to know, all your investing life.

    Its true, nominal property prices may well fall like all other assets. But what about their relative value, the de facto value when compared to everything else? You will find the relative value of property will actually rise compared to everything else during hard times, just like it does in good times?

    Think about the following with extreme care. To do that successfully you will have to throw away all your prior beliefs, both secular and religious, especially if you think already have the answer. We want you to know and to stop believing.

    It gets even better. Recessions actually reinforce the reality of it. During recession is where the biggest gains are made because during hard times all non property based assets fall by the greatest amount of all, RELATIVE to property assets. To the foolish 99% this will seem a paradox. To the wise 1%, an affirmation of reality.

    How could it be any other way given property is the root basis of any economy. The value of earned incomes – capital, wages and profits – must fall to a new lower equilibrium before property investment at the root can start up again. Losses have to be made somewhere before a recovery can go ahead. And there is no other class of asset on planet earth from which the losses can be taken up, unless you are still a believer who does not want to know.

    MeltFund used to spend a great deal of its income on researching evidence for the 99% to ponder, naively thinking they just needed more education. But this research was wasted capital. Because each time we furnished yet more observed fact and historic proof, the fools refused to concede it, and moved on to the next straw man or begged question.

    We are still astonished by it, but no longer surprised. These are the 99%. Our psycho-analyst coined a new term for this neurosis – ‘Infinite Evidence’. Nowadays our clients only come from the remnant, the 1%. We turn away anyone without balls, even if they are minted. We will certainly not be accepting any of Warren Buffets capital.

    And what is the forbidden knowledge our financial regulators ‘protect’ the foolish 99% from?

    “It is against the law to declare any investment is guaranteed to win”

    Look it up for your own nation, this is always the principle sin policed by every regulator. The regulator is making it a crime to tell the truth in the biggest way possible economically. The regulator is there to ‘protect’ the masses from reality as a first duty.

    MeltFund avoids fools, regulators and tax collectors like the plague. Heed them and harm yourself, harm our children, and our children’s children.

    Open your eyes. Affirm reality, and live, and then find wealth.

    • Pfh007 says:

      Meltfund,

      Having regard to your regularly repeated views on property can you explain why your fund does NOT invest in property?

      Your website describes your strategy as follows.

      “MeltFund is a financial asset investment fund. Our trade is arbitrage from mortgage repossessions.

      Our goal is to grow MeltFund into the largest of its kind. Our objective is to deliver superior total returns to our Clients. Our strategy is simple:

      Using City of London private equity, we buy repo’s at up to 60% discount directly at source from banks. Cutting out the wasteful network of property investment middlemen

      We re-sell these assets at full rate on the open property market. Cutting out the wasteful network of estate agents, lawyers and surveyors”

      Sounds sweet if you have a good supply of banks willing to sell you their assets well below market value. Who are these banks that are so eager to abandon large easily realizable asset values?

      But as you do not HOLD property as an investment all your comments sound like someone desperately trying to drive a rising market in the price of assets you wish to quickly sell with the largest possible margin. i.e. Pump and Dump.

      For someone with such faith in property as a long term investment as a generator of rents you don’t seem very keen to actually hold that asset class as an investment.

      Please clarify if I have misunderstood something.

      • meltfund says:

        Thank you for courteously asking for clarification of terms. That is quite a rarity among people discussing political economy.

        By the term “Property Assets”, we mean an asset whose return is mainly coming out of the economic rent of that economy. That is, anything that is not a return to capital investment, nor a return to earned incomes of any kind. An unearned income, where no work or capital has been used in its growth in value.

        The biggest kind of property asset today is The Mortgage. Mortgage Interest is a euphemism for rent, disguising the obvious fallacy that capital has been employed. Following that comes rentals or rents from non bank property owners. Then the economic rent that taxation gives protection to and inevitably forms corporate monopolies cornering markets from competition. Then you’ve got all the teeny weeny rents from intellectual property, branding and so on.

        There is an issue using the term property per se because that includes the capital value, or improvements, of real estate too(the bricks and mortar) But even then the bricks are the minor part of a real estate asset always depreciating, the location value being the greater part always growing. And with the mortgage in the end the total nets off anyway.

        The thing is that there is no good reason to need scientific precision when the entire world is 100% in denial that rising rents are a good thing, unless “it is me getting it”!

        Does that clear up what we mean by the term “Property” ?

      • Pfh007 says:

        My interest is not your definition of property – though I enjoy your comments on property generally.

        My question is with regard to the strategy of the fund.

        Surely if you have a source of under priced claims on ongoing economic rents there is an excellent investment model in buy and hold.

        Why do you limit the fund to flipping those underpriced claims as quickly as possible so that others may reap the ever rising rewards of property ownership.

        If your sources of cheap mortgages in the City of London dry up (and they may as you find competitors or your sources themselves tempted by your tales of 60% margins) what does the Meltfund propose to do?

    • PhilBest says:

      Meltfund:

      You never responded to anything I said to you on THIS thread:

      http://www.macrobusiness.com.au/2014/01/marvelous-melbourne-magical-margins/

      For example (just a selection)

      Meltfund; by definition, what you are describing will destroy a national economy. It is doing precisely this in the UK right now after 6 decades of the ultra high land rent and cyclical volatility that accompanies an “unfree” market in urban development for expansion.

      Meltfund: real wealth creation involves the use of resources, supplying things for which there is genuine demand, and providing jobs. I know you CAN make money for yourself quick in property, but this is zero-sum gains at the expense of the general economic interest. Governments are foolish to allow this to persist because it is a means of economic and socio-economic destruction. The solutions are “freedom to sprawl”; and/or land taxes. Or rather, the “problem” is urban planning.

      Meltfund, you are right MOST OF THE TIME, OVER THE LONGER TERM. However, in the short term of episodes of mass mania, quite a LOT of money WILL be lost completely by everyone who entered the market near the top and were “leveraged”. And genuine first home buyers who did not wait for the crash, will sorely miss the hundreds of thousands of dollars too much mortgage repayments they have to make over their entire lifetime, or declare bankruptcy. I will add now, to all the comments I have made so far, that the system you are describing, of land rent Ponzi with socialised losses on the downside, is simply the end of western civilisation. It is extraordinary how people who are smart enough to see the racket, simply join it instead of fighting it. It is like you are engaging in a game using the planks of the hull of a boat everyone is sailing on. You’ll drown “owning” lots of planks that should have stayed in the ship’s hull. That is, the “capital” that should have been devoted to production, not sunk in zero-sum Ponzi.

      Meltfund: I will tell you why I do not like it, and that is that it is an economy-killer. You have it well sorted out in your mind what is rent and what is actual production and you are cynically working out how to profit as the ship goes down with all hands. Maybe our civilisation deserves it. Maybe that is all that is left now. No-one will listen anyway, so just make yourself comfortable as you can and hope the end of civilisation occurs in your children’s lifetime and not yours. Everyone positioning themselves as rent-seeking parasites as they “see the light” like you have, is hardly a recipe for survival of the host system.

      And see this long comment especially:

      http://www.macrobusiness.com.au/2014/01/marvelous-melbourne-magical-margins/#comment-310933

      • meltfund says:

        My apologies, I missed your response.

        Please can you ask me one clarifying question at a time. And I’ll try my best to answer.

        I much prefer a phone call, due to how much meaning is instantly lost via antisocialmedia.

        My skype is toplard if you are looking for more certain answers to your questions. By all means arrange a call.

      • PhilBest says:

        I’m not so much asking you questions, as telling you that the very phenomenon you describe is unsustainable at the macro level even if some people make zero-sum unearned income out of it meanwhile. You are winning a game of cards on the Titanic. You are knowledgeable enough to be beating down the door to the bridge and telling the captain to watch out for the iceberg…….!

        Do you intend to bail out from the UK to Australia, and then bail out from there to somewhere else once the same racket has destroyed its economy too?

        The link I provided, was to a short review of literature I am drawing on for that conclusion.

      • caeos says:

        @meltfund

        Why do you post your opinion/views on here – for everyone to read – if you are not going to back it and debate it on here – for everyone to read?