Melbourne sinks deeper into house-and-land bog

Advertisement

By Leith van Onselen

Oliver Hume has released some worrying statistics for Melbourne’s house-and-land market. From Property Observer:

According to the latest quarterly report from Oliver Hume, there has been a 29% increase in the number of residential projects being marketed on Melbourne fringes since 2006 with the real estate group forecasting 160 active projects in 2013…

“Put simply, since 2006, there has been a 29% increase in the number of projects and a 5% decline in the number of land settlements.

“For the majority of projects, double-digit sales rates may be a long way away,” says report author Andrew Perkins.

Land prices have now fallen by a cumulative 16% over eight consecutive quarters with an average residential lot price of $190,000 [see below table].

Melbourne land prices peaked at an average residential lot price of $225,750 in December 2010.

At the same time, developers continue to offer highly contentious rebates to customers with the median rebate rising slightly during the quarter to $15,000.

Median rebates ranged from $10,000 in Cardinia and Whittlesea to $16,500 in Casey.

When discounting for rebates, Wyndham is the only municipality with a median land price above $200,000 [see next table].

Olive Hume reports that developers are holding back on releasing large amounts of land to the market as take—up remains poor…

In March 2012, I toured a number of new housing estates in Melbourne’s outer-west, specifically: Point Cook, Truganina, Werribee, and Melton. The purpose of these visits was to interview various sales offices to gain a deeper understanding of the house and land market in Melbourne.

Advertisement

Key themes arising from my discussions with the sales people were that:

  1. Sales volumes had fallen sharply since mid-2011;
  2. Land prices had begun to fall after rising strongly in 2009 and 2010; and
  3. There was an abundance of lots available across developments, and increased competition between developers.

One Point Cook salesman noted that competition and land supply had increased substantially after the State Government extended Melbourne’s Urban Growth Boundary (UGB) by 41,000 hectares in 2009 – enough land to accommodate an extra 284,000 homes. He also noted how only a few years year earlier, customers were required to pay $1,000 in order to be placed into a land ballot for the opportunity to secure a lot, but that the situation had reversed since the UGB expansion, with literally thousands of lots now available for purchase.

Advertisement

Just last week, I took part in a tour of Point Cook housing estates to find out whether the situation had changed. As the tour bus didn’t visit the same estates as last year, it was difficult to form a definitive view. However, the situation still appeared quite bleak with loads of vacant blocks and dusty paddocks spread far and wide, as well as very little apparent sales activity (although to be fair, it was a Wednesday afternoon).

Below are some photos taken in and around Point Cook illustrating the situation:

Advertisement
Advertisement
Advertisement

And below are the stock-on-market (SoM) for Point Cook (3030), courtesy of SQM Research (note: I am not sure whether the SoM includes vacant blocks):

Advertisement

The view that the Melbourne house-and-land market is struggling is also apparent when the Housing Industry Association’s (HIA) new house sales data for Victoria is overlayed against the Australian Bureau of Statistics (ABS) dwelling approvals data, which shows house sales falling at a faster rate than approvals (see next chart).

Finally, first home buyer (FHB) demand also appears to have fallen away since the $13,000 First Home Bonus was cancelled on 1 July 2012, which was previously available for newly constructed housing. Since the Bonus was pulled, the number of Victorian FHB finance commitments has fallen significantly, with much of this retracement likely to be related to new housing (see next chart).

Advertisement

With supply remaining elevated and demand likely to remain restrained, there is unlikely to be a significant recovery in Melbourne’s new housing estates any time soon, which will likely place further pressure on vacant land prices and developer profits.

[email protected]

Advertisement

www.twitter.com/leithvo

About the author
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.