The Melbourne ghost city revealed

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. Average per capita water usage in Melbourne over 2014 was 160LpD.

In many cases, these are likely held for speculative gain by property investors. And 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 1,707,140 residential properties across 254 postcodes over the calendar year 2014, with data sourced from Melbourne’s three main metropolitan water retailers, City West Water (CWW), South East Water (SEW), and Yarra Valley Water (YVW), who made their data available for this report.

Data indicates that 82,724, or 4.8% of Melbourne’s total housing stock appeared to be vacant over 2014, having consumed less than 50LpD. No water was consumed in 24,872 (1.5%) dwellings – therefore being demonstrably unoccupied.

ScreenHunter_10830 Dec. 08 17.06

If just those residential properties consuming 0LpD were placed onto the market for rent, this would increase Melbourne’s actual vacancy rate to 8.3%. Moreover, if 82,724 properties using under 50LpD were advertised for rent, the vacancy rate could rise to an alarming 18.9%.

An examination of 130,610 non-residential properties across 254 postcodes over the same period identifies 7,941 or 6.1% of Melbourne’s commercial stock was also vacant over 2014, that is having consumed 0LpD.

ScreenHunter_10831 Dec. 08 17.06

Mirroring the trend in previous reports, a large proportion of speculative vacancies can be found in the City of Melbourne and its immediate surrounds.

The breakdown by suburb shows that Carlton/Carlton South, Docklands in Melbourne’s CBD, and Abbottsford have the largest proportion of vacant homes, with a whopping 7.6%, 6.7% and 6.7% of homes respectively consuming zero water over the the 2014 calendar year, and around 15% using less than the 50LpD threshold (see below table).

ScreenHunter_10832 Dec. 08 17.08
ScreenHunter_10833 Dec. 08 17.08

By contrast, the outer suburbs top commercial SVs (see below table).

ScreenHunter_10834 Dec. 08 17.14

The report likens the SV rate to the unemployment rate for land. If there were an 11% unemployment rate in a municipality, politicians would be under substantial pressure to rectify the situation. Yet in an alleged housing supply crisis these empty dwellings are largely ignored.

Vacant properties impose a needless economic burden, and residents and businesses are thereby forced to leapfrog vacancies to lesser sites at great cost, increasing commuting times and placing upward pressure on prices.

Moreover, latent supply is usually not visible without a significant downturn in economic activity. If withheld stock were put to use, it would reduce cost-of-living pressures for tens of thousands of low and middle-income families and businesses marginalised by the cost of land.

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

Zoning Laws – “Plan Melbourne’s” zoning regulations sterilise a large percentage of primary neighborhoods from dense development. “Neighbourhood Residential Zones” (NRZs) are spread across many affluent suburbs, restricting development to dual subdivisions of no more than two stories. Additional design constraints enforced by some municipalities add to the complexity of the system – extending the time it takes for developers to gain planning approval.

In the limited areas where high-density development is permitted, story plus apartment blocks have been densely packed into streets where family homes previously dominated. This tightly limits land supply where high-density construction is possible and further elevates the already inflated values in the areas deemed suitable.

Construction costs – Development levies and lumpy 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. Even if building costs were to reduce, the value would simply devolve to higher land prices.

Supply elasticity – Many developers currently gain funding offshore. However, financing can require up to 100 per cent debt coverage from pre sales. Projects take a number of years from concept to ‘lock up’ before supply can filter onto the market – a 3-6 year window not being unusual. Hence, supply cannot immediately cater to increased demand.

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

It also notes 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, it does not guarantee housing will be constructed. For example, upwards of 50 per cent of a completed PSP can be held by existing landowners who have no intention of building, and until they do are excluded from making contributions toward infrastructure financing. This leaves active buyers paying the passed on premium without receiving the associated amenities – perhaps for years.

Development Levies – Total development levies and taxes on a house and land package can be partially passed onto the home buyer, in the form of higher prices. This would be alleviated by the infrastructure financing reforms in the recommendations of this report.

Staged Releases – When land is developed, plots are released onto the market in limited numbers to ensure supply does not exceed demand and owners receive a healthy return on profit. The drip-feeding is a form of price manipulation – ignored by State Government. In the process, land sizes (not land prices) are cut to maximise yield.

As a result, Melbourne is building the wrong type of housing:

The type of housing Melbourne is crying out for is accommodation suited to our biggest buyer demographic – families with children. However, with unit construction outpacing housing construction by a significant margin, it’s clear we have an over supply of poor quality dwellings and SVs that will not become visible until an economic crisis hits.

This trend of widespread vacancies is also noticeable in Europe. In Spain for example, 15 per cent of the dwelling stock is permanently vacant.

Studies have labelled it the ‘Mediterranean Paradox’ in which high vacancy rates and high house prices go hand in hand. As with Australia, dwellings are constructed and bought for speculation rather than housing need. With a large proportion of the new housing stock left unoccupied, increases in housing construction have not produced the expected surge in supply to aid future demand.

Finally, the report notes the damage caused by supply-side barriers:

Land banking is an especially damaging form of rent-seeking. Urban growth boundaries reduce contestability and the ability of competition (or the threat of competition) to hold down prices. They effectively allow oligopolistic returns by conferring market power upon landowners who reap the gains they did not sow.

The only statistic that matters for affordability is the volume of vacant land current owners plan to release onto market in the immediate future.

Under current policy, large developers have every incentive to drip-feed sites onto the market to keep prices elevated.

The process results in a type of ‘preventative speculation.’ Developers buy large land banks in advance of rezoning to protect and increase their profit margins.

There is no incentive to release this land in Victoria. The previous Victorian Planning Minister Matthew Guy issued a blanket exemption from State Land Tax for all land within Melbourne’s Urban Growth Boundary, even ‘shovel ready’ land in completed Precinct Structure Zones.

The huge economic burden is borne by citizens of modest means who are obliged to take on a greater proportion of mortgage debt for fringe land that should be dirt-cheap.

Families with children are Melbourne’s biggest demographic. They require inexpensive well-facilitated family housing, not high-density apartment blocks with thousands upon thousands of SVs.

Needless to say, with a broad based land value tax, holding land off market would be unprofitable. Land hoarding would be discouraged, and there would be little advantage in land-banking large volumes in advance of development.

It also recommends fundamental reform of the housing/taxation system to help free-up supply and reduce incentives to speculate:

Current property taxes discourage investment into new housing, inflate the cost of land, stagnate housing turnover and hinder putting property to its highest and best use.

The report advocates that profound inefficiencies could be significantly alleviated if current transaction taxes were phased out and replaced with a holding tax levied on the unimproved value of land, alongside enhanced infrastructure financing methods for new developments.

The Speculative Vacancies report can be downloaded from the Prosper website. It is well worth reading.

[email protected]

Unconventional Economist


  1. Great report!

    How many new apartments are coming online in the next 2 years?

    If just those residential properties consuming 0LpD were placed onto the market for rent, this would increase Melbourne’s actual vacancy rate to 8.3%. Moreover, if 82,724 properties using under 50LpD were advertised for rent, the vacancy rate could rise to an alarming 18.9%.

    ……absolutely incredible. A once great place to live has been rogered on behalf of the need to support RE speculation.

    • Indeed Gunna, what a privilege to grow up in Blackburn new house one income through late 60’s and 70’s.

      I detected the slide in the quality of life Melbourne could deliver 20 years ago and left more than 15 years ago.

      Now I dread even visiting as its disappoints at so many levels, although I like to watch The Mighty Hawks at the MCG and I still have family there.

    • Strange Economics

      Or just go to Docklands at 9 at night. Hardly any lights on in the apartment buildings.
      Empty investment apartments for speculation and export, not for living.
      Apartment building has nothing to do with housing people.

      • Prosper got the Sydney data, Stomper, but could not use it. Many Sydney apartment blocks have a single water meter which disguises vacancies. Melbourne, after repeated droughts, has obliged all new dwellings and major re-fits to be separately metered since the mid-1980’s and the number of single metered multi-family buildings is now quite low.

      • Even if it can’t be done for apartments in Sydney, why not still do it for houses? That would be interesting enough in itself.

  2. Living in these was always a side issue. The aim was to sell the Aussie dream to some poor fucker in Suburban Beijing or Shanghai….developer paid, pollies bought off, shit box built, job done…no one gives a rats arse if anyone actually lives there

  3. You wouldn’t catch me living in many parts of 3000.

    Up to 50 large buildings in Melbourne’s central city could have flammable cladding, putting them at a higher fire risk, the Metropolitan Fire Brigade says.

    It comes as the brigade questions the performance of Victoria’s building regulator, saying the response to the Lacrosse fire has been “painfully slow” and warning that residents who remain in the Docklands tower ravaged by a furious blaze are “at risk”.

    More than a year after the high-rise fire jumped 13 storeys in as few as 10 minutes, the combustible cladding that fuelled the incident remains on the walls and the Victorian Building Authority (VBA) is yet to prosecute any of the building practitioners involved in the project.

  4. Single person households won’t be able to achieve 50 litres per day? How much does a shower take?

    • reusachtigeMEMBER

      Exactly! 50 litres is rubbish. Just a propaganda figure by the don’t buy now dude. As an always single chap I shower every few days and only more regularly when I have vistors, if you know what I mean. And I don’t drink water, just Penfolds Grange.

    • Josh MoorreesMEMBER

      I”m a single household who consistently uses about 50% of the power/water than the the ‘standard one person household’ on my bills and I use 110 Lpd which I was surprised at since I don’t really conserve anything except that I have a water saver shower head. SO I would say 50 Lpd is probably a reasonable threshold.

      Consider that during the drought back in 2007 or so in QLD the most severe water restrictions were targeting 130 Lpd per person.

    • Single person households won’t be able to achieve 50 litres per day? How much does a shower take?

      7-10L/min if you have one of those horrible water saving showerheads. Anything up to 30L/min if you have one you can enjoy standing under.

  5. “There is no incentive to release this land in Victoria. The previous Victorian Planning Minister Matthew Guy issued a blanket exemption from State Land Tax for all land within Melbourne’s Urban Growth Boundary, even ‘shovel ready’ land in completed Precinct Structure Zones.”

    Is the this the same wonderful Mr Guy some writers on here are so very fond of?

    • Mining BoganMEMBER

      Methinks that Mr Guy may have caught wind of what the ATO is up to and is quickly distancing himself from earlier poor, poor decisions.

      Poo, meet fan.

    • What really bothers me about Mr. Guy is that it appears that he is working for the developers but the public pays his salary. So it is lose-lose for the people of Victoria.

  6. How do they know that the properties are not available for rent? I’m not sure how that was matched into the data to make this conclusion.
    “If just those residential properties consuming 0LpD were placed onto the market for rent, this would increase Melbourne’s actual vacancy rate to 8.3%. Moreover, if 82,724 properties using under 50LpD were advertised for rent, the vacancy rate could rise to an alarming 18.9%.”

    • Read the report, Matthew. A dwelling that uses no more water than a dripping tap for 12 months is demonstrably vacant. A landowner wishing to rent their property would not let it sit vacant for that length of time. They are pursuing a different investment strategy, hence Speculative Vacancies.

    • Actually I was a little surprised to find that the vacancy rate for Southbank on SQM is 5.2%. So a lot of these apartments there seemingly are being advertised (though no one seems all that interested)

      Docklands meanwhile is 3.4%, so if they’ve found an 8% SVR there, they’re not being advertised a lot of the time.

      • The SQM data is advertised vacancies as a proportion of the rental pool. Very useful metric for analysing rental pressures, of limited utility when examining overall physical vacancies.

      • DC,

        My surprise was that it matched as well as it did.

        Another example, SQM has the same vacancy rate as Prosper for Abbotsford 3067, 6.7% (massive supply dropped on the market in the last two years, simply not going anywhere)

      • vacant houses converted to marijuana production, have massive electrical usage (hence lots of fires) and I suppose elevated water usage too. I’m not sure if the cops are free to monitor this sort of usage, suspect not.

      • The cops don’t per se but people have been caught after electricity companies alerted them to strange usage patterns.
        (tip for beginners: If you’re going to do this, ensure above all else that you pay your bill on time. Never, never, never try to bypass the metre by tapping directly from the powerlines. Do the second one, cops will be around the next day)

    • It’s seems a ieast plausible that you might need water in a grow house.
      And, as I understand it, more electricity than even a large family would use.

    • Just how many “Grow Houses” do you think there are? Surely not very common. <1% of all housing I'm sure?

  7. I walk from North melbourne to south melbourne everyday and everyday I’m astonished at the number of apartment high rises being built also the number that are being built by chinese firms.

    There would have to be +20, with one taking up the whole city block and another four being built next to it. They are everywhere, it’s full on.

    And it’s going to end i tears.

  8. It would be an interesting experiment for the govt to create a new small city in a good location on the coast and to build a variety of housing types:
    1) Highrise dogbox
    2) Highrise family size units
    3) Tighty packed highrise
    4) Highrise with open space
    5) lowrise duplex style with tiny gardens
    6) traditional 1/8 acre blocks
    7) Older style 1/4 acre blocks
    8) faux-rural 5 acre blocks
    9) caravan park dwellings

    then offer these dwellings to working families who can get a free caravan park dwelling or must bid a % of salary to live in one of the other style dwellings.

    It would be interesting to see what style of dwelling hard working Australian families actually prefer to live in!

    • Well depends on your view. Personal example here. Wife and I chose to live in a 2br unit 130sq 2km from both our work places.

      Her parents think we’re crazy. She lives in a 5 bedroom mansion wtih her husband and two cats… That’s 4 spare bedrooms…

      We can afford a house in the suburbs but it ain’t for us. Don’t like mowing the lawn…

      • I hate mowing lawns also, but I do like having a yard and a big dog and a garage. So 1/4 acre block is my preference, but a small house on it. In fact I could give up half the land and still be happy. My ideal living arrangement would be a small sized warehouse conversion. With a workshop / creative space downstairs and living quarters upstairs and maybe a roof top garden.

      • “Well depends on your view. Personal example here. Wife and I chose to live in a 2br unit 130sq 2km from both our work places.”
        That’s a “large” unit for 2 Br — When living in Melb 2 yrs ago noticed that new built units of 2 Br were often only 75 sqm which is really shoebox. Yuk.

  9. This sentence is problematic in a market where a lot of new supply is becoming available:

    ” That is, any residential landholding using less than 50 litres per day (LpD), averaged over a 12 month period is deemed a speculative vacancy. ”

    My emphasis – they seem to just take the raw consumption and divide by the number of days in a year.

    Taken at face value it looks like they don’t adjust for when a house may have been under construction for part of the year.
    Even if they did account for that problem, and counted from when the place was hooked up to the mains, if a place was connected to water in Sept/Oct/Nov, even a few weeks delay in the occupant moving in would throw the figures out, so I strongly suspect that less than 82k places were vacant on 31st December 2014

    I also note in my area, it is very common to see houses being renovated for several months during the year,before being returned to circulation. These would also skew the numbers somewhat.

    Not saying that there aren’t a lot of vacant places, well in excess of the number advertised, but some caution is needed in estimating how many of the ones that used a small but non-zero amount of water are really vacant.

    • Only houses connected to a water meter for a continuous 12 months are considered in the data. The cohort you describe, and there is plenty of those, are excluded.

      • Thank you.
        The report authors should probably make the statement ‘houses not connected to a metre for the full twelve months are excluded’ part of the version of the report on the website.

        If supply <12 months old is excluded, of course, in a period of strong constuction activity, the data is likely to underestimate the vacancy rate somewhat, new dwellings being logically more likely to be empty (someone has to move into them), especially in suburbs known to have significant concentrations of new builds.

  10. Many investors don’t want troublesome tenants and don’t need the cashflow. Some are convinced that after taking into acount all costs of maintenance, depreciation, damage, default etc there is virtually no reward for leasing them.
    Every house and unit constructed makes a positive contribution to employment not only to construction but right through the supplier chain so they contribute mightily to the economy. Even better if they have been sold to a foreign investor. It’s like exporting a Commodore made with Australian steel but without having to actually deliver it overseas! An analysis that fails to look at both the positives and negatives is either unimaginative, ideological or incompetent. That said, the methodology of trying to determine which properties are vacant is worthwhile and imaginative. But 50L/d is not vacant, it’s a single person who is frugal or away a lot or has a country home (perhaps their family’s home) or faces a long commute. Intersting read.

    • Explorer, Please consider the zero litre per day measure in the report, if you prefer. 50 lpd is still a robust measure – less than one quick shower and one flush a day. The example you cite of someone with a city pad and country residence who studiously uses that little water would be very rare. It is really, really hard to get it down that low. Offsetting this special case would be vacant houses with a slowly dripping tap or leaking pipe, which, unfortunately, are not identified in this survey.

      I agree that a dwelling sold overseas is a useful export. The point is, the unit is counted as adding to housing supply when it doesn’t.

      Prosper wants tax reform – to reduce labour and capital taxes and use instead land and resource taxes – to tax economic rents. The current tax regime encourages land vagrancy, at least to the extent shown here.

    • “Some are convinced that after taking into acount all costs of maintenance, depreciation, damage, default etc there is virtually no reward for leasing them.”

      If that’s not a clear statement on just how screwed up our property market is, I don’t know what would be.

      • @ Sporron Who I may work for is irrelevant to the integrity and correctness or otherwise of my comments. Is the best you can do is cast dispersions? do you have a viewpoint and some data or anecdotal observations to back it up? But not a minute is the answer to your question.
        @ David Collyer. You may actually be right for a while now with your “don’t buy now”, but have been wrong for 4 years at huge opportunity cost!

  11. Speaking with a guy in manufacturing on the weekend. Said house build quality is 20 years behind the standards in Germany. He’s moving back there next year for family reasons but said he’d build to German standards here if he returned – the build quality in Oz is utter shite.

    This should be as big of an issue as house prices. It means heating/cooling costs more, maintenance costs more, and houses won’t last as long.

    • We’re 20 years behind our own standards! I wouldn’t live in any apartment built from 2000 on. Absolute rubbish, the 80 year old building I’m living in now is better than the crap going up now.

      • Agree 1000% the house I rent is old and not recently renovated but it is solid. I haven’t had any structural issues with it and the double-brick means it is well insulated. House next door is a recent build and I can hear them yelling at the kids all the time and fighting the walls are paper thin.

        Most of the new stuff being built in my area is absolute garbage. I’d never buy it myself. It saddens me to see good old buildings being bulldozed for modern McMansions of inferior build quality. Often 3x the size but less than 1/3 of the quality of the original house – even if the old house is looking a bit shabby, I’d rather the old shab than the new drab.

    • Many Australians are still suffering from the housing shortage. They face higher prices, higher rents, longer commutes and smaller spaces than their parents faced (ie previous generations).
      The housing shortage is an absolute disgrace. Once a serious shortage is allowed to develop, the rising prices then encourage speculative vacancies such that building additional dwellings does not necessarily ease the shortage faced by people requiring shelter.
      This is why it is vitally important that government monitor prices and rents, and to act to avoid a shortage before the price rises get out of hand.

      • That what you describe is not a shortage. They have a house.

        If everyone has a loaf of bread, is there a shortage of bread?

        What if everyone has a loaf of bread, and there are still loaves of bread on the shelves? a bread vacancy rate if you like, Is that a shortage?

        The cost in Australia is little to do with supply, and everything to do with speculative demand.

        There is no Shortage. There are 100’s of 1000’s of homes available to rent and buy.

      • There is no Shortage. There are 100’s of 1000’s of homes available to rent and buy.

        I’ve dealt with countless shortage-deniers and I know the tricks they use. Here you are debating the meaning of a word, and are also suggesting that a small number of houses available at a high price is equivalent to a large number of houses at a fair price. This is dishonest.

        In fact there is a serious shortage of housing in Australia. The shortage is in decent housing a decent commute from decent jobs.

        This shortage WILL NOT manifest itself in a complete lack of housing to rent or buy. THIS SHORTAGE WILL manifest itself by decent housing a decent commute from decent jobs being TOO EXPENSIVE for many to rent or buy.

        There is not enough of the decent stuff to go around JayBone. That’s a shortage JayBone.

      • The shortage is in decent housing a decent commute from decent jobs.

        That particular shortage could also be interpreted as a shortage of decent jobs.

      • If there was a housing shortage, rents would rise. They are currently falling, in lockstep with wages.

        What we have before us is a speculative orgy, fed by endless debt, restrictive planning, bad taxes and recency bias.

        Mr Market will destroy anyone who acts on the belief we have a physical shortage.

        Don’t Buy Now!

      • If there was a housing shortage, rents would rise.

        Thanks David. This is exactly what happened.

        As the shortage in Sydney occurred from approximately 1970 till present, rents rose from 1970 till present.

        Take the example of Sydney where a house that used to rent for 1/3 a normal wage in the 1970’s and was affordable to say a schoolteacher with a stay-at-home wife, now rents for 1/2 an ordinary wage and is unattainable to the schoolteacher unless the wife also works. That is the dramatic rise in rents that strongly indicates a shortage.
        An increase from 1/3 wage to 1/2 a wage is a HUGE increase. This is a 50% increase. And it is a 50% increase on a family’s largest expense. Ordinary families simply cannot afford to pay this much extra rent.
        In response families of ordinary means have been forced to compromise on size, quality, backyards and on commuting time and/or send the wife to work. In other words the family cannot afford to pay $800 per week for a house like their parents had, so they rent a unit for 40% of a wage, or rent a house with no backyard for say $500 per week AND commute much further paying more in petrol.

        Shortage-deniers use tricks to deny the dramatic rise in rents for what was once a ordinary home. Since there is a shortage of these ordinary homes, the market rations them by forcing price up beyond what ordinary families will pay. A simple cottage on 1/4 acre 20kms from the CBD is no longer ordinary. Due to shortage of such it is now considered a luxury.
        Ordinary families now are forced to pay a higher rent + higher commuting costs for a dwelling with less utility than previous generations had.
        Supply shortage – tick.
        Higher price – tick.
        Less for same price – tick.
        Dramatic rise in rents – tick.
        Shortage-denial – tick.

        Don’t Buy Now – I can’t afford to

        Mr Market will destroy anyone who acts on the belief we have a physical shortage.

        Instead of sitting around waiting for a market fairy to solve the problem, how about we cut immigration and then build enough decent housing to go around for the people we already have here? A decent house renting for 1/3 an ordinary wage will be evidence of success.

  12. This article should be forwarded to the relevant politicians. Oh that’s right they are captured.