A Developer’s Perspective

My recent articles on the supply-side of the housing market have certainly aroused interest. My last three posts have each registered over 30 comments – a feat only achieved by this blog six times in 54 posts. But that’s nothing compared to my latest article on Seeking Alpha, which is a re-print of last week’s post: The Truth About the US Housing Market. This article has so far registered over 200 comments, mostly from North America. If you have got 20 minutes to spare, it’s worth checking these comments out. There is certainly some interesting and animated discussion.

A reader, ‘Mike’, who works for a leading property developer, has sent me an email explaining the issues and barriers faced by developers in the greater Sydney area. It’s an interesting read covering everything from government fees and charges, infrastructure provision, and environmental considerations.

With Mike’s permission, I have reproduced his email below for your reading pleasure. If you wish to provide comment, can I ask that you remain courteous and respectful to Mike. I don’t want this to turn into a free-for-all against developers. Abusive comments will not be published.

Cheers Leith
___________________________________________________________________

Leith,

Before I start my rant, could you tell who in Texas pays for the infrastructure and infrastructure services? I refer to the roads and storm water, power and power substations, water service reticulation and storage reservoirs and Government charges to develop residential estates.

Is the cost payable by developer/landowner (future reference assumes the developer is the landowner) or subsidised by the State and the cost spread over the population who then enjoys the benefit of cheaper land?

In Sydney, NSW State Government infrastructure and Government charges are increasingly been paid for by the developer. Within the State of NSW, infrastructure services have not been upgraded for at least 40 yrs. It’s been more important for the State Government to maintain its AAA credit rating than spend for future expansion and growth.

In so doing, the growth of urbanisation has caught up with the existing infrastructure planned 40 yrs ago and that’s the problem we have in Sydney today.

Can you imagine building a Snowy Mountain Hydro Scheme with today’s Government policies? It wouldn’t get off the ground and that’s exactly what’s happening, it doesn’t.

With regards to your comment,

“This control on supply restricts the market for land, in-turn enabling developers to land-bank and drip feed supply onto the market, thereby significantly raising its price. In turn, the higher land prices push-up the end cost of housing”.

Developers’ preference is NOT to land bank. This is political spin by the State Government pushing the heat from their inefficient planning departments. It‘s more profitable to develop the land as soon as acquired to maintain certainty which closely reflects current market costs and conditions adopted within the financial model on acquisition. As with any business, having stock sitting on your books not turning over is bad news. The outgoings incurred by Government, land taxes and Council rates, not to mention the lenders interest rates, only further erode the bottom line.

The land may appear to be land banked from the State Government perspective, but the delays to commencement is due to slow planning approvals. (up to 3 years +, in my experience). Due to the planning delays, the land has risen in value only by default. This also works against the developer if the market is declining. But you don’t hear that part.

Government fees and charges:

I can only speak from my involvement with Local Western Sydney Councils and NSW State Government in developing ‘greenfield’ land. You will note from the following list of fees and charges, why it’s in the Governments interest to artificially continue to prop up the property industry and maintain the revenue stream. The fees and charges payable are:

  • Local Council S94 contributions -Storm water and roads external to your property. Supposedly downstream impacts and increased traffic demands. Approx 48% cost above the land purchase price.
  • State Infrastructure Contributions (SIC) – Roads and infrastructure can be up to 20km away from your property with no nexus to the development. Approx 15% cost above the land purchase price.
  • Sydney Water Fees and Contributions – New Water storage reservoirs and reticulation. The water reticulation (pipes) in the roads are constructed by the developer and handed over to the Service Authority.
  • Power Fees and Contributions – New Zone substations. The land the zone substation is positioned is contributed to the local power service Authority at no cost to the Authority. The power reticulation is constructed by the developer and handed over to the power Authority.
  • Roads and Storm water are constructed by the developer and handed to Council at no cost to Council, including the land component. This is also a given. Approx 12% cost over the land purchase price.
  • Long Service Levies – <1%
  • Stamp Duties at 5.5%
  • Local Council rates – Approx 2%
  • State Government land taxes – Approx 2%
  • The usual Statutory DA and development fees and charges prior to commencement of work on site.

The actual cost for earthworks, retaining walls, design, prelims etc is approx 25% to 30% cost above the purchase price.

As you can see from the percentages above, the cost of Government charges and fees are edging closer to 70% to 75% above the purchase price of the land and is by far the biggest cost to any development over and above the purchase price.

Sydney‘s remaining greenfield land is located within a 35km – 45km ring to the West, SW and NW of the CBD with no power, water, sewer or roads and its up to the developers to supply the infrastructure as the State Government is broke. That’s the true reality.

China is already ahead of us in this respect.

Now ask yourself again, why is the land so expensive in Sydney?

Possible Solutions:

My belief is the State Government should be paying for this cost and spreading the burden over the entire State population over generations who benefit from the infrastructure over time and the increased land values for years to come.

Infrastructure creates population and industry expansion. Currently the burden of the cost is proportioned over each individual developer who then increases the specific land sale price being developed to try and recoup the fees and charges under today’s market conditions. The land then has skyrocketed in price.

The cost of Government charges spread over the State population over generations would be negligible. The population would benefit from cheaper land prices and employment for all. Maybe this is what’s happening in Texas?

(I should mention, when I talk property it’s really the land component we are buying. The house component is negligible.)

Despite my belief and sticking with the status quo , if the Government stands firm on fees and charges and no further Government stimulus like the FHBG is deployed, how will further growth and expansion happen at affordable prices?…..it won’t, land prices will drop to accommodate some of these charges. Not to mention the pressures from reduced bank credit issuance. It’s just that existing land owners don’t know this yet.

As we know the market can no longer support these ridiculous prices, as affordability is the issue. (Just a thought, as the banks require increased growth, because that’s the model they work on, maybe the banks should push Government to employ the above methods).

I should also note, that key Industrial Greenfield un-serviced land in Sydney’s West has dropped in value between 35 to 40%. Industrial Employment Land didn’t receive the benefits of Government guarantees or similar schemes to the FHBG during the credit crisis. The drop accommodates increasing Government charges and lending charges.

Urban Sprawl:

Despite the above, we should stand back and take a broader view looking through the sustainability lens. Do we really want continued urban sprawl? Shouldn’t we be planning ahead and future proofing our cities for a possible world of less?

The WEO have confirmed that Peak Oil is close, if not already passed. Therefore higher oil and energy costs are inevitable. Community living, rather than big urban sprawl cities might be the way to go, were reliance on oil and energy costs are minimised.

What about creating different products to shelter the retiring baby boomers, approx 25% of our population over the next 15 yrs. Smaller homes (not duplexes or units) in existing areas close to friends and families and existing support services is what’s desired, not urban sprawl in the boondocks.

Owning Up:

From this it’s obvious I work for a developer. The developer is national in the top ASX 200 and develops industrial, commercial and residential properties for their own property portfolio and institutions to purchase for their REIT structures.(that narrows it).

Now I will probably get smashed over your site for working for a developer and the stigma that comes, particularly contrarian sites, but obviously developing involves huge amounts of risk dealing with uncertainty with Government departments and banks This needs to be rewarded and I work bloody hard at it. Sometimes I ask why I’m still in the industry.

Developers accept that a fair share of contributions should be made to the Community and Councils and accommodate these costs in their finance models. It’s the scale of the increasing Government fees and charges that’s gone too far and ultimately will stop development altogether until something gives.

I work in the Industrial commercial section and the details above are examples from a residential development. The resi boys next door know the wheels are moving slower and slower until the land values drop or Government reduce some of the charges.

All the best, your site is becoming addictive.

Mike

NB: Forewarned is being forearmed.

Comments

  1. Leith,

    Good insights, well stated.

    If Government were to pay for the infrastructure on the never-never I could see developer profitability significantly enhanced, whereas at least the developer can now "deduct" these expenses from the purchase price of the land, and this should tend to act as a brake on land prices, which is as it should be.

    In respect of land-banking, firstly, I understand that rezoning of the land to residential status is the prized goal and I believe that from this "windfall" the infrastructure costs should rightly be borne; Secondly, an examination of the land-banks of the major residential developers would reveal whether they were constantly bringing as much property to the market as they possibly could. Personally, I doubt it, and the example of the Victorian Gov't approach you provided works directly against the interests of those looking for cheaper dwellings.

    I keep coming back to my view that if the funding was not so readily available the prices would not be so high. I have a feeling that despite Swan's best efforts we are about to see this put to the test and all he will achieve is to involve taxpayers in the losses to come.

  2. Leith – thank you to both Mike and yourself for publishing this email.

    With all due respect to Mike, his email is meandering and tells us very little. We require a detailed break out of the subdivision cost numbers on a per lot basis.

    And we need to know clearly the difference between the true rural value and the fringe urban zoned land per hectare for the raw land.

    Mike as an employee of one of the major subdivision companies, should be fully conversant with the Texas situation – in particular the development processes and the bond financing infrastructure Municipal Utility Districts model.

    Mike is wrong to suggest the developer pays the exorbident development charges. The developer is simply the intermediary. It is the end home owner who pays these charges with the subdividers and builders margins thrown in for good measure.

    Mikes suggestion that subdivision companies dont drip feed land out to the market…….well….I will leave others from Sydney, Melbourne and elsewhere to answer that.

    The sad reality is that these land bankers / subdividers are "in bed" with the Government to shut the competition out and take the end home buyer to the cleaners.

    Mike needs to tell us clearly why they can supply $30 – $40,000 serviced lots on the fringes of Dallas Fort Worth and Houston (as just two examples) – and why his company is not working in his customers interests, to do the same on the fringes of Sydney, Melbourne, Brisbane and elsewhere.

    As a developer and former industry leader myself, I am fed up listening to waffle from the industry people in both Australia and New Zealand. Read the Highlighted Article on my website "The need for clarity", where the former MD of the Housing Induistry Association got a serve.

    Its past time these guys started to realize that the only reason their business exist, is by working in their customers best interests to meet their needs.

    That doesnt mean cozying up to the local politicians and acting as tax collectors for them,

    Hugh Pavletich FDIA
    Co author – Annual Demographia International Housing Affordability Survey
    http://www.PerformanceUrbanPlanning.org
    Christchurch
    New Zealand

  3. aushousingcrash

    A very good insight, thanks for posting. Ken Henry's recommendation of a 1% national land tax, where there is no exemption for owner occupiers is a clear directed taxation policy on land which is where we should be heading. I see land tax as the fee for access to consumption of infrastructure and services.

  4. In the US municipality-based property taxes are universal; I presume this is why they dont need to have new entrants pay up front to fund infrastructure. A universal and relatively high land tax would do as Mike suggests and move the funding burden from its present narrow base (new market entrants) to everyone. It would have the added advantage of further penalising land banking both by developers and property owners and if sufficiently high could also partly offset income tax (and thus encourage land holders to rationalise their use while rewarding labour).
    Of course any mention of universal land taxes in Australia will bring the wrath of the property-cultists upon you.

  5. Mike is correct in that paying for infrastructure up front is a nonsense: but the entire point is (as so often with regulation) to protect incumbents and raising entry costs (e.g. by upfront payment for infrastructure) does precisely that. Everything that slows down/increases the cost of adding land-for-housing acts to increase the value of land-already-with-housing.

    Also, the more official discretions matter, the more people will pay for access to officials. Much of this is about generating political donations, getting developers and others to "pay" for access to decision-making officials.

    As for his references to "Peak Oil" etc, that is buying into justificatory bumpf. Making land more expensive makes it harder to provide infrastructure by raising the cost of the land, encouraging selling off land originally reserved for infrastructure because of its massively increased revenue value, and — because people have more expectations of capital gains to defend — increasing the NIMBY (not-in-my-backyard) and BANANA (build-absolutely-nothing-anywhere-near-anyone) effects. It is no accident that California — with its highly restrictive land use regulations — gave us BANANA politics.

  6. Well standing back a bit and looking at the bigger picture the viability of the 'urban sprawl' is questionable.

    People living 35+km from the city, with essentially zero services (shops, schools, etc) and zero public transport is only supportable with cheap fuel. Estimates vary on the cost of private car transport by area (here is one example: http://sydney.edu.au/business/__data/assets/pdf_file/0004/61915/itls-wp-10-04.pdf)

    But taking 9+% for outer areas, then doubling fuel costs adds another 2%. Bear in mind that rising oil costs push up all other energy costs (roughly) proportionally (with a time lag), then you don't have to go very far before an far outer suburb become unviable places to live in for a low/average income person. Unless the house costs become very cheap.

    But, here is the rub, the low population density and long distance to these places makes public transport uneconomic. So I don't really see a future for these places in even the medium term unless there is a US style price collapse (and if that happens the economy will be toast anyway).

    Now the cost recovery from developers for core infrastructure is still not 100% (probably not even close), as they piggyback off the core infrastructure. And as well all know, that core is right at its limit in most places.

    So I'm not sure whether creating cheaper outer suburbs full of poorly built macmansions (by everyone subsidising even more than they currently do) is really that wise a thing to do.

    On the macmansions, they themselves are pretty unviable. Cheaply and poorly built they are energy and water hogs. Plus you have to question how long they will last, 25-30 years?

    So, IMHO, these areas are unviable in the medium term and about the only thing slowing their relentless growth are the costs. Make it cheaper and growth will explode and then where will we all be in 20 years?

  7. Great email Mike,

    thank you Leith for publishing this.

    It does look like to me that so many people in the sphere of property have been caught up in a negative feedback loop of the current system.

    I don't think we will see change in Australia until we have a severe correction.

    Mike's comments just show how skewed the system has become and it feels as if to me that the principle of Public Good has been lost by a point which Mike raises of the AAA credit rating.

    I despair at Gov(Local/Regional/National) that all want to operate as profitable corporates. They are not corporates they need to invest in Public Good projects and deliver for us all – yes that means taking on good debt like investing infrastructure.

    Overall I like the fact that we have the dialogue from a developer in the discussion without the rants of RE (you property always goes up and that sort of un-objective self interested view).

    This is a credit to you Leith and the site that your getting such a quality discourse on what really is one of Australia's most important issues in the 21st C.

    Thank you Mike, please start posting you comments as well.

    🙂

    thank you, Clinton.

  8. Thanks Mike for sticking out your head. Interesting angle that shows the extend of the problem!

    I think most agree that planning in Australia is crap. Infrastructure, urban sprawl, inconsistent road layout, zoning… you name it. I do not agree with Leith that we need less land restrictions, we need more! However, this can only be successful if it goes hand in hand with quality planning and that's the real issue here.

    Before we all go blaming the government, let's think of this. Government has a reputation of wasting money, taxing for the sake of it and basically swimming in money which is spent on civil servants' coffee etc. Nothing can be further from the truth! Government is broke. My experience, working for government in Europe and Australia, is that everything over here has to be done on a shoestring. People with skills flee to the private sector because employment conditions are quite poor in government. There is a braindrain which means government decisions may not be optimal. Taxes in Oz are actually quite low compared to Europe but still you have the media and people shouting out loud that government is a waste of money and that civil servants are overpayed. I guess you get what you pay for.

    That said, I also believe that even in this dire situation government could do a better job. Everyone in Australia knows the expression 'it's not what you know, it's who you know'. Now think of that… this means you will often get employees that may not be the most skilled available doing jobs that will affect the entire population. This may not make a huge difference if it occurs only sporadically, but if it's systemic you've got a problem! Also, government doesn't really make an effort to be an attractive employer for skilled people. Employment conditions are poor, there is nothing to compete with the higher wager is the private sector (in Europe government offers a better work-life balance) and anyone who has ever applied for government jobs must agree that the procedures seem to be designed to scare applicants away rather than attract them. Government doesn't seem to realise they need to compete for skills. Permanancy alone doesn't do it for skilled people, people! Permanency only attracts risk-averse people, which in turn fosters a risk-averse, conservative corporate culture.

    One other thing… government is broke, developers are apparently struggling, buyers can't afford their mortgages, banks are having more and more trouble to get loans on the international financial market… sounds like Oz went bust some time ago.

  9. The difference is supply of land. Stacks of land in Australia but less than 1% is urbanised compared to 3% in America. Europe has the most affordable houses and highest urbanisation. The many political roadblocks preventing more affordable housing are very well known by researchers all over the globe. Just look at the numbers. Excessive housing costs are a sign of failure at the governmental level. Between 01 and 06 dwellings in USA grew by 7% and the population grew by 5%. So dwellings grew by 40% more than population. Between 01 and 06 dwellings in Oz grew by 8 percent with population growth of 5.8%. So dwellings grew by 40% more than population here too! Did USA have a shortage? Does Australia. I think not. Who still believes in the shortage myth?

    Tom Kline.
    Australian Property Myths BUSTED – My Blog

  10. Leith thanks for posting Mike's e-mail. Mike thanks for sharing your viewpoint.

    As I was reading this post it struck me that housing affordability is merely a symptom of a core problem that no-one seems to be confronting. I think we are about to hit the limit of our "capacity to pay".

    A lot of the debate about costs seems to focus on who should pay. I think the debate needs to shift to the fundamental premises on which we are operating.

    This paragraph in Mike's self-described rant leapt off the screen at me. IMO it encapsulates the problem.

    "Is the cost payable by developer/landowner (future reference assumes the developer is the landowner) or subsidised by the State and the cost spread over the population who then enjoys the benefit of cheaper land?"

    "subsidised by the State" = socialism
    "spread over the population" = socialism

    As Margaret Thatcher (No, I'm not a fan) rightly observed "…and Socialist governments traditionally do make a financial mess. They [socialists] always run out of other people's money. It's quite a characteristic of them."

    We had a multi-decade field experiment in socialism versus (a form of) capitalism last century. I'm referring to East and West Germany. The results are there to be reviewed and analysed.

    Mike wrote: "…who then enjoys the benefit of cheaper land"

    How do you guarrantee that everyone who pays receives their share of the benefits? How do you prevent the banks and/or governments from arrogating the supposed benefits?

    All levels of government, and those granted taxation like privileges by government fiat, act as if there is an endless supply of wealth they are entitled to draw upon.

    We have had successive governments and bankers who thought it was a good idea to lend to the Henderson Poverty Line. (Primary school level arithmetic could have disclosed the inevitable outcome. Calculating the doubling time in an exponential function isn't rocket science.)

    Then when it hits the fan the banks expect to be "bailed out" and the FIRE sector expects customers' purchases to be "subsidised". Bailed out and subsidised by whom precisely?

    I hope all of the prospective first home buyers out there stage a "buyers strike". That would get everyone's attention.

    Looking at the debt burden in isolation, this economy has been "loaned up" to the point where the existing debt could sink us without one more cent being borrowed. If that sounds melodramatic now let's revisit this assertion in two years time. Perhaps then we can address the fundamental problems.

    End of rant.

  11. Stupid question: if development barriers and red tape are so prevalent, leading to a lot of extra work undertaken by the developer, wouldn't a developer pay LESS for the land to compensate?

    Further still, if there is significant risk in outcomes of development, can't a developer push some of this risk onto buyers by having them front the money? Think swap (pr pre-sale).

  12. aushousingcrash is correct. A universal land tax (Ideally rather more than %1) would help this issue considerably.

  13. As an ex manager of one of the largest government land developers I can confirm that the stated policy (about 12 years ago, but I am pretty sure it hasnt changed) was that we held very large stocks of land, and we released them with the explicit strategy of maintaining prices at a modest growth – that is we directly intervened in the market with explicit price goals (and we were easily big enough to do this) on the direction of politicians. We easily had the capacity to drive down prices, and we had explicit and sophisticated models of land and house pricing – to overly simplify, land price and house price escalation in the outer rings bubbles inwards into smaller inner rings and drives an upward spiral in prices (provided easy credit is available). However if we did that, it would cause a revolt in the constituencies who would see a rapid fall in land (and then in house) prices, and the government would reap less profits from the land sales and from the subsequent stamp duties. It was in "everyone's" interest to maintain an upward spiral in land and house prices. This had the added impact that it made individual investing in Sydney land and housing market more attractive than in other more rural settings, accelerating the shift to the cities – they were (then) the only place to reap a capital gain on housing and land stock. So everyone wanted to keep the bubble going …

  14. Leith,

    I appreciate your posting Mike's comment. I'm a U.S.-based planner currently working in specialized areas unrelated to real esate development. But my experience as a U.S. planning director working closely with developers is that it's customary for U.S. towns and cities to require that developers pay for infrastructure. This commonly occurs, as the previous comment states, through passing the cost on to the consumer.

    As Mike suggests, administrative delay and red tape really does add to the cost of housing. I haven't met a single developer who held onto land to control housing supply and drive up its cost. More typically, developers are trying to be able to afford to build more streets and such, and trying not to build too far ahead of the market. You'd behave this way too if you were paying interest on everything you built, including infrastructure, until you sold it.

    Reasons that development costs are different in Melbourne and Texas are beyond my ability to fathom, since I don't know enough about Melbourne. Texas tends to be pro-growth, but they don't build subdivision-level streets for a developer. However, it's worth noting that the U.S. and state governments usually subsidize almost all the cost of major roads. So it's common in all the United States to have government-sponsored sprawl. The metropolitan planning organization has a lot of say in how federal transportation dollars will be allocated, so the variation is found in the degree to which the various metro areas use federal U.S. dollars to subsidize sprawl.

    Not necessarily something for Australia to be jealous of.

  15. Thanks for posting the developers perspective. It is heartening to see that they too are starting to see that urban sprawl can not go on forever and there will be issues such as fuel and transport costs which need to be reckoned with.

    I am glad by the way that the developer is forced to pay for infrastructure charges for the new property, why should I (who've lived in my inner town property for over 30 yeas) pay for the development of outer areas which normally only muck up the (once) nice picnic areas just out of town so we can shovel more people in here (against the will of existing residents usually)?

    Lorenzo may be happy to have anything built next to him, but I'm not. Some people even get used to having their house robbed frequently, saying its just part of the cost of living. I come from a line of thought who likes to defend my property and my territory.

    The population ponzi market may benefit some people but in the last 20 serious years of looking about I'm not seeing too benefit of it in middle class Australia. Well, unless you think rising debt, lower employment satisfaction and longer working hours are a benefit.

  16. Mike's email makes a few decent points but there are two whoopers in there too:

    (1) The suggestion that infrastructure costs be covered by the taxpayer is simply a request for a cost to be removed from the developers' bottom line. Please subsidize me Mr Taxpayer! Most if not all of the savings would simply be moved to the developers' profits.

    (2) "Developers' preference is NOT to land bank. This is political spin by the State Government pushing the heat from their inefficient planning departments. It‘s more profitable to develop the land as soon as acquired…" Yes and De Beers sells every diamond it has ASAP. Rubbish! By land banking the developers increase scarcity and hence prices. Their land banking costs are partially deducted against taxes and the rest born by the eventual buyers. If Mike's statement was true then developers would not keep buying up land more quickly than they sell it.

    Land taxes would just get passed on to the eventual buyers, we need a `use it or lose it' system with teeth that drives down current levels of land bank holdings and breaks up the status quo of a small number of big developers.

  17. could someone explain why a land tax is not just forcing me to pay for expansion which I do not want? Why not just make it the users (in this case those who want new houses) pay?

    Inner city redevelopment and investment in public transport infra-structure would be the best option as I see it … of course all this pre-supposes that our migration and growth rates are appropriate. The way I see it we'd be better off in a "spotswood" world where people actually had jobs. Even if manufacturing and farming was supported (and you think it isn't in the EU) it would be preferable to the situation where no industry wants to train or invest in staff: pull in migrants cheap from where-ever and let the problems pile up in the "outter suburbs" with things going wrong at many levels.

  18. If I could ad more fuel to the fire, I have a traffic engineer friend who told me that approximately 80% of the projects he works on never see the light of day.

    Most of that is land speculators getting planning permission on a development that they then use as window dressing before on-selling the land. The next owner picks it up, maybe sub-divides it, maybe gets a different idea and it goes back to planning again.

    I can't vouch for the quality of this information, but it would seem there is a difference between actual developers and professional speculators. Both impact the planning process.

    Are the waters here now muddy enough for everyone? At what point so we all throw our hands up on the air and decide that this is too much trouble and just concentrate on demand side strategies to prevent asset bubbles which effects all housing prices old or new.

  19. Anonymous at 7:42 – or maybe we just let the bubble inflate until it bursts back to reality prices?? All property bubbles I have known of have burst, why not Australia's?

  20. Anon @8:23,

    We could do but there are few winners in that case. Stopping asset bubbles is a worthy goal, the question remains how we do it. Leith has spent days posting on supply side strategies. There's been some great arguments and input but not a lot of consensus.

  21. Poking Demand and Choking Supply

    Government has done something very bad to the supply and demand of starter homes which has led to outrageous prices of starter homes, and supported much higher prices of better homes. In short, government has poked the demand and choked the supply of starter/marginal/extra homes.

    Poking Demand:

    * Government brings in many immigrants

    Choking Supply:

    * Government refuses permission to build extra housing on the fringe or extra units in the city, and new cities
    * Government adds taxes, charges and levies to extra housing
    * Government requires onerous compliance with regulations
    * Government creates delays in approving dwellings.
    * Government neglects transport and other infrastructure which reduces the area in which well-located and well-serviced homes can be built

    There is much debate on which of the five chokers (refusal, taxes, compliance, delays, neglect) is the biggest and baddest. Interestingly, if refusal is the big one, then lowering taxes will give a windfall to developers, whereas if refusal is a small one, then reducing taxes will cause a drop in prices. This debate is fascinating from an academic point of view, but rather pointless if the aim is to solve the housing crisis.

    It is like watching a man being attacked by five dogs and debating which dog has the bigger bite. Far better to chase off ALL the dogs and save the man.

  22. Anon (you'll know who you are): thanks for the link to the SMH … very interesting. As well as energy dependency there is transport time and traffic. Cars from the outer urban areas into the CBD (where the jobs are mostly) are increasingly not an effective method of transport. I travel from Gold Coast to Logan for work and I can say say that the extra Km's into Brisbane are like a parking lot. It can take an hour for the last 1/3 of the distance.

    Naturally no company likes tele-commuting (despite the advances in telecommunications)

  23. Like Mike I work as a developer and have worked for both ASX listed companies and with private companies where I have personally invested capital. In this regard I refute Hugh Pavletich's comments that developers are in bed with govt to shut competiton out – nothing could be further from the truth.

    The unfortunate reality is govt's at all levels have passed the burden of the cost of infrastructure onto developers for which the total community benefits and not just the residential estate developed.

    To say developers restrict the supply of land is ridiculous. As Mike points out we would rather generate sales which create certainty that sit on land paying high holding costs. Of course that doesn't mean we give the land away, we do need to make a profit to justify the risk taken.

    If it were so I easy I challenge those who criticise to develop a project (and not just a 2 lot subdivision) to realise the difficulties involved.

    Personally I think it's criminal how govts have distorted the cost of development to cover their own incompetencies and yet developers receive the blame.

    Perhaps we need to look at reasons why GST is paid only on newly developed property and not existing residential property which further distorts the prices equation; or reasons why there is such extreme opposition to residential infill which in turn forces homebuyers to the outlying surburbs where infrastructure is inferior; or why State Govts have failed to reduce stamp duty and land taxation rates as property prices have increased thereby leading to an over dependence on property taxes to fund govt revenue (Leith has touched on this previously).

    Ultimately until the Federal Govt and State Govts are prepared to recognise the urgency of the situation and hold a national summit to address these issues and force both govt and industry to identify and deliver solutions together the problem of housing affordability will get worse before it gets better.

  24. Robert Sherlock

    Sprawl is needed until you limit population growth. If you dont limit population you should not limit sprawl.

    I personally live in Texas which has a larger population and population growth than Australia and I am fine with its sprawl. Its sprawl is much more organised as the government has little involvement.

    Infrastructure costs are too high in Australia, the arguement is not who should pay but how to reduce.

    The easiest way to reduce infrastructure costs would to get rid of Zoning and planning approvals should be between 1 and 30 days.

    Get rid of most environmental regulations as they just encourage developers to do the minimum. (NOTE: The most environmental development that I have seen (recieved awards) is The Woodlands in Texas, the developer saved trees and promoted nature, he sold house and land packages from 100k and yes he made money he sold his portion of the development company for $600,000,000!)

    Each development (Estate) should be able to build its own sewerage treatment plant and water well, just like Texas, and the owner pays for this through MUD taxes.

    This is why land is cheap in Texas, as demand increases supply increases in weeks not years.

  25. Robert Sherlock,

    "Each development (Estate) should be able to build its own sewerage treatment plant and water well, just like Texas, and the owner pays for this through MUD taxes."

    Good points. I know of many cases of fee gouging by LGAs. In one instance a home builder in northern Sydney was forced to pay their LGA $10,000 in extra fees to "test" and approve an onsite sewerage treatment system. This system was already approved by every State health department in Australia and dozens of countries around the world.

    The same is true of on-site recycling in Estates here. Sydney Water is in the water "sales" business not the infrastructure "business". They treasure their monopoly power (pun intended).

  26. Great response, @Anonymous (12:45 AM); cogent and well-argued.

    As much as we might like to believe it, Governments and developers getting in bed together to constrict supply wouldn't happen (not in Oz, at least) if for no other reason than the Prisoner's Dilemma situation that I mentioned in an earlier comment… It would only be a matter of time before someone jumped "out of bed", flooded the market with their stock and reaped maximum profit.

    What's more, State Governments aren't smart enough to manage that kind of agreement anyway… Better to leave it to the private sector (hat tip to the late Dick Pratt & Visy)

    The sad reality is that it is far too easy for Governments to pass the infrastructure cost burden onto private developers, who pass it onto their customers (ie. a small subset of taxpayers), rather than the Government directly levying the charge across all taxpayers.

    This is just another populist approach to a real problem. Their (non)solution simply exacerbates the problem, but pollies don't care about that — so long as the brown stuff doesn't hit the fan on their watch.

    Kick the can, kick the can…

  27. Anon 12.45am and Robert Sherlock from Texas

    Anon – With all due respects, I have been around the property industry for 30 years as a commercial property developer, former industry leader and international researcher. I know most of the tricks!

    The key question I would like to ask you is – following 6 Annual Demographia Surveys clearly identifying affordable North American markets, why haven't the Australian and New Zealand industry associations, such as Master Builders, HIA, Property Council and the UDIA, organised Study tours with industry particupants and government officials to these affordable markets?

    Actions speak louder than words. Or in this case – a lack of action.

    The reality is that the industry protectionists with their large bubble land banks control the industry associations (and the politicians who love the inflated revenues being generated) – because they have so much incentive to protect their bubble values.

    The unfortunate reality is that the builders to date have failed to head off this protectionist elements within the industry associations – and its well past time they did.

    The production builders are really being super dumb, because the bubble land bankers are wiping out the formers ability to provide affordable housing to Aussies and Kiwis.

    Bob Day of Home Australia, based in Adelaide wants to supply new 3 bed home and land packages to young Aussies on the fringes of the cities. $50,000 for the serviced lot – $100,000 for the actual house construction – $150,000 all up.

    Robert Sherlock of Texas's comments above are most helpful. Go check out The Woodland's on the web. And the Houston Association of Realtors http://www.har.com . I have visited Woodlands and it is truly amazing. And it was great too to go through the $US140,000 starter home and land packages just out of Houston as well.

    Why aren't we learning from these normal affordable markets?

    Hugh Pavletich FDIA
    Co author – Annual Demographia International Housing Affordability Survey
    http://www.PerformanceUrbanPlanning.org
    Christchurch
    New Zealand

  28. People. This is a really useful thread and discussion going on here with high quality input. I hope it goes further.

    I have been informally studying land use innovations in the USA via the net for years and part of what I see is that with so many independent states and an educated population used to meeting and organising and arguing and voting about everything from class prefects on up to Presidents, you end up with about 50 times the innovation we see here.

    Other examples I have seen are the use of "clustering" in semi rural areas so as to have a village in a farm or wilderness rather than a patchwork of blocks that are "too big to mow and too small to plow". The idea of "Transferrable (or Tradeable) Development Rights" … shifting the future value of potential development off of private land that they now think should be preserved and creating a vibrant "market" for those rights via options to increase density in residential areas due for renewal or whatever … above what was anticipated in the values. What we do here is either give the increased dev rights away free (after suitable assistance to "the party") or we hold them back "because the other developers would then say what about me", then we pay compensation for resumptions or preservation out of the taxpayer's pocket (so it is always a rotten parsimonious offer to the affected landowner)
    I also note that there are organisations called "Friends of….. " eg Frinds of Oregon"… which are open citizen membership supported planning and land use organistions formed by grass roots organising, and including many of the sorts of experienced people who are contributing to this current discussion, and with memberships large enough to support a professional staff. They are not government planners and they are not industry organisations, they are citizens organisations because people realise that everything in their environment flows from the critical land use decisions. They put pressure on the government for genuine inclusion in all planning and then they monitor the actual application and blow the whistle loudly where they see any poor governance or corruption etc.

    Keep it up good people.

  29. Mike wrote: "Within the State of NSW, infrastructure services have not been upgraded for at least 40 yrs".

    For me, this is classic LIMITS TO GROWTH SYNDROME. When civilisation starts growing, all the infrastructure grows with it, one brick at a time, as and when it is needed. Eventually, some critical mass is reached when the oldest stuff needs replacing, whilst at the same time, brand new infrastructure needs to be built just to keep up with current growth. Exponential growth. At current rates, we need to DOUBLE everything, roads, hospitals, schools, water, energy, you name it, every twenty or so years.

    Initially, the very oldest stuff is only very small, but the size of the problem keeps growing, just as it did fifty years ago! Soon enough, the problem overwhelms the authorities… especially when Peak Oil kicks in.

    Until now, all this growth was energised using very cheap and very abundant oil. This is no longer the case, even the IEA has finally admitted this after many years of annual reports full of utter garbage, information which now whistleblowers from within this institution admit was manipulated to make the numbers look rosy. Economic growth utterly relies on fossil fuels. Just try building freeways with picks and shovels!

    This year, oil will go over $100 a barrel. Next year, we could well see shortages. By 2015, I believe we will see rationing, and as Australia imports 90% of its fuel, the trade deficit will skyrocket.

    The GFC has only just begun… so where will all the money needed for this infrastructure come from? Hyperinflation maybe….?

    This is as good as it gets Mike.

    "Humanity's greatest shortcoming is its inability to understand the exponential function" Pr Albert Bartlett.