The Melbourne ghost city revealed

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By Leith van Onselen

Prosper Australia has released its annual speculative vacancies report, authored by Catherine Cashmore, which has revealed that parts of Melbourne’s inner-city apartment complexes are becoming ‘ghost towers’, with large numbers of unused or barely used homes.

The report is unique because it uses water use data from Melbourne’s three main metropolitan water retailers to determine whether a home is being used, with very low recordings of water consumption data used as a proxy to determine vacant dwellings.

Speculative Vacancies (SVs) are measured as properties with abnormally low water usage. That is, any residential landholding using less than 50 litres per day (LpD), averaged over a 12 month period is deemed a speculative vacancy. In many cases, these are likely held for speculative gain by property investors.

Because these properties are not for rent, they are overlooked by current short-term vacancy measures reported by real estate firms.

Analysis was undertaken of 94.4% of 1,475,771 residential properties in 393 suburbs over the calendar year of 2013. Data indicates 64,386, or 4.4 per cent of Melbourne’s housing stock is potentially vacant and unused.

An examination of 126,529 non-residential properties in 399 suburbs over the same period identifies 29,357 or 23.2 per cent of Melbourne’s commercial stock is also potentially vacant and unused.

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The breakdown by suburb shows that Docklands in Melbourne’s CBD has the largest proportion of vacant homes, with a whopping 17% of apartments (489 out of 2,883) consuming zero water over the the 2013 calendar year, and 27% using less than the 50LpD threshold. The prime inner city areas of Carlton South, Flemington, West Melbourne, and Abbotsford also have large stocks of vacant homes (see below table).

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The report is particularly blunt in its assessment of Docklands:

[The Docklands] area is one of Australia’s biggest urban renewal projects, housing 5,789 residents (as at 2013) – 6 per cent of the City of Melbourne’s population.

Over 60 per cent of Docklands’ resident’s rent, indicating a large cohort of investor ownership. Thirty per cent of occupants are single person households, while a lack of essential education facilities and a peak in the demographic statistics between the ages of 0-4 indicates many families are forced out as their children approach school age…

The boom in apartment construction in Melbourne city has been done under the premises of improving affordability. However, the median rent a tenant can expect to pay to live in a one-bedroom Docklands’ apartment, is $432 per week, or a two-bedroom apartment, $530 per week.

A blunt measure of housing affordability stipulates a maximum of 30 per cent of income being spent on housing. For a tenant in the Docklands, this would necessitate an after-tax income of over $70,000 just to rent a one bedroom flat – a statistic severely exacerbated by the latent withheld supply…

A better measure of housing affordability is the NATSEM (National Centre for Social and Economic Modelling) barometer of housing stress, which measures people in the lowest 40 per cent of equivalised incomes (income adjusted using equivalence factors to remove the effect of household size and composition) across Australia, who are paying more than 30 per cent of their usual gross weekly income on rent or mortgage repayments.

In this respect, the decline of dwellings for low-income residents across Docklands and the municipality between the census periods of 2001 to 2011 is evident.

In 2001 low rent dwellings suitable for the lowest 40 per cent of incomes in the municipality accounted for 39 per cent of total rental dwellings; by 2011 that proportion had fallen to just 13 per cent – leading to a natural increase in the number of residents crowded into accommodation beyond their means.

The median purchase price for a one-bedroom apartment in this region is $410,000 and for a 2-bedroom apartment $595,000. Considering the units are internally between 60 – 80 square metres in size, when measured by rent or price on a per square metre basis, they are remarkably expensive…

The Docklands has been widely criticised as a planning disaster, lacking soul and the social facilities needed to cater to resident’s needs. However, the bigger disaster is that tracts of valuable urban land are being used for a large proportion of dwellings that are sitting long-term empty and unused – seemingly not for sale, or rent.

The report also explains four key factors inflating apartment costs, which precludes affordable homes from being built:

•  Zoning Laws – Melbourne’s new zoning regulations render a larger percentage of primary neighbourhoods immune from dense development, whilst others have been given the green light. This naturally limits the tight concentration of land where high-density construction can occur and from a micro perspective, escalates the already inflated values in the areas deemed suitable.

•  Construction costs – Development levies and infrastructure contributions are a prerequisite to construction and naturally passed to the buyer in the form of higher prices. Additionally, the physical impediments of building residential towers raises efficiency costs relative to low rise considerably, with increased floor areas required for structural supports, elevators, service ducts and so forth. Albeit, even if building costs were to reduce, there is no guarantee the savings would be passed onto the buyer. Rather, current tax legislation ensures the extra funds would be soaked up in higher land values.

•  Supply elasticity – Most developers currently gain funding offshore , however, financing can require up to 100 per cent debt coverage with projects taking a number of years from concept to ‘lock up’ before supply can filter onto the market – a 3-6 year window not being unusual.

•  Inflated Commissions and Rental Guarantees – Buyers typically purchase the stock through financial intermediaries who receive inflated commissions to achieve necessary presale targets. Meanwhile, investors are commonly ‘lured in’ with rental guarantees that promise a return that exceeds current market yields.

To build a 3-bedroom apartment suited to Melbourne’s biggest demographic – families with children – would therefore not be feasible under a purchase price of at least $700,000.

However, the standard of accommodation is typically low grade. It is not uncommon to find bedrooms and bathrooms lacking external windows and requiring artificial lighting at all hours.

As well as how supply policies on the fringes of the city are politically manufactured to keep prices elevated:

Precinct Structure Plans – Although an area may be zoned for residential development, building cannot commence until a precinct structure plan (PSP) has been completed.

Supply Elasticity – The PSP takes a lengthy 3 to 4 years from start to completion – during which time, speculation builds and land prices naturally increase.

Withheld land within PSPs – Once the process has been finalised however, it does not guarantee housing will be constructed. It is not uncommon for up to 50 per cent of a completed PSP to be held by existing landowners who have no intention of building, and unless they do – are excluded from making contributions toward infrastructure financing. This leaves active buyers paying the passed on premium without receiving the associated amenities for a number of years.

Development Levies – Total development levies and taxes on a house and land package are currently borne by the homebuyer, accounting for upwards of 40 per cent of the final sale price.

Staged Releases – When land is developed, plots are ‘staged’ in limited numbers to ensure a return on profit. This drip feeding is ignored as price manipulation. Additionally, land sizes (not land prices) have been cut to maximise yield.

This combination of factors results in a process of false scarcity, where land values per square metre continue to rise despite an increase in the stock of dwellings.

The motivation behind the process is clear and the system is self-feeding. Property is valued against recent sales with land used as collateral to extend additional debt to new homebuyers who are left shouldering the speculative premium.

Finally, the report recommends fundamental reform of the housing/taxation system to free-up supply and reduce incentives to speculate:

The decline in housing affordability for first-time buyers has been exacerbated by impediments to the release of land for housing. Our current system of taxation compounds the problem by rewarding ‘property barons’ while tax inefficiencies such as developer charges are passed onto the buyer in the form of higher land and housing costs.

This report recommends fundamental reforms which are required to reduce the propensity toward volatile boom and bust land cycles. These are fuelled by speculation and unsustainable levels of household debt.

We submit that these causes would be alleviated or removed if current transaction taxes were replaced with a holding tax levied on the unimproved value of land. The report further advocates how the funds can be raised to aid infrastructure development as well as incentivising housing supply. The housing market must respond in a timely manner to homebuyer rather than speculator demand.

The Speculative Vacancies report will be publicly released on the Prosper website later today. It is well worth reading.

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Comments

  1. A note for Peter Fraser, who suggested the other day that the RBNZ had dropped the LVR rules:
    “Loan to Value Ratios – The Reserve Bank of New Zealand has surprised many in political and banking circles by deciding to leave its high LVR speed limit in place.” Bank economists, Finance Minister Bill English, Prime Minister John Key and real estate agents have all talked up the prospect of an imminent easing or removal of the limit…..”
    Good to see that regardless of their merit, our Governor has a backbone. Good man.

    • Strange Economics

      Great way to do the study – proves they’re empty.
      Or you can just walk around Docklands Melbourne on a weeknight, 50 % of apartments have no lights.

      Docklands apartments are an export industry item for speculation,which has nothing to do with providing affordable housing – Inner city apartments are Victoria’s main export manufacturing industry it would seem.
      Rents are maintained high by drip feeding onto the rental market.

  2. Catherine Cashmore is another important figure on the side of the forces of light.

    I continue to shake my head in disbelief about just how “textbook” the Aussie property bubble is, and how so many people who manifest intelligence in so many other matters, are caught up in the madness.

    Still, it happened in the famous “Land Boom” once before; it is a pity that the establishment found that so embarrassing that it has been a big fat omission from most Australian History books and courses and articles.

    See:

    http://www.macrobusiness.com.au/2013/06/bouris-property-to-boom-for-five-years/#comment-250115

    • Agreed, PhilB. It is an absolute textbook land bubble.

      It exactly fits Hyman Minsky’s definition of Ponzi finance, where loans are so big and yields so low the only way to repay debt is to sell the asset.

      Government shows no interest in reform to zoning, debt or tax. OK. Mr Market will resolve this economic contradiction for us. His methods and tools are quite indiscriminate. Brace yourselves.

  3. Crabb’s response to this was laughable…

    From The Age article:

    Savills national head of research Tony Crabb believes a more likely explanation for current collection of empty homes was travelling retirees and home buyers that were not yet ready to move in.

    However Mr Crabb warned that the vacancy rates would climb in the future if overseas investors were to buy up the majority stake in apartment towers. Some of these foreign buyers may not consider it worthwhile to rent out their Melbourne properties, he said.

    “Sometimes it might be more trouble than it’s worth,” he said. “There is no doubt the vacancy rates will jump in the coming years.”

    Hong Kong is already dealing with a property-hoarding problem, blamed on mainland Chinese investors.

    Mr Crabb said Melbourne City Council should implement substantially higher rates for unoccupied properties. “Basically hurt money,” he said.

    Read more: http://www.theage.com.au/victoria/ghost-tower-warning-for-docklands-after-data-reveals-high-melbourne-home-vacancies-20141111-11kkxz.html#ixzz3Inl2SkIG

      • i met some Docklands retirees at a community forum. Not happy. Their neighbors are largely tenants – noisy fornicating drunken slobs – and body corps are powerless to correct the culture. They are hoping for a price rise to extract themselves. Good luck with that.

        Docklands is a disaster, built for point-of-sale. Remember the endless preening by the Victorian government (both sides) over their wonderful vision of cosmopolitan chic? It didn’t work and we now have endless concrete towers that will be slums.

      • Agree David. Whenever someone ask me about buying a unit aways say only buy in small blocks preferable no more than 4 stories high. These sky scrapers are dog boxes.

      • And funding the elevators through the body corporates will be a nightmare, Byron. They work fine while brand new, but require heavy and expensive maintainance as they age.

        Try carring the week’s groceries up the stairs 12 stories.

        A disaster.

      • Another one of the shortcomings of docklands and a lot of other unit developments is the shortage/expense of car parking. Good luck to retirees getting people to visit them as often as they used to when they lived in a house in the suburbs with free parking.

        BTW, I haven’t seen mention of body corporate fees for these places yet (which is fed by the cost of elevator maintenance).

  4. A bigger problem with Docklands is that it is windswept, treeless and utterly without soul. It represents urban planning failure on a grand scale.

    Who would want to live there? Maybe that is why the vacancy rate is so high.

    • St JacquesMEMBER

      “… it is windswept, treeless and utterly without soul. It represents urban planning failure on a grand scale. ”

      No it’s not. Making it a place people enjoy to live in costs money to create and maintain. If the purpose of the place is primarily to make capital gains or to launder money from China, then it makes complete sense. .

      And Aussie taxpayers are the mugs subsidising these sorts of projects through the tax system. Brilliant.

      • “If the purpose of the place is primarily to make capital gains”

        They will struggle to make capital gains in an area that is unattractive and oversupplied.

        Aside from the terrible planning, the fundamental problem with the Docklands concept is the idea that people will pay big money to live near any water. But the mouth of the Yarra is not exactly Point Piper.

      • St JacquesMEMBER

        It had potential, so long as you took it for what it was rather than confusing it with Pt Piper. Plenty of examples of similar sites around the world being re-developed as enjoyable people places. The early plans for Docklands were full of such intentions. Then successive ministers under pressure from the developers and the desire to pump up the local economy completely ditched the early vision and it all became about speculation and construction. That it is failing on the capital gains side is simply they did not count on the endless growth of sub standard ghost apartments flooding the market. It doesn’t mean that is not what they were originally planned for. The best laid plans of mice and men, you know.

  5. It’s been known for years that about 10% of residential stock sits vacant in Australia, owned by speculators who are waiting for capital gain and cant be bothered with renters (who in Australia are often destructive bogans with a sense of entitlement).

    The kicker here is that many of these smug landlords are claiming big negative gearing losses on the properties, illegally. That’s something I’ve heard from friends of friends. 😯

      • If they are not even bothering to get a tenant in, then presumably it can’t be claimed as a source of income, so its not a loss in income for tax purposes.

      • According to John Edwards of Residex, the negative gearing deduction requires more than just an income, it requires a expectation of making a taxable annual return after a reasonable time.

        http://www.switzerbroker.com.au/broker-news/feature/2014/11/10/expert-warns-investors-over-negative-gearing-laws/

        “Contrary to popular belief, you are not allowed to invest in property and claim negative gearing deductions in all circumstances. There are conditions, and one of these is that you must enter these investments with the expectation of making a taxable annual return at some stage. If you cannot demonstrate that the investment is likely to make an annual gain after a reasonable time, you could be in hot water.”

        Negative gearing is supposed to be a safety net to help cushion genuine losses incurred in making certain investments and to encourage investors, which in turn helps housing supply.

        Although most investors may be unaware, the law does not allow people to buy a property with the express intention of claiming negative gearing benefits just so they can eventually sell it to make a capital gain.

        “That form of trading in property and claiming annual deductions is a potential offence,” says Edwards. “You must enter these investments with a realistic expectation of making a taxable annual profit within a reasonable period. This type of arrangement, while very common, is in fact highly controversial and potentially illegal. Yet very few people are aware of how seriously the law treats this behaviour.”

      • What is a “realistic” expectation? What is a “reasonable” period?

        This sounds like a loophole you could drive a tank through.

      • “This sounds like a loophole you could drive a tank through.”

        And of course that is what is happening now.

        I know of two businesses that were audited and penalised by the ATO because they didn’t have an expectation of generating a profit in a reasonable time. They were basically just tax losses for the husband made on small retail businesses set up only to entertain the wife.

      • What is a “reasonable” period?

        Is 20+ years a reasonable period? Because that’s how long it would take if you begin with 80% gearing on house properties in Sydney and Melbourne.

    • So it goes against any clean green country as well because building is one of the biggest polluters in the world as well.

    • It’s been known for years that about 10% of residential stock sits vacant in Australia, owned by speculators who are waiting for capital gain and cant be bothered with renters

      No. You are parroting a myth. If you read this article, you will see that only 4% of dwellings consume little water over a 12 month period.
      We do not know the owners’ reasons for owning. Perhaps it is for capital gain, perhaps not. I know that it is quite common for elderly people to keep their home vacant for months while they are in hospital or nursing homes. They hope to return, but often never do.

      Also there are an increasing number of very rich boomers who own several investment properties, their own home in a capital city, and perhaps one or two holiday houses and time share arrangements, winnebagos, etc. These elites have retired from city work and spend most of the year away from their city home. This means that their city home, although not originally a holiday house, uses little water and is effectively an unused holiday house for the rich boomers.

      • Rubbish. I have a personal contact in a large state electricity supplier, and I can tell you reliably that about 10% of dwellings, in areas you would consider lower middle class (not places rich boomers would live) are unoccupied (for years) based on power consumption. No, it’s not people in nursing homes, not rich boomers.

        The only myth-believing person here is Claw, who has been spouting the housing shortage nonsense for years, despite all evidence to the contrary! 🙄

      • Rubbish. I have a personal contact in a large state electricity supplier, and I can tell you reliably that about 10% of dwellings, in areas you would consider lower middle class (not places rich boomers would live) are unoccupied (for years) based on power consumption.

        Rubbish to you too. So you expect us to believe that 10% of dwellings use little electricity, but only 4% use little water. This would indicate that 6% of all Australian dwellings are vacant but have seriously leaking taps.

      • The Census has also found about 10% of dwellings are vacant on census night.

        I ask you, if the dwelling is only using enough power to light a single bulb, is it occupied or not? 😆

        People run irrigation systems to keep gardens alive, idiot!

      • You seem to be confused. The 4 per cent figure refers to Melbourne only. The quote you pasted in, said vacancy rates in Australia.

      • The Census has also found about 10% of dwellings are vacant on census night.

        That seems to be normal since the late 1960’s. 99% of car seats are vacant too on Census night. That seems to be normal too.

        You shortage-deniers have no reasonable response to the shortage that is causing high rents for working families.
        You shortage-deniers have no reasonable response to the shortage that is causing high house prices for working families.
        So you shortage-deniers clutch at the nonsense that there is a mystical large supply of housing somewhere just waiting to come into use – and hence there is no need to build any more housing now for the struggling working families.

        I’ve heard it all before, census empties, granny bedrooms, Ireland, Spain, waffle waffle waffle, myth, myth, myth, lie, lie, lie.

      • the shortage that is causing high rents

        How does a shortage of property available to rent mean there can’t be empty property?

      • How does a shortage of property available to rent mean there can’t be empty property?

        It does not. There can be a shortage of available housing and empty property at the same time. Shortage-deniers are the ones making nonsense claims and drawing nonsense conclusions.

    • Mambrino, I remember looking into this whole 10% vacant number reported on the census, and from memory they aren’t specifically trying to define genuinely vacant dwellings, just vacant at the time of the survey, which would include people on holiday, moving house etc.

      Before Prosper started doing their water meter surveys, there doesn’t appear to be any official data on actual vacant dwellings, which as you can see is somewhat lower than 10% in most of those suburbs. While it does indicate there is some potential untapped supply that could be brought onto the market with some changes to tax laws etc, it’s not the massive amount that the 10% census figure would indicate.

      Still it’s good to see this report that confirms suspicions that many of these high rise apartments are being held vacant.

      • 1) Water metering is not as reliable as electricity metering because of irrigation systems

        2) “which would include people on holiday, moving house etc.” … er.. people moving house are staying in another house on census night, as are people on holiday, very often

  6. I’m in one of those top 10 suburbs. A few observations;

    Very large land sizes available and these tend to go to developers, who spend ages sitting on them whilst they obtain development approvals. I’ve seen more than a few who’ve sailed so close to the wind on finance that they struggle to settle on the land, let alone commence any construction. Grand plans, wannabe millionaire visions far greater than depth of pockets. The original dwellings are often unliveable.

    I can identify a number of houses that have sold to foreign buyers (mainly Chinese) and these are rarely occupied.

    We’ve also had the high density four storey, apartment blocks that struggled to sell, a few went to foreign buyers, many were subsequently listed for NRAS and a majority which now sit vacant.

    Being a very high income earner, I’ve been scratching my head since about 2007 at how people hold these things without a direct income, let alone the small margins post development if they can offload (many new developments end up on the rental market, still retained by the developer). I use the term developer loosely (mums and dads).

    • Would be nice to follow up on Gough Whitlams place of birth.

      Sailing close to the wrecking ball, 11th hour intervention, Chinese developer.

      Let’s come back to this specific property in due course and see what happens.

      My guess is “mysterious fire”.

  7. Not just Melbourne, in Sydney also, in fact I can see many from my office window, including very expensive penthouse apartments sitting empty for years.

    Also friends of my parents who live in Breakfast Point said about half the apartments in their area are sitting empty all due to investors.

    Australia is following Vancouver’s pattern, except they also have streets of houses in their suburbs just sitting empty due to the rapacious appetite of Chinese investors.

    • It’s not just the Chinese. Plenty of Aussie investors are sitting on vacant property too. See my comment above.

      • +1. The biggest offender of all is a local.

        “Apartment billionaire Harry Triguboff was surprisingly candid at a lunch held by the American Chamber of Commerce last October.
        He told the audience he was able to pay “very little tax”.
        “I keep a lot of my properties. And if you keep them and there’s capital gain it’s beautiful,” he says “You don’t pay tax. I don’t lease them so I don’t pay tax on the rent, but I get depreciation.”

      • Plenty of Aussie investors are sitting on vacant property too.

        So do you believe that Australian investors are buying property and leaving it vacant and THEREBY CAUSING A SHORTAGE for Australian families who wish to live somewhere?

      • Could someone explain to me why it makes sense for investors to leave places empty thereby giving up both rent and the ability to negatively-gear the property?

      • “Capital gains”

        So you get fewer capitals gains when you rent a place out? Enough to make up the difference from rental income and negative gearing tax deductions?

        “Have you any idea of the mayhem renters can cause?”

        Well yes, I’ve read my share of Herald Sun Horror Stories TM but it seems like there are hundreds of thousands(?) of people who are capable of buying insurance and not having to worry about the mayhem their tenants are causing.

      • Yes. In that sense only you are right.

        So in the sense that it’s pretty much his whole point ? 😀

      • In that sense only, you are right.

        NOT In that sense, only you are right.

        A comma can mean everything sometimes.

    • Strange Economics

      Also developers keep them empty, as they drip feed to the market at high rents. A flood of new apartments would drop the rent (and then the capital value wouldn’t be pumped up anymore).
      The govt in victoria is doing this with the empty apartement block it had to buy at Parkville as the East West tollway will exit past the windows. And asking high rents, and refusing to rent the other 50 apartments. Drip feeding works.
      Incidentally –
      The ads for this laughably say ” Well located for access to the East West tollway). “

    • Rental vacancy rate of 19% according to SQM. I wonder if this is the current hotspot for high pressure house and land investment spruikers? Just like Pt Cook and Tarneit were. They consistently ran >7% vacancy rates as rental places sprouted in masses, only to saturate the market a few years back. Couldn’t give them away. This ‘investment’ industry is huuuuuuge and very persuasive. Plenty of fat commissions being made ala Gold Coast in the 80s.

      I would have thought Truganina and Williams Landing would show similar results, but vacancy rates are low at the moment. Knowing these two very well there are massive levels of foreign buying there, but didn’t think they’d be left vacant as say the inner eastern properties might – different class of foreign buyer.

      • Been to some of the opens in Truganina – you are correct on buyer type. Run into lots of extended families who are building to live there – along with grandparents, maybe an aunt or uncle. Seems like a different country of origin too – visual impression couldn’t be more different from inner east buyers (there is no evidence that the Westgate bridge is marked on Mandarin language maps of Melbourne).

        Quite a different effect on occupancy rates – they might make Janet’s 4.4 mentioned below looks low.

        Can’t be fun to try to get to the Princes Fwy of a weekday morning, though.

      • ‘Can’t be fun to try to get to the Princes Fwy of a weekday morning, though’

        That’s my number 1 peeve with all this. The Developers all promise to make good on local infrastructure, but I don’t see train lines extended, the Princes Fwy or Western Ring Roads widened. Heck, even these schools they promise rarely materialise.

      • Agree, but for a Truganinan I think widening the freeway would be far less of a concern than adding new ways to get to it, or at least extra lanes to the existing ways. Those roads are shocking, and make the Princes feel like a traffic free autobahn.

      • That SQM 19% VR is on very low rental numbers (maybe only 20/100 houses).

        The waterusage 46% is on over 1200 dwellings. (lots of new empty houses?)

        Maybe LC or DC could give some explanation.

  8. and I dont know anywhere else in the world where you have world class shopping (harbourtown), world class innovative business headquarters (ANZ, NAB), world class atractions (the wheel thing), and world class culture (the John Farnham statue).

  9. but seriously, why dont they build stuf that families might actually want to live in – why is it mansions on the fringes or townhouses / apartments in the middle. 300sqm metres of land is enough to allow:
    – open plan living area downstairs including kitchen/laundry/ bathrrom
    – 3 bedrooms, bathroom and study upstairs
    – a reasonable sized back yard ASSUMING there is ONE small carport and the place is built close enough to the road.
    – you could even put a third story on if you like. perhaps an open area with a plunge pool

    i would consider docklands if this was provided, and if others do as well then you can build community. It seems we build deliberately the wrong stuff so as to stifle choice and push up prices in established areas. A great shame.

    • darklydrawlMEMBER

      Oh.. and Schools too. If you have young children the Docklands is a wasteland for family friendly facilities.

      Google “primary schools in docklands” and see what a great range of choices (not!) there is.

      • darklydrawlMEMBER

        True enough, but it would take a stupid amout of time to travel from Docklands to South Melbourne in either a car or public transit in peak school drop off / pick up times.

        There are options north as well, but none of them are great and you are assuming that these ‘out of district’ schools have the space for more students…

        hmmmm…

      • Not enough primary school places in SMelbourne either. Currently 40% over current capacity according to friends who have wait listed their 1 yr old at all available primary schools in S Melbourne area. They may have to go to Elwood to get a place.

  10. Having worked in conjunction with some of the biggest developers in my town w/ contacts internationally, the game was to get title on all the distressed lots within a radius of any CBD. Per say the old wool sheds, antiquated 3 or 4 story office – general purpose dwellings, et al.

    Next you either demolished them and put up temp parking via sub contract [cash flow] or just sit on it as depreciating asset.

    Finally you wait for the wave that has been trailing around the planet, for some decades, to arrive, then start paddling i.e. sell at massive profit or develop other peoples money.

    In this town alone one man owned the mass majority of said property, took some time to accumulate since the 80s. Conversely you had the Canadian that took an inheritance and did the whole waterfront warehouse conversion back home. Then went scouting internationally to replicate the process, a la Teneriffe or more RE like Portside.

    The problem being with such activity’s is the Venturi like effect, a small amount of sector input can have a large multiplier effect, which then creates knock-on multiverses in other sectors. Although when the original air supply is negatively effected, the effect is felt through the entire multiverse matrix. That is unless one of the new verses can replace the originator, because the originator has now left that verse to find a new proto verse.

    Skippy…. because da free markets…

  11. And hot on the heels of the RBNZ keeping the LVR caps in place we get:
    “The Reserve Bank is considering introducing an income based rule rather than a set number of properties per investor as it strives to make banks hold more capital against loans to rental property investors. The Reserve Bank has delayed plans to introduce rules whereby banks would have to hold more capital to support mortgages to rental property investors with five or more properties.”

  12. Catherine /David – why do you argue that tax incidence is on the buyer? I thought previously you’ve recognized that it’s on the vendor since prices are at capacity to pay.

  13. Data indicates 64,386, or 4.4 per cent of Melbourne’s housing stock is potentially vacant and unused.

    My calculator has a flat battery. Can someone please help me out here? If we have 64,000 unused dwellings, and 300,000 immigrants per year, then if we forced these dwellings into use, how many months worth of immigrants could we supply with dwellings?

    • I can see where you’re heading with this. Not enough supply to house people means that house prices and rents go up until supply goes up to meet the equilibrium. Same argument is being used across the Tasman as Kiwis return from Australia in record numbers because the economic opportunities are greater in their homeland.

      Which raises the question: Where are all the economic opportunities for the non-Kiwi immigrants into Australia? Surely those economic opportunities are the source of income for driving property values and rents higher.

      Something to ponder there Claw.

    • 300,000 immigrants across the entire nation. That 64,000 figure is Melbourne only. Last time I looked tradies were still flat out adding new stock into the equation aswell. I’ve mentored Arts graduates who could come up with better logic than that.

      • I never questioned the numbers, but the point still remains, the assumption is that migration drives house prices and rents because there is a never-ending flow of finance to enable them to purchase property or pay higher rents.

        All I am doing is throwing another variable into a simplistic supply-demand model.

      • But if those empty apartments are not for sale or rent, then it does put pressure on the available properties. If it doesn’t, then the government’s response will be to increase immigration until it does place pressure. Or sell more to foreign investors. Gotta keep that bubble inflating!

      • 300,000 immigrants across the entire nation. That 64,000 figure is Melbourne only. Last time I looked tradies were still flat out adding new stock into the equation aswell. I’ve mentored Arts graduates who could come up with better logic than that.

        I’ll keep it simple for you then.

        Australian population growth = 2%.
        Claimed speculative vacant dwellings = 4%

        That is 2% extra people per year, each and every year, and there is a ONCE-OFF 4% dwellings that are THEORETICALLY available ONCE to solve the housing shortage that shortage-deniers claim does not exist.

        Do you see the problem? If not, go ask an arts student.

      • 300,000 immigrants across the entire nation. That 64,000 figure is Melbourne only.

        Point taken, but I’d be surprised if less than 50% of immigrants settled somewhere else other than Sydney or Melbourne.

      • I wouldn’t dare claim to know how many immigrants should be placed into each dwelling. Only Cameron Murray knows the true figure. We truly are blessed to have people such as Cam around to tell us how we should live our lives down to the finest detail.
        You’re a blessing too Mig.

      • I don’t know what your dwelling ratio is, but in Auckland it’s about 2.53 per dwelling ( ~1.25 mio of them into ~500k dwellings), and just a rise to 3 people per dwelling would put an extra ~83,000 empty properties on the dwelling market…..Noting 40 years ago Auckland’s dwelling ratio was well over 4!
        As a household that has just gone back to 3 ( eldest daughter has landed back on us!) re-densification is happening this very day….

      • Never argue with Claw.

        “Never approach a bull from the front, a horse from the rear, or a fool from any direction.”

      • just a rise to 3 people per dwelling would put an extra ~83,000 empty properties on the dwelling market…..Noting 40 years ago Auckland’s dwelling ratio was well over 4!

        Wow! Perhaps you should pass a law that every young adult female must produce 3 or 4 children (as was common 40 years ago). That should raise the people:dwelling ratio back to what it was 40 years ago. Also ban divorce and force anyone over 70 to live with relatives.

      • Never argue with Claw.
        “Never approach a bull from the front, a horse from the rear, or a fool from any direction.”

        As I have said before:
        When their nonsense is called-out, shortage-deniers will often turn to personal abuse.

      • Its irrelevant how many children any family has now or then! It’s that 4.4 was, and still is, possible in relative comfort. Sure today New Zealanders are replicating at about 1.8 children per woman, but that makes for even more re-densification as time goes on. There’ll be less adults coming through whatever pipeline there is, and sure as eggs, not all of them will savor living alone! That, by the way, goes for the aging. Ask your singleton parents/grandparents if they like living alone- they don’t! And they…are setting the pace of re-densification – either back as new couples or…tada …retirement homes – that themselves are pretty dense!

      • That’s right J but it doesn’t matter Claw wants all the world to be spivs and get the dwelling density down to 0.05, only then will the shortage (of funds in his pocket) be alleviated…

      • Ask your singleton parents/grandparents if they like living alone- they don’t! And they…are setting the pace of re-densification – either back as new couples or…tada …retirement homes

        I thought I’d heard them all.
        So now we don’t have to build sufficient housing for young people to keep the price and rent down. We just need to wait for Granny to re-marry. (Is that what happened in Ireland and Spain?)

      • Why don’t you tell us how many dwellings we need before they become affordable Claw. I’ll put in for calc batteries…

      • Nope. Ireland and Spain had a delusion that” property prices rise forever!” and built anything, anywhere. There’s supply for you, and look what happened.
        But to the point – demographics are changing in a very easy to see way. Back in the 60’s The Pill etc changed our reproductive choices and in effect ‘robbed’ most developed nations of their next generation – it was delayed by one, then two. Time was when a 31 y.o. had a 13 y.o. child; then a 41 y.o. had a 14 y.o child. Today it’s not uncommon for a 61 y.o. man to have a 16 y.o. child. Women tend to cut off at 51 and 15. All round number, I know. But what’s coming about us, and has been for at least 10 years, is – less young and more old. We see and read about it every day as the ‘missing’ generations fail to come through. One way or another, it’s not about ‘granny dying off’ it’s about who lives where, with whom. And as I suggest, more aging will live together for companionship and support, and more young will live together for financial and social support etc.
        My view is one you well know. It’s not that we have a shortage of dwellings as such, but a shortage of affordable ones. If push comes to shove and the GFC Marks 2 & 3 hit, I’ll suggest we’ll see 4.4 again in my lifetime!

      • In certain age groups *cough” under 30, you’ll easily find 4 ratio. Grandma never had it so good and yet it’s all Claw can cry about.

      • The sooner all the “shortage of available housing” deniers win their war of bedroom liberation, the better it will be for everyone.

        Like the breaking of a drought when cool rain falls the working families of Australia shall be able to rush about renting or buying all the ‘vacant’ bedrooms that are filling the postcodes of Australia.

        It is just a shame that they insist that everyone suffer until they acheive what they have failed dismally to do to date – persuade policy makers to break the locks on the musty stockpiles of empty bed rooms.

        Sensible people, which clearly are in short supply on this thread, might suggest that we should not discourage, with red tape and restrictions and first user loaded costs, people from building more housing while the Bedroom Liberation Army grind away for their final victory over bedrooms that are surplus to requirements.

      • persuade policy makers to break the locks on the musty stockpiles of empty bed rooms.

        No one wants that! We need thousands of acres in leafy suburbs close to work to be occupied by geriatrics who are afraid to leave the front door…

        And we should totally live 4 hours bus (h/t Pfh) ride from work so we can paid the “affordable” housing which will allow us to keep paying the pensions to the geriatrics who live 5 minutes walk from a job half of them never did in their entire lives.

    • I see that you’re not really interested in what I’m saying Claw. Surely it’s a fundamental issue to address in your argument.

      • I’m not sure what you want.
        The ability to borrow large amounts of money is crucial to supporting high prices. I’ve never denied this.

    • Melbourne’s pop growth is just under 90k p.a., including natural increase.

      2.5 occupancy is pretty reasonable, so 1.8 years.

      The current construction pipeline is putting enough dwellings that gives a lower occupancy ratio, so there’s not much reason to expect that the 64k odd dwellings will be packed to the rafters with folks fresh from the boat in the near future, unless Mr Napthine can engineer an employment boom that makes Victoria the place to be for people looking for a new life.

    • Friend who’s had a look in those ‘Central Park’ apartments commented they were pretty small, especially given the price. Something like 80-90% have been sold to foreign buyers.

      The “greenness” of the Central park tower linked to in the article is really only superficial, it’s supported by a complex plumbing system, and quite intensive maintenance (They block off the footpath at the front every morning whilst the gardeners do their thing – hate to be paying the strata levies on that). The cantilevered mirrors were put in to compensate for the loss of solar access caused by making the building taller and wider than would have otherwise been allowed. Which gives you an idea how profitable the building must be for such an exotic solution to be cost effective.

      To me it’s a real shame the proposals to re-purpose the existing old heritage CUB buildings were overruled by the state govt. They would have had far more character than the monsters that have gone up. Not as profitable, but better places to live and be around in future.

      I think the only reason Sydney apartments are any better than Melbourne’s is the councils have been stricter with minimum standards, nothing to do with the goodwill of the developers.

      • Jake GittesMEMBER

        @ hamish Quite true. The old brewery had character and the smell of hops on Thursdays wafted across the neighboring streets. The area around Redfern/Alexandria is being turned into drab hideous apartment ghettos. The designs all look as if sourced from some Danish architect in the 1980s. The areas move from active light industrial to dead urban zones where there are the same cafes and wood oven pizza shops and another Thai noodle bar.

      • Jake, I should also mention that it, along with big new UTS Borg cube and the existing UTS tower across the road, has turned that patch of Broadway into a real wind-tunnel in all but the lightest of breezes.

  14. Only Australian Real Estate Spruiks, their Financiers and Developers would be talented enough to create a ghost city in a city of over 4 million people. Well done, you guys and gals truly are world class and probably Best in Class. Standout performance.

  15. I live in number 18 on the list – KIngsville. You can see vacant homes there just by walking around. Process seems to be older people move out – to retirement village above or below ground – decision making inertia sets in. After many months, rellos put on market, inverstor buys, and dicks around for at least a year to fiddle with renovations or themselves, and maybe put it out to rent, where it leases after a month or two.

    West Footscray is next door, and has been a similar story for at least a decade (lived there around that time)

    Gentrification going on at a fraction of the speed of a glacier.

    • StatSailor:
      Process seems to be older people move out – to retirement village above or below ground – decision making inertia sets in. After many months, rellos put on market, inverstor buys, and dicks around for at least a year to fiddle with renovations or themselves, and maybe put it out to rent, where it leases after a month or two.

      Mambarino says:
      It’s been known for years that about 10% of residential stock sits vacant in Australia, owned by speculators who are waiting for capital gain and cant be bothered with renters (who in Australia are often destructive bogans with a sense of entitlement).

      Who should I believe? The reasonable comment, or the bogan-bashing SD?

      • I might add that part of the effect of the process is that houses occupied by one or two people are ultimately occupied by 3 to 5 people (the bedrooms are liberating themselves!)

    • “Gentrification going on at a fraction of the speed of a glacier.”

      I find gentrification to be a most offensive term. There is nothing gentrified about new money and nothing ungentrified about the existing residents.

      Its a stupid marketing term to make you feel superior for taking on a truckload of debt to follow your demographic herd into an established suburb as the long time residents shuffle off.

      Been a resident of Northcote/Thornbury for 9 years and have seen the hipster invasion displacing the eldery Greeks. Eventually I was displaced and I’m smack bang in the “it” demographic – Anglo, >$100k income, no debt etc. But eventually as the auction prices defy sense and the asking prices on rents don’t add up one decides to move.

      No signs of “gentrification” in Coburg or Brunswick. Just old wogs living their lives, middle Oz getting up and going to work, plenty of students keeping the place fresh.

      • Fair cop.

        Intended meaning almost purely around ‘generational changing of the guard’, class aspect associated with g-word not intended (or necessarily observed)

      • Yeah, the term “gentrification” really applies to a much earlier phase of urban evolution, that is, the point where the city centre was where most poor people lived at high density, but a gradual flip-over begins whereby the city centre is redeveloped for higher-income residents. The redevelopments are never affordable for the poorer people who lived in the primitive and run-down high-density accommodation previously.

        We really need new terms like “yuppification” to describe changes in neighbourhood character that are not the “moving on” of poorer people. The suburb where I grew up is definitely now a preserve of the wealthy only, but it would be wrong to describe it as having “gentrified”. It always was “leafy, middle class”, and the really poor folk actually lived closer to the CBD. It is those innermost locations that have “gentrified” and are even more expensive now than the quite-expensive-enough suburb where I grew up.

        The poorer folk now tend to be ghetto-ised in suburban “public” housing 20+ miles further out.

      • Yeah, well, process here seems to most often involve old long retired factory workers and tradies are replaced by younger tradies (there are virtually no young factory workers any more). There is an exceptionally wanky gourmet supermarket, though.

        Always thought ‘moving on of poor people’ was an essential element of ‘yuppification’.