Three weeks ago, MacroBusiness’ own Unconventional Economist, Leith van Onselen, gave an interview to the ABC’s Neil Woolridge for a segment on The Business, the ABC’s flagship business news television program that screens from Monday to Thursday on ABC 24 (8.30pm) and ABC 1 (11.oopm).
The segment (above) screened last night and discussed the outlook for the Melbourne housing market, where values have fallen by more than -7% over the past 12 months according to RP Data-Rismark. Other guests interviewed for the segment included John Edwards, CEO of Residex, and Burt Dennis, from Dennis Family homes.
Below is the transcript of the report:
TICKY FULLERTON, PRESENTER: The news for the Australian housing industry just keeps getting worse.
The week’s RP Data National House Price Index has slumped 1.7 per cent so far this year.
Melbourne especially seems to be on the cusp of a crisis where sellers are struggling with a big oversupply of houses.
Neal Woolrich reports.
NEAL WOOLRICH, REPORTER: Inducements are everywhere, but buyers are nowhere to be seen.
LEITH VAN ONSELEN, SENIOR ECONOMIST, MACRO BUSINESS: They are cutting prices on the price of land. They are offering quite generous incentives, including cashback offers, and also free landscaping, etc, but unfortunately buyers still aren’t buying.
BART DENNIS, CHAIRMAN, DENNIS FAMILY CORPORATION: Our sales are down quite considerably from what they were and this is generally across the board.
NEAL WOOLRICH: This new housing estate in Melbourne’s western suburbs is showing all the signs of a malaise afflicting the city’s property market and things are only expected to get worse.
LEITH VAN ONSELEN: New home sales are currently tracking at decade lows despite generous subsidies from the Victorian State Government which are due to expire very soon.
And when you combine that with the rapid construction in Victoria which is now currently building around 35 per cent of the nation’s housing stock, it’s really not a good sign for prices.
JOHN EDWARDS, CEO, RESIDEX: It’s very hard to see anything significant in economic terms that’s going to pick Melbourne up out of the problem. So we’re probably looking at adjustment of somewhere between 5 and 10 per cent over the next 12 months.
NEAL WOOLRICH: And that’s on top of the 7 per cent decline in Melbourne home prices that’s already been recorded over the past year. John Edwards estimates there’s an oversupply of 14,000 homes in Melbourne and he’s concerned that developers have failed to heed the warning signs.
JOHN EDWARDS: There is far too much stock coming onto the market right now and far too much stock to be delivered into that market given the housing supply situation exists.
BART DENNIS: We’re reducing lot sizes. We’re trying to reduce house sizes. We’re just streamlining our business as much as we can with a view to producing a more affordable product to enable us to sell.
NEAL WOOLRICH: Burt Dennis is a 50-year veteran of the property industry. He argues governments need to do more to recognise the importance of housing to the economy and change an anti-development mindset among public servants. He says banks are also making it harder for home buyers with tighter lending criteria in these straitened times.
BART DENNIS: Under normal circumstance, our cancellation rate is about 20 per cent and this is 20 per cent from deposit to contract. So it’s possibly gone up to about 25 per cent through the higher lending criteria.
NEAL WOOLRICH: And Victoria’s faltering economy is also weighing on the housing market. In 2011 Victoria’s economy grew by just 1.5 per cent and over the past year the state has shed 20,000 jobs, with key industries like manufacturing, financial services and tourism all struggling.
JOHN EDWARDS: The most important thing to do in Melbourne is for the Federal Government and others to realise that they must give Melbourne back a raison d’etre.
They’ve really got to manage the economy so that the manufacturing industry is just not crashed out in the Melbourne market.
NEAL WOOLRICH: Most agree that this month’s 50 basis point interest rate cut will help at the margins, but the underlying problem remains: too much housing and not enough buyers willing to take the plunge in these uncertain times.
