In mid-January 2003, just days before bush fires hit the outlying suburbs, my girlfriend (now wife) and I moved to Canberra from Melbourne so that I could commence work as an economist at the Australian Treasury. Fortunately for us, we had secured rental accommodation in December 2002, so were unaffected by the severe rental squeeze caused by the destruction of around 500 homes in the capital.
The supply situation in Canberra was already very tight, and the cost of renting prior to the bush fires was well beyond what could be found in Melbourne. Many others that arrived into the ACT after the bush fires were forced into expensive share accommodation, often located in the far outer suburbs or in regional New South Wales.
One thing that seperates Canberra from the major capitals is that there are swathes of vacant land located within only a moderate commute of the various activity centres, be it Civic, Woden, Tuggeranong, Belconnen, or Gungahlin. In an open market, free from excessive government interference, such land would be made open to development, ensuring that land prices remained affordable for housing.
Alas, such a situation does not exist in the ACT. Instead, the government owns most of the available land, which it rations to the market via a quota system, thus ensuring that land prices remain high and homes are overly expensive.
Indeed, 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.
Indeed, the artificial strangulation of supply by the ACT Government has led to buyers literally camping-out for lots:
The ACT’s government resorted to a “virtual” ballot after buyers camped out for a week in freezing temperatures to secure blocks of land…
In Canberra’s Forde, a new suburb 14km north of the city, hopeful buyers spent up to a week queuing and camping…
Developers eventually allocated numbers to potential buyers and sent them home…
“There were campervans, people in caravans and tents – it was quite a sight,” Mr Lynch said of the buyers queuing a week ago to get a toehold in the Canberra market…
While the ACT Government has since moved to a balloting system, it continues to drip feed lots to the market via a quota system, thereby ensuring land prices remained high:
In [the ACT’s] ballot [system], potential buyers register online and receive a number which is entered into an electronic ballot draw system.
Ballot numbers are drawn sequentially and results are uploaded on to the LDA’s website.
If successful in a ballot people are invited to select and purchase a block…
More than 800 people registered for a ballot of 98 blocks at Jacka last year. At Harrison more than 1800 registered for 294 single residential blocks offered.
Times are slowly changing, with the Government recently enacting a range of policies that should assist in improving housing outcomes across the ACT.
First, while a quota system has unfortunately been maintained, the Government yesterday announced via Twitter that it would boost the ACT’s land supply by releasing 4,800 residential lots in 2013-14, well in excess of the 1,764 house approvals (4,172 total approvals) granted across the capital in the year to April 2013 (see below screen capture).
Second, as noted yesterday, the ACT Government has announced the withdrawal of the $7,000 first home owners’ grant (FHOG), replacing it with a $12,500 grant to purchasers of newly constructed or “substantially renovated” homes. The move offers the prospect of reducing first home buyer demand for pre-existing dwellings and stimulating supply, thereby placing downward pressure on prices. Surprisingly, the changes to the FHOG have been universally praised by the construction and property industries alike (including the Real Estate Institute).
Finally, the ACT Government last year announced the bold (and sensible) plan to transition out of stamp duty over 20 years, replacing it with a broad-based land tax levied via an increase in property rates. The move offers to substantially improve equity and efficiency of the tax system, whilst also helping to make infrastructure investments self-funding for the ACT Government and increasing the effective supply of land by reducing vagrancy.
While there is still work to be done, the ACT Government is clearly moving in the right direction on housing policy.
