Amid sweeping plains, a land bubble

nowhere

By Leith van Onselen

Today, The AFR has today reported on new research released by the Urban Development Institute of Australia (UDIA) showing the explosion of land prices across Australia:

ScreenHunter_1807 Mar. 26 07.35

According to UDIA, the cost of vacant lots have spiked by nearly 150% per metre across Australia over the past decade, with the number of lots released to market also slumping recently.

The UDIA blames excessive taxes and charges, along with constipated planning systems that have restricted land release. It has also called for housing affordability to be placed firmly on the agenda of governments, along with more infrastructure investment to unlock land, and the implementation of broad-based land taxes in place of stamp duties.

“What concerns us is that a family can no longer afford a back yard where a family can play and grow.”

This corroborates RP Data’s recently released new research showing the explosion of vacant lot prices across Australia. According to RP Data, median lot prices nationally have risen by over 400% over the past 20 years:

ScreenHunter_1681 Mar. 14 07.50

As lot sizes have shrunk by nearly 30%:

ScreenHunter_1682 Mar. 14 07.55

Causing the rate per square metre to explode by a whopping 564% over the past 20 years:

ScreenHunter_1683 Mar. 14 07.59

With all major capitals affected:

ScreenHunter_1684 Mar. 14 08.01

Clearly, the explosion of lot prices is a key factor behind the collapse of detached housing construction since the mid-1990s, since it has become increasingly difficult for the industry to supply stock at a price households are either willing or able to pay (see next chart).

ScreenHunter_1808 Mar. 26 07.47

The cost escalation on the fringe has also placed upwards pressure on land prices in established areas, reducing housing affordability across-the-board.

This escalation of lot prices has little to do with easy credit, negative gearing, or foreign investment, and everything to do with the lack of land release, constipated planning systems, and the front-loading of taxes and charges on new development.

If ever there was a time to relax artificial restraints on land supply and the first-user-pays-all approach to infrastructure provision, as well as introducing a broad-based land tax, it is now.

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Comments

  1. migtronixMEMBER

    Thanks UE — to me the BIGGEST surprise, which no doubt bolsters your contentions of land release being the culprit, is the compression between Perth/Adelaide and Sydney!

    Perth was 1/2 the cost of Sydney in 02 and pretty much the same by 12. WTF? Shoulda bought land (not property) in Perth before I bailed for London back in 01. Oh well…

    • +1. I hated(sort of) that guy I used to know who worked a crappy retail job and had a house here, there and elsewhere and all his income used to go on to the mortgage. He’d be laughing now. All for being an irresponsible, slimy used car salesman type. Eff this country. What a disgusting people of scum and villainy.

  2. Tiliqua scincoides

    Not now! I just bought a house and can now join the majority in calling for increased tax incentives to buy property, relaxation of foreign investment laws and any policy that works to constrain supply.

    Ahh, it feels good not to be swimming against the tide anymore.

      • +1. If there’s no crash I’d like to see how these people’s kids are going to fare. Paying one million for a horrid shack in Mt Druitt? Winner!

    • Be careful – with knighthoods back on offer anything is possible – perhaps even a return to the 1950s model of land development.

      That might be a bridge too far.

      Abbott appears to be a selective conservative.

      • The 21st Century baron is the one with a dog box in St Kilda/Docklands (with water views and cafes close by).

        And these new age barons owe their allegiance not to the Queen of England, but to the corrupt Kleptocrats in Beijing because they are the ones who can keep the property ponzi serfdom going for a bit longer.

    • That won’t be a problem for Tiliqua scincoides, Leith. They won’t be able to afford to have kids! ( especially a few rungs further up the inflated mythical ladder). A cat?…maybe just….

    • I bought recently too but it won’t stop me swimming against the current, it’s so ingrained in me.

      Mind you my wife and I bought outside of Sydney, longer commute but we bought for lifestyle. It made absolutely no sense for us to buy in Sydney, have a huge financial burden and still be miserable.

      • Tiliqua scincoides

        We found a place that’s a 26 min train ride from the city and 15 min drive from my wife’s work that I assesed to be “good value” in the current market.

        Based on Auctions over the past few weeks we probably got it for $50K – 70K less than market value for the area. Amazingly we were only one of two parties registered to bid at the auction.

        All in all it’s virtually the same cost as renting and we’re not being shafted for saving anymore so we’re better off despite the huge debt.

      • “…….we’re not being shafted for saving anymore……”

        That is another repugnant part of the status quo. Saving is a mug’s game, interest is too low to keep ahead of inflation especially after the tax gouge.

      • Our new place is on half acre, nice large house in a rural setting. We will have free range chickens roaming the backyard, a dog, grow our own vegetables, have a large garden to relax in and design. When we have kids they’ll have an environment where they can actually go out explore and enjoy their young life in nature, like I was able to do growing up.

        The best part is it will cost us $100 less a week than our rent. We can’t have this lifestyle in Sydney, unless we miraculously win the lotto.

  3. No. No. No. The laws of supply and demand show we have land shortages, particulary peri-urban. Higher prices bring out eager sellers and the whole thing auto-stabilizes. Don’t these cloistered wonks understand economics? /sarc.

    I welcome the UDIA call to switch property taxes from Stamp Duty to Land Tax. The first state government that does this will draw activity to itself like an electromagnet.

    • Hunson Abadeer

      “The first state government that does this will draw activity to itself”
      How so David?

      • SD traps citizens in and out of housing. Removing this handbrake frees owners to inexpensively move to match their needs (house size, location, financial capacity). Untaxing transactions reduces their cost making otherwise marginal actions attractive. Volume increases lift overall economic activity.

        KPMG Econtec puts the marginal and average excess burden of SD in terms of consumer welfare lost per dollar of revenue at 34 and 31 per cent (p18). This is not the worst tax base the states use, but its incidence is paralyzing. http://taxreview.treasury.gov.au/content/html/commissioned_work/downloads/kpmg_econtech_efficiency%20of%20taxes_final_report.pdf

        Meanwhile, ending the widespread exemptions from State Land Tax favors users of land over holders of land. A universal SLT is an insistent prompt to put land to its best and highest use – driving building construction.

        Two dynamic boosts.

      • I would say that Houston’s example shows that any city that simply abolishes the growth containment, land rationing mania will draw activity to itself like a magnet.

        Shifting the burden of local taxation to land taxes would be an added benefit. I am still agnostic on whether land taxes without abolition of growth containment would be anything like as effective as the abolition of growth containment without land taxes. Of course I support both.

        Other policy settings do matter too, of course. Pittsburgh has had land taxes for decades, and I don’t think it is growth-contained. But it is no Houston.

      • Of course, vis-a-vis Houston, it probably doesn’t hurt to be home of the largest international port in North America, and to be headquarters of the US energy industry.

      • @ Phil 9:26

        We have blown the biggest bubble in history. This economic calamity has no single cause. Debt, planning, tax and driving by the rear-view mirror all play a part. The weighting due each will be a smorgasbord of PhD’s for an entire generation of economic historians employing the clarity of a complete statistical base.

        Asking ‘Que Bono?’ of current economic settings and distortions provides a simple answer on all bases: financiers and existing landowners.

        I commend Zerohedge’s scathing critique of homeownership here:
        http://www.zerohedge.com/news/2014-03-24/guest-post-fallacy-homeownership

        If I am to choose between buying in Mt Druitt or being a millionaire, my mind is easily made up.

        Don’t Buy Now!

  4. Great, land prices increase by 5 times over a 20 year period and median lot sizes decrease by 200sqm, complete theft right there.

    People still demanding a Big Australia, prices will just be astronomical when we hit 35m people. When you look at how much prices have risen when the population has increased by about 5 million over the 20 year period.

    • It’s nothing to do with population. The following cities had stable land and house prices even as their populations grew, between 2000 and 2010:

      3.8 million to 5 million people (Houston); from 4.1 million to 5.1 million (Dallas-Fort Worth); from 3.5 million to 4.5 million (Atlanta); from 1.3 million to 1.8 million (San Antonio); from 900,000 to 1.35 million (Austin); from 760,000 to 1.25 million (Charlotte, NC); and from 540,000 to 880,000 (Raleigh, NC).

      Just getting on and buildin’ freakin’ houses is actually good for the economy……!

      • It is about population when the government is not doing the corresponding development/planning. I understand what you are saying but my remark was based on what will happen if population keeps expanding but the development/planning is kept how it is now.

    • I agree with Phil. It has nothing to do with population. Real Estate trends around replacement cost including all taxes and input costs in land. To the extent replacement cost rises over time (with inflation and wages) so to will property.

      IMO, prices are now above replacement cost in most major markets. Australand announced an earnings upgrade yesterday – so to have a number of other residential developers. We are entering into a dangerous phase in property. If I had IP’s I would be selling some of them this year…

      • Yes, Australia has grown much faster in past decades without housing going insanely unaffordable.

        And why should a city of 500,000 say it is big enough, when there are cities of 1 million; and why should the city of 1 million say it is big enough, when there are cities of 3 million; and so on?

        The planners most major economics 101 error is assuming that upzoning will provide for growth at affordable prices. However, when the supply of land overall is fixed by zoning, upzoning increases site rents; it doesn’t decrease floor rents.

        I realise there is controversy among economists over this, but real life evidence should dictate who is right, not who can devise the most baffling-BS explanatory theories.

  5. moderate mouse

    “This escalation of lot prices has little to do with easy credit, negative gearing, or foreign investment, and everything to do with the lack of land release, constipated planning systems, and the front-loading of taxes and charges on new development.”

    Sweeping plains…and sweeping statements!

    Would like to see that backed up with a bit more substance. Showing a few graphs of increasing lot prices does not a causal relationship make.

    Lot prices in pretty much every two horse town in the country have followed a similar path – towns with pretty much zero restrictions on anything. The days of cheap land are gone for now, but why?

    • migtronixMEMBER

      The days of cheap land are gone for now, but why?

      Eerrrr, because the supply is constrained? You say every two horse town in the country has followed a similar path [sweeping statement? ;)] but consider that “environmental restrictions” have relegated a lot of land untouchable…

      • Environmental restrictions are a small part of the issue. Land banking, stupid local councils (especially in small towns where corruption is rife and the councillers are the ones doing the land banking) are far bigger issues. Even worse is, as the article mentioned, the “first user pays” model of infrastructure development or the insistance of developers to install mosquito ridden lakes and bike tracks to nowhere.

        Now take those small town problems and scale them up and you’ve got our capital cities.

      • Spot on, migtronix. Find me a town where development is free and easy and I will show you a pig flying backwards.

        My dad recently built a new house in Nagambie Victoria – a two horse town 40 mins from Shepparton. You would not believe the mess that he had to deal with via the local council. It took years (and great cost) to build his place. What should have been a relatively simple process was turned into a bureaucratic nightmare.

        Land everywhere, but nowhere to build!

        I think you, moderate mouse, needs to accept the bleeding obvious…

      • Exactly UteMan,

        My old man has a 80 acre property 2 minutes outside a town of 2500 in country NSW. The place is directly opposite the golf course. Can’t be subdivided/redeveloped. Why – because there’s three other properties between him and the town outskirts on that side of the road (including the local rugby club).

      • I live on a couple of hundred acres south of perth… its about 30km from the nearest town and my my closest neighbours house is about 3km from ours. I want to build a second house on our block near our existing house so my mum can come and stay when she wants. I have been told by the council multiple dwellings aren’t allowed on rural land so I need to apply to the state planning commission for approval at a cost of thousands of dollars… I can’t help but come to the conclusion the world has gone mad.

      • dumb_non_economist

        If you need an example of council arrogance I’ll offer up my sister’s recent experience in Perth.

        She bought a battleaxe block that was subdivided by the owner, approval for the subdivision was given by Council. The settlement agent put the appropriate request to Council for restrictions etc to be informed that there were none.

        Plans are drawn up for a house, finance obtained and plans submitted to Council for approval. Sorry, no can build. You must move a power dome and a light pole before approval can be given. Both are situated on the boundary of which a driveway is sited on each side of the boundary (ie, 2 driveways side by side). There is NOWHERE to site 2 offending objects other than move them onto the subdivider’s front verge, needing his approval. Without this approval the block is not capable of being built on!! WTF do you say!!!! Council claims it was not required to inform my sister of any such requirements.

        Enter local member and a meeting, after much to-ing and fro-ing they agree to allow the dome to stay and pole to move at an expense of 25K plus 6 mth delay as Western Power have to move it. WP see no need whatsoever for either to be moved. My sister threatens to sue and they laugh! Two wks later a writ is served on Council via the Mags. Court for damages and suddenly they agree that the status quo is fine. My sister continues the case (self rep.) and their defence is that they owe no duty of care and it’s the builders fault!!.

      • migtronixMEMBER

        @DNE: always self represent and ALWAYS take the @#$%ers to court!

        She should have sued them as individuals not the council because its as individuals that you can liens their property — which makes them think quicker — funny that.

        How sue them individually? Because they put themselves up hence are under unlimited liability!

        Hope she fries them!!!!

    • @mm

      Lot prices in pretty much every two horse town in the country have followed a similar path – towns with pretty much zero restrictions on anything. The days of cheap land are gone for now, but why?

      The speculator frenzy. Land in Sydney is 500 / sqm, I should get at least half that in whoop whoop…

      BTW you have planning restrictions almost anywhere where a local council exists.

    • Lot prices in pretty much every two horse town in the country have followed a similar path – towns with pretty much zero restrictions on anything. The days of cheap land are gone for now, but why?

      Have you got a source for this? How many rural towns have councils allowing laissez faire land usage policies? How do land tenements (regulated by fed govt) for farmig and mining fit into this as well?

    • “Lot prices in pretty much every two horse town in the country have followed a similar path – towns with pretty much zero restrictions on anything. The days of cheap land are gone for now, but why?”

      Because modern economics is obsessed with balanced budgets measure in fiat currency – totally ignoring the fact we left the gold standard 40 years ago. A by-product of this mindless ideology is what government call “User Pays”.

      From around the mid 1990’s, governments abandoned this social responsibility to housing (and roads for that matter) and began to pass the costs of infrastructure to developers – who in turn passed it on to the margin home buyer.

      Not satisfied with totally outsourcing a basic human need to the private sector, governments turned residential development into a profit centre via planning and developments fees / contributions. Applauded by both sides of government, fiscal balances turned into surpluses – but only because new home buyers had to borrow more to get the same product. The sectoral balances 101!.

      Today we still have “fix the budget” in our mantra, not realising such flawed economic commentary is creating massive distortions right across the economy.

      That is why land has increased so much. That is why there was no real bubble. That is why prices keep going up. That is why we have some of the highest private debt ratios in the world.

      The budget is self correcting – deficits pretty much forever now. the only real question is whether we have the by choice (government expenditure) or it is forced upon us (unemployment and lower tax receipts).

      • migtronixMEMBER

        +1 that much I completely agree with you on b_b; and yes you won me round on the whole “capital flight” (though I still maintain that capital assets leaving is same same but different) thing and the credit generation too — but the flow/stock theories? Not so much…

      • @b_b

        +many. However, we are discounting the fact that developers have no incentive to bring supply online. The major costs of development could have been borne 10-15 years ago, while the land is being sold at today’s prices.

      • @ FF – maybe the developer bought the raw undeveloped land many years ago but that isn’t the major cost that has forced up the price of suburban allotments, it’s the added costs injected by the various tiers of government.

        That does vary from council to council and from state to state, but in all cases it is quite significant.

        If that was funded in another way the price of new land and homes would fall, and all competing products in the market place (existing homes) would also fall.

      • b-b, balanced budgets are still a real issue for State governments and local councils. They can’t issue currency.

      • @PF I’ll give you an example. The Springfield master community in Brisbane was approved sometime in the mid 90s. Many of the government associated costs would have been covered then. The major infrastructure on the current parts of the development were done in the late 90s when they were selling the initial stages.

        Granted the future developments will be at current costs etc, but then the price would be higher as well I assume.

        Springfield is a large community and for the size, it is expected. But for small developments of 100s of lots, there is no way it should take 10 years from when the first lot is sold to when the last is.

      • @ FF
        I don’t think we have a great shortage of suburban blocks around Brisbane, but nevertheless the prices are higher than need be because of the developer contributions and the need for the developer to meet the costs of the headworks themselves – these are costs that were once born by the community and repaid from rates collected. An extra 10% GST on top of all of that doesn’t help either.

        People thought that the costs would be paid by the developer without understanding the obvious – the developer had to pass those costs onto buyers. We got it wrong – what else can we say – we stuffed up.

        Will the various levels of government change the way they approach this and go back to the way that it was funded in the Fifties? Seriously I don’t know and nor does anyone else, but understanding the past failure is crucial to understanding why we are where we are and what might happen if it ever gets unwound.

      • @PF I am not disagreeing with what you are saying. These have been highlighted by b_b as well. All I am saying is, on top off all this, developers don’t have any incentive to sell developed land, especially in green field sites. Think about it, if their land is appreciating at 12% per annum and you have finance at 6% per annum, why would you sell all at once? You would just trickle feed the market.

        Moreover, by holding back on the supply, they are ensuring that prices go up.

      • @ FF
        Over the long run property values including land haven’t consistently recorded growth of 12% per annum and finance hasn’t been available at 6%, so the mathematically sound conclusion is that it doesn’t pay for developers to sit on subdivided allotments especially when there is pressure from shareholders to return a dividend.

        I have financed smaller developers. They will land bank farms and large holdings that they have bought just like a grocer will buy in more tins of baked beans than he needs for todays sales, but once they develop the blocks then the pressure is on to sell the lots into the market.

        I see this issue mentioned all of the time, but the reality is that it’s not financially feasible to just accumulate and sit for the majority of players including publicly listed companies, In particular the majors must be constantly bringing stock to the market when there are buyers who will pay enough to cover costs and provide a margin. Not just a margin for the blocks being marketed, but also the holding costs for the stock that has been banked.

        It doesn’t matter what type of business you run, cash flow is everything – without it you are dead.

      • @PF

        I am using those values for the past decade, as per this article.

        See Explorer’s post http://www.macrobusiness.com.au/2014/03/amid-sweeping-plains-a-land-bubble/#comment-340761.

        The 6% is also the average interest rates over the last decade discounting for cheaper finance available to larger developers.

        So for at least the past decade, the idea is mathematically sound.

        I have financed smaller developers. They will land bank farms and large holdings that they have bought just like a grocer will buy in more tins of baked beans than he needs for todays sales, but once they develop the blocks then the pressure is on to sell the lots into the market.

        Well that in itself is a problem and no it is not a like a grocery business unless you sell only spam. Foremost, land is not a perishable good.

        I see this issue mentioned all of the time, but the reality is that it’s not financially feasible to just accumulate and sit for the majority of players including publicly listed companies

        Why not? If you have recovered costs based on selling a proportion of the development, nothing stopping you from drip feeding.

        If this wasn’t the case, why do we see so many development’s taking a decade or so from initiation to end?

      • Perhaps home buyers have had an average of 6% but developers pay much higher rates than you or I.especially in the development stage. Holding cost rates are OK but the rest is way higher than you imagine. I haven’t investigated a development loan for a couple of years so I can’t quote you a current rate. Maybe someone else here can, but it won’t be pretty.

        High risk short term finance doesn’t come cheap.

      • @PF

        Perhaps home buyers have had an average of 6% but developers pay much higher rates than you or I.especially in the development stage.

        Yes for small time developers definitely. Heck if this wasn’t the case, I’d do it myself. But I say BS if you say Mirvec and Stockland and Australand pay cheaper rates than you and I.

        P.S BTW yes this all stems from the bureaucratic issues and expense thereof. No competition for larger green field sites.

      • FF,

        Englobo land is acquired for Fck all. $25-$50 per sam.

        To deliver Englobo to market adds another $150 – $200 per sam depending on municipality.

        If the market price is less than (say) $300-$350 per sqm, the land will not get developed. The developer will capitalise funding back into the Englobo. When the market rebounds, prices exceed cost and supply is encouraged again. This looks like land hoarding, but it is just common sense. Why put $100 into something knowing you only get $50 back?

        There is ZERO incentive for developers to sit on land for the following reasons
        – Very hard for even the biggest companies get more than 20-30% debt finance on non-income producing real estate. Check out the balance sheet of the “pure” Aussie developers (i.e.: ignore the staples).
        – So most of the funding via equity which has a higher cost than debt
        – Even if land is increasing by 12% per annum, the companies must generate cash-flow to service loans and pay divs
        – The land is not really increasing by 12% per annum. It costs money to lift land value. Thats a bit like adding a $100k extension to your house and saying it has gone up by $100k.
        – The Holding costs are therefore a HUGE incentive to get the land off B/S as quickly as possible. No different to a land tax.
        – ROE = Stock turn x margin. So when the margin returns (like now), the company drives ROE by increasing stock turn (like now).

      • @b_b

        Why should it take 150 – $200 to bring land to market? The costs of binging land to market cannot have gone up by that much considering only ten years ago land was selling for 140-170 sqm.

        Wages may have gone up etc etc but not by that amount and I don’t think the planning system has changed that dramatically in the past ten years either.

        There is ZERO incentive for developers to sit on land for the following reasons
        – Very hard for even the biggest companies get more than 20-30% debt finance on non-income producing real estate. Check out the balance sheet of the “pure” Aussie developers (i.e.: ignore the staples).

        Fair enough. But you only need debt at various stages of development if done in stages. I would argue that if you sold ~25%-40% of your initial development, you would be sitting pretty. The rest of the land need only be approved for development without infrastructure put in. I consider this a form of land-banking and this has nothing to do with the market.


        – So most of the funding via equity which has a higher cost than debt
        – Even if land is increasing by 12% per annum, the companies must generate cash-flow to service loans and pay divs

        See above. I am not suggesting they don’t develop it at, just not all at once.


        – The land is not really increasing by 12% per annum. It costs money to lift land value. Thats a bit like adding a $100k extension to your house and saying it has gone up by $100k.

        Not disputing this either but approved but undeveloped land is not costing them nearly as much to hold. Again many of these costs have not gone up as much as the land prices.


        – The Holding costs are therefore a HUGE incentive to get the land off B/S as quickly as possible. No different to a land tax.
        – ROE = Stock turn x margin. So when the margin returns (like now), the company drives ROE by increasing stock turn (like now).

        What are the holding costs when you have all the necessary approvals and no debt?

        @b_b and PF If what you are saying is correct, then why do we see this from the large developers?

        http://www.prosper.org.au/2012/12/06/englobo-2/

    • Lot prices in pretty much every two horse town in the country have followed a similar path – towns with pretty much zero restrictions on anything.

      Nonsense. Why are you making such a ridiculous claim?

      A few years back Cobar was selling blocks for $35,000 a piece if I remember correctly.

      Scratch a high price and uncover a government restriction.

      • Now let me see. A school teacher in Cobar might earn $60,000 per year. They can buy a housing block for $35,000.

        What this shows is that adequate supply without restrictions can achieve a reasonable price and that your previous statement:

        Lot prices in pretty much every two horse town in the country have followed a similar path – towns with pretty much zero restrictions on anything.

        is complete nonsense. What you will find is that almost every tiny country town has severe restrictions on the creation of extra building blocks. Cobar being a rare exception.

        Why don’t you ring up the council of one of those towns where prices have risen a lot. Tell them you are thinking of buying a large block and putting an extra house on it and selling it separately. Ask if this is allowed. Do it and stop posting untruths here.

      • moderate mouse

        Claw, my good mate, you mention Cobar, so why then has the median house price there gone from $91,000 in 2004 to $213,000 in 2014…..a 134 per cent increase? (APM data from the evil empire…see ‘suburb performance’ trend chart linked below)

        http://apm.domain.com.au/research/address.aspx?locationtype=address&state=nsw&streetid=970532&unitnumber=&streetnumber=24-26

        Glad to see we agree that restricted supply is unlikely an issue for Cobar, so again I ask, what is it that’s pushing prices up in even these two horse towns? (Sorry Cobar, I’m sure there’s at least three…)

        And according to UE, it’s ‘bleeding obvious’ that it is chronically restricted supply EVERYWHERE that’s driving prices. Really? Even in Cobar?! Now I’ve heard it all….

        As I’ve said before, the supply argument means there isn’t a speculative bubble at all, and prices are grounded in ‘fundamentals’. I’d just like a bit more rigour if you’re gonna pull that one out.

        And I’m more than happy to be proven wrong on this, but just saying it doesn’t make it so. If you really believe that chronic supply issues are to blame for price growth even in these towns, I’d like some proof rather than just heresay and anecdotes…cos it sure isn’t ‘bleeding obvious’ to me, more like counter intuitive.

        • Geez Moderate Mouse, you really are reaching for straw men. Since when have I said that it is only restricted supply that is driving house prices? I haven’t. What I have said is that it is restricted supply that is driving up the prices of fringe lots, which is inflating the cost of new houses and having a knock-on effect to pre-existing housing as well.

          Of course negative gearing, easy credit, SMSFs, foreign investors, etc is also influencing prices of housing across the market. There are after all two sides of the market: supply and demand.

          Stop wasting my time arguing minutiae and look at the big picture.

      • migtronixMEMBER

        @MM: Ok I can I kind of see your point… but…look at the age of people living in Cobar; from the page you linked to:

        40-59: 28%
        60+: 15%

        == 43% > 40

        Who’s buying? Is it the 27% 20-39? And from whom are they buying? Is it the 22% 5-19?

        Boomers and their retirement dreams win again!

      • moderate mouse

        @ UE

        This is the big picture…developers and their self-serving quibbles about restricted land and input costs is the minutia.

        @ Mig

        Your neighbour could be buying mate…..who knows, some Chinese dude in Shanghai who’s been told Cobar’s a happening place could be buying (again, sorry Cobar, I’m sure there’s plenty happening).

    • migtronixMEMBER

      ”Some of the public servants and ministerial staff at the meeting were snotty and arrogant, and quite frankly, offensive at times, in my view,”

      Nooooooo!!!! I’m shocked, SHOCKED! I tells youze!
      Ministerial staff snotty and arrogant? Must be practicing for the day they get Knighted 😉

    • I feel bad for Hansen, but surely as an acclaimed urban planner she would know how the game is played (unless she’s mainly practised overseas?).

      The only reason to bring in outsiders is to:

      a) Have them tell you what you want to hear

      and/or

      b) Be seen as effecting change, when really it’s business-as-usual

      What’s the bet the spend on the ‘Melbourne 2050’ marketing campaign was far in excess of the actual budget to consult and plan?

    • Let me tell you, as someone who left Geelong at 0600 this morning for Roxburgh Park and got there at 0750, after a 5kmh dawdle past Point Cook and the Kororoit creek road turnoff, before coming to a dead halt on the western ring road for five minutes while merging traffic from the Calder mingled in, there has been something go amazingly wrong in Melbourne.

      20 years ago I used to think it really was about the most liveable city in the world. These days it has traffic issues to rank with Moscow, and slapping more punters in is just going to add to the gridlock. Someone needs to go back and think it over again.

      • migtronixMEMBER

        Don’t get me started!!! 45 minutes on queens road to get from dorcas to King St. It’s getting truly ridiculous

      • That’s what happens when the population ponzi meets lack of planning/infrastructure. It is also why I am so strongly against high population growth. It reduces living standards when handled poorly (like it is across most of Australia).

      • I talk to many ignorant people who support “growth containment” urban planning BECAUSE they think “everybody else” will live in apartments and catch trains, and traffic congestion will fall, which will benefit a few people like MEEEE who will still continue to use our cars.

        A few cities in the USA where there has been effective opposition to “growth containment” urban planning, have succeeded in getting some intelligent opinion polling publicised, involving questions like: 1) Do you support compact city planning and public transport investments
        2) Do you intend to live in an apartment and stop using your car yourself (and do you expect your children to live in an apartment all their lives) once the policies have been effective?
        Seeing that only about 2% of people answer “yes” to question 2, the policies are dead from the moment the public realises this.

        In fact growth containment urban planning and diverting transport funding to PT, causes increased traffic congestion. It ain’t rocket science.

        The lowest congestion delays are in the USA’s lowest density cities with the most road lane-miles per capita. (BTW LA is the USA’s densest city and near the bottom for road lane miles per capita. Some low density cities that are very fast growing, like Atlanta, also actually lack road lane miles because building them lags population growth – and they have diverted insane amounts of funding to a commuter rail system no-one uses.

      • Mav, the traffic I came up with this morning was from Geelong. The Geelong road was moving at 0600 at 90-100 klm but it was also chock a block for 3-4 lanes. When it got to Werribee (4-5 lanes) it ground to a virtual halt as traffic coming in from Point Cook filtered in. Wen I turned off onto the ring road the Westgate was looking pretty slow.

        I may be wrong, but I don’t see any East-West link doing much about all that traffic. Maybe it will help stuff coming in from the north or east.

        I do know the City of Geelong are pushing as much growth as they can out to the Waurn Ponds Grovedale area at the end of the Melbourne road and that there is a suburb at Armstrongs creek being built and a few others planned to add to the volumes using the Geelong road each day.

      • migtronixMEMBER

        Just came back from getting a coffee on Chapel St (currently at the Alfred doing some work) and walked past 4 apartment developments on the way – the biggest is the semi-hi-rise going up cnr of Commercial rd & Izzet st, but a fairly substantial one at the old Argus hotel.

        Now as it is Prahran is barely navigable because you have to find the thin stretch of tarmac between the cars parked on both sides of the street, wtf is adding another 20,000+ people to Prahran going to do to that? Would on Earth votes this insanity in?

        I’m seriously considering running for Stonnington council or at least turning up to every meeting and blasting them! There is absolutely 0 chance that you can add carrigeway capacity in Prahran 0! Punt rd is already a complete nightmare and its the only way into and out of Prahran. Unbelievable.

      • @MIG,

        Council isn’t your only problem – state government meddling plays a big part.

        Alternative suggestion – stand for office in a relevant state parliament seat. The division of Prahran is somewhat marginal. so you’re in with a chance.

  6. Water treatment plants, sewer systems, effluent treatment plants, energy grid, flood and fire zones, zoning issues i.e. RE vs light industrial and commercial, urban sprawl, schools, hospitals, transportation i.e. the property owner, it wants protection against inharmonious uses in its area, construction criteria [how long will building last – see modern warranties], point scoring – purse lining politicians et al, corridor congestion,

    Surly everyone knows the housing problem is not just a myopic binary supply – demand issue. To top that off what do young people do as their increasingly saddled with student debt and unsure employment prospects [short-termism, relocation, wage compression].

    skippy… all of this in light of the problems evidenced pre and post GFC with loan origination.

    • migtronixMEMBER

      Agreed, loan origination and it’s comprehending arc rising valuation led the govs to abrogate it’s primary duty of infrastructure maintenance and expansion by letting the developer carry the can – and profit! – for that. Pathetic political class grew that only understands rent seeking. Sigh.

      • Mig if an industry has polluted your government with the privatize everything meme… who is the real rent seeker.

        The constant Gov is bad meme is so worn out its not funny anymore, its just an institution, the agency that fills it, is where, your ire should be directed. Just look what 40ish years of neoliberalism [larry, rubin, greenspan et al] did to America ie privatize the gains and socialize the costs – losses. How many property’s did BlackRock get on the cheap to REIT and off load. How many asset revaluations happened over here and owners got calls to pony up the margin or hit road sans your life’s toil. Which then the banks would reevaluate – again – to the upside for asset burnishing.

        skippy… I remember quite a few old boys that knew what was on the wind back in the day and it smelt bad, they punched out, now their just quietly disgusted.

      • migtronixMEMBER

        @skip: dude you seriously mistake – as many on the left do – my take on this; of course its the private interests that have capture every level of government, and for that to have happened of course its the blind and willfully ignorant electorate that has to be flagellated — BUT — corporations are just agencies too! So why can’t government push back? That’s my issue.

      • So why can’t government push back?

        Government can’t push back because they’ve been disempowered. This has occured because the populace has fallen for the ‘gum’int is bad’ meme.

        TBH, it’s an easy sell, when the power base are baby boomers, and you tell them that they are all above-average or even exceptional snowflakes who are budding billionaires if only gum’int would get out of the way.. basically an appeal to their narcissism.

      • Its in Texas i.e. illegal immigration workers, complete lack of environmental concerns, woeful construction standards and regulation, BTW did you see how many towns in Texas have a wee bit of a induced water scarcity problem, drought followed by flash floods, etc.

        skippy…. Now I can see why you provided links to a Dallas Fed party to buttress you assertions per the Housing in a world of infinite demand post.

      • illegal immigration workers, complete lack of environmental concerns, woeful construction standards and regulation,

        As opposed to 457s, complete lack of environmental concerns unless it suits, woeful construction standards and regulation that does not allow you to do anything?

      • Skippy, that is an Australian telling TEXAS it has a problem with drought-flood cycles and we do it better mate, that is the excuse for our repugnantly unaffordable housing compared to yours?!?!?!?!?!?!

    • migtronixMEMBER

      @skip: Not sure why your comment re Chicago School didn’t survive the filter but at any rate they’re just people too! Just agents. There’s nothing particularly clever or world winning about PR/FEE/Thinktanksim/etc so why did they come out on top? That’s the question I grapple with – and I assume its because the boomer are collectively a devolution as it all happened on their watch – but of course can’t say for certain.

      And if you’re not left cool I rescind the charge it just comes across really strongly that way is all…

    • migtronixMEMBER

      Again not sure why your comment got eaten, and I don’t disagree with any of it the Chicago school are lunatics! But why did they win? Why did in the Anglo world’s both parties decided to become funding playthings of big business. Why did we keep electing them back in? How do you address those questions but to me the rub and solutions lie there…

  7. Tracking land prices per square metre is useful to a point, but misses the main supply problem: not enough vacant lots. 400 square metres is still way too big – I’d be very happy to buy a 200 square metre block at half price, but the system doesn’t work that way. (If you think it can’t, you should take a look at the Japanese market. Here land prices in a given suburb are proportional to their size. If you are prepared to live on 100 square metres you will pay half of what your neighbors paid for their 200 square metre block. There is no minimum size that I know of – I’ve seen 50 square metre blocks with stylish 3 level houses – double garage on the bottom, 90 square metres of living space, and a public park across the road. What’s not to like?!)

    • When the supply of land for urban growth is rationed, the allowable density creates site rent.

      Boston has land rationing combined with large section zoning. The result is median multiples of 6 – 7 for predominantly large-lot homes.

      Any city with land rationing combined with higher allowable densities, ends up with exactly the same price homes, only on far smaller lots.

      The land rentier vested interests obviously love upzoning along with rationed land supply even more than they love rationed land supply itself.

    • That’s because the Japanese are stupid! We’re smarterer than them – Half the size for twice the price! What’s not to like?

  8. Nigel Satterly, WA’s biggest land developer was nowhere to be seen on the 2004 BRW Rich List. Forward to 2013 and with Australia’s land mass shrinking (rising sea and population levels) and he now sits comfortably on the list with $310,000,000.00

  9. The growth rates of the land prices across the cities in the same order is:
    10.6% 12.7% 12.9% 4.1%

    Sydney land has barely kept pace with inflation over the 10 year period described.

    The other cities have boomed, maybe bubbled!

  10. Claw, my good mate, you mention Cobar, so why then has the median house price there gone from $91,000 in 2004 to $213,000 in 2014…..a 134 per cent increase?

    Interesting figures. To me this says that Cobar housing was selling at well below build cost in 2004. There was an oversupply of houses probably due to people leaving the town.

    Now price is back to what it should be in a normal healthy growing market without excessive restrictions.

    The reason? Probably the shortage in other places forced people back to Cobar, or a mine might have opened. Why the 134% increase? The change from oversupply to balanced supply at cost of production + fair price for land.

    • Also if 99% of councils were choking supply, causing shortage and high prices and in 1% of places you could find houses available at less than the cost to rebuild then…

      After finding the reason for the low prices and being sure it wasn’t due to a toxic problem or such, it would be a good speculation to buy the cheap houses in the expectation that the shortage elsewhere would eventually force people back to the cheaper area.

      • Of course you can find houses at a cost of less than what it costs to build them, in undistorted markets. This is because depreciation of the value of the structure is greater than appreciation in the value of the site.

        I can remember this being the norm; older fixxer-upper houses in mature suburbs were cheaper than new fringe McMansions. It is the norm in any median-multiple-3 city.

    • Actually there are two mines near Cobar, the CSA copper mine (owned by Glencore Xstrata) and the silver mine owned by Cobar Consolidated Resources. Both have a somewhat chequered history, depending on world prices. The latter has just gone into voluntary administration. The copper mine has just finished a round of redundancies, with Glencore Xstrata announcing no more redundancies but canning expansion plans.

  11. Hugh PavletichMEMBER

    Great article Leith … and well done to the guys at the UDIA !

    We are desperate for affordable land in earthquake struck Christchurch. What does the Clueless City Council do … runs off to the Rockefeller Foundation for “salvation” ! Read this and weep …

    Not PC: Strange Bedfellows: Christchurch Mayor Lianne Dalziel & the Rockefeller Foundation

    http://pc.blogspot.co.nz/2014/03/strange-bedfellows-christchurch-mayor.html

    That’s The Great Inertia Sector Of Government for you !

    http://www.dailymail.co.uk/news/article-1289702/Public-sector-inertia-council-office-employees-month-sickies.html

    Hugh Pavletich
    http://www.PerformanceUrbanPlanning.org

  12. Hugh PavletichMEMBER

    I am very pleased to see the industry people associated with housing finally waking up.

    Sadly it was the HIA that de-railed the housing affordability issue in Australia back 2007 … as I explained with “The Need For Clarity” …

    http://www.demographia.com/p-hia.pdf

    It needs to be pointed out to them the numbers of the lower priced housing stock Governments BAN the construction of in Australia in comparison with Texas.

    Hugh Pavletich
    http://www.PerformanceUrbanPlanning.org