Tuesday, June 27, 2017

2016 Census confirms housing unaffordability is for renters

Population and housing data from the 2016 Census has been released today, which means it's time to get your nerd on.


There are three critical things it tells us about housing in New South Wales.

First - there's been an increase in the number of households living in our state over the last five years, up from 2,471,305 in 2011 to 2,604,320 in 2016. The number of unoccupied dwellings has also increased, from 265,338 to 284,741. In percentage terms, unoccupied dwellings have risen from 9.7% to 9.9% of all dwellings. The idea of a sustained influx of foreign investors who leave properties empty is looking a little shaky on these numbers, but even so we're going backwards. It's clear we should be doing more to encourage property owners to put those empty dwellings to use, like taxing the unimproved value of land rather than transactions and transfers.

Click for full size!

Next - there's been a significant increase in the number of people renting in New South Wales. There were 826,922 renter households at the 2016 Census, which was 83,870 more than there were in 2011. To put this into context, that's almost double the increase we saw between 2006 and 2011. It also means our renting population has gone up in percentage terms since 2011, too - from 30.1% to 31.8% in 2016. There are more owner-occupiers, too, but as a percentage they've gone backwards. Households who own outright have gone from 33.2% to 32.2% of the population, while households who own with a mortgage have gone from 33.4% to 32.3%. That means home ownership across New South Wales has declined overall since 2011, from 66.6% to 64.5%. It also means that more people are renting for longer.

Finally - it will come as no surprise that making the rent is a growing struggle. The median rent across New South Wales has risen from $300/week in 2011 to $380/week in 2016. More telling is the number of renters whose rent takes up more than 30% of their income - that's gone up from 11.6% to 12.9% of the renter population. On the other hand, the number of home owners with a mortgage who find themselves in similar financial circumstances, paying more than 30% of their income towards their loan, has decreased from 10.5% to 7.4%. In case it wasn't already clear, low interest rates are great for those who already own a home, but they're not so good for anyone hoping to join their ranks in the foreseeable future. As much as they might appreciate grants and stamp duty discounts, what prospective homeowners need most is to be able to save.

So, here's our take-home message for policy makers at all levels: there can be no housing affordability without fixing the rent.

Monday, June 19, 2017

Joining the dots on affordability

This week is Budget Week for New South Wales. There's still time for the Berejiklian Government to announce the forgotten part of their housing affordability package - the one that tackles Sydney's high rents. So far they've covered tweaking taxes and grants in favour of first home buyers over investors, and fast-tracking supply. But they've left off any policy that would directly affect the rent.


As we've noted before, the shift of incentives from investors to first home buyers is designed to have the strongest impact in the market for newly built properties. We've also previously noted that while the majority of investors do not purchase newly built properties, there has been a significant increase in investor driven demand lately for off-the-plan units. It is worth considering how this change will impact demand for new dwellings over the next few years.

Understanding your standard first home buyer is no easy task. We can go back to the ABS Feature Article from 2012, First Home Buyers in Australia, which tells us that just prior to the height of Australia's post-GFC first home buyer boom there were about 430,000 of them over the three years to 2010. Driven by stamp duty concessions and the Rudd Government's First Home Owner Boost that put either $14,000 and $21,000 into their hands depending on whether they bought an established or new home, slightly less than one-fifth of them bought a newly built property during that time. In the three years prior to that, when the grants were not quite so generous, there were around 320,00 of them with less than one-tenth buying off-the-plan.

This tells us that first home buyers do seem to respond to stamp duty concessions and direct grants, but just like their investor counterparts they are much more inclined to buy established properties than newly built ones. Of course, this is based on how they behaved in the bad old days when property prices were merely exorbitant, but the latest Digital Finance Analytics' Property Imperative Survey suggests these numbers remain in the ballpark - they've identified 330,000 first time buyers in their March report, noting that 80% are buying or intending to buy an established dwelling. But we must note here that an increasing proportion of these first timers identified by Digital Finance Analytics are investors, so they are buying another person's home rather than their own.

Now that prices are scandalous, it remains to be seen if anything much will change after the tweaking of stamp duties and grants. It is possible that 100% of Sydney's first time buyers will rush to the new apartment market to see what they can afford, since the houses they'd evidently prefer to buy are still likely to cost too much. But it's just as likely many will continue to rent the homes they want (or can afford) to live in. Either way, the removal of incentives for investors to buy off-the-plan is likely to see them withdraw from the new apartment market, and this wont be completely offset by any increased demand from first home buyers. Construction activity may well start to fall away in response. If that happens, no amount of rezoning to fast-track supply will save us from the plague of rising rents - assuming it ever could.

This brings us back to the forgotten part of the NSW Government's housing affordability package. Given the recent Federal Budget foreshadows a new Affordable Housing and Homelessness Agreement requiring the states to consider affordable housing targets, along with an Affordable Housing Finance and Investment Corporation that will provide a funding mechanism for the supply of new sub-market dwellings, the Berejiklian Government would do well to adopt planning and zoning reforms along similar lines to those announced by the NSW Opposition a couple of weeks ago. In the face of their own affordability package that might otherwise reduce demand for their services, this could be just the tonic our developers will need - to say nothing of our neighbourhoods and communities who are already crying out for some downward pressure on rents.


Tuesday, June 6, 2017

It was like leaving my family: Postscript



(Thanks to Eva Bee and Design Juices)
You will recall our earlier blog called 'It was like leaving my family'.

Professor Alan Morris has written a second article about Millers Point, this time in Urban Policy and Research. It was published online on 2 June 2017 and is called 'The Removal of Millers Point Public Housing Tenants in Inner-Sydney by the New South Wales Government: Narratives of Government and Tenants'.

Professor Morris's article draws on government media material and in-depth interviews with tenants. He examines the removal process and contrasts the government’s narrative with that of the tenants. He argues that, when instrumental rationality is dominant in policy-making, then little or no attention is paid to the human cost, so long as the policy is viewed as effective. He concludes that, with the ascendency of an instrumental rationality , the mass displacement of other public housing tenants to areas not of their choosing is an ever-present possibility.

Read the full article here.

Well, the pressure is very intense on the remaining residents of Millers Point ... with more residents before the NSW Civil and Administrative Tribunal facing imminent eviction.

The Attorney-General, Senator the Hon George Brandis QC, announced an Inquiry for the Australian Law Reform Commission on 'Protecting the Rights of Older Australians from Abuse' on 24 February 2016. It released an Issues Paper in June 2016 and a Discussion Paper in December 2016. It is required to report by May 2017 … watch this space! Here are two submissions on the Discussion Paper. They both argue that the actions of the NSW Government in Millers Point constitute systemic elder abuse. Check them out: The Millers Point Community Working Party (221) and Tenants Union of NSW (238).

It's worth checking out Luke Foley's speech at the NSW Heritage Act 40th Anniversary. Top of the list of his current threats is the fight to save the Sirius Building. He talks of an area where we have working class people being cleansed from the city. That is consistent with Professor Morris's articles and it certainly fits with what tenants and former tenants of Millers Point are saying.

Friday, June 2, 2017

NSW Government's affordability pledge

Hot on the heels of the NSW Opposition's announcement, Premier Berejiklian has brought forward the Government's own plan to improve housing affordability.


Announced yesterday, the policy has three different components: incentives for first home buyers/disincentives for foreign investors; fast-tracking development at higher densities; and building more infrastructure to support communities. Careful observers will note that tenants continue to be the real forgotten people, as rental affordability doesn't even rate a mention.

Tenants who are well-off enough to be pursuing a first home purchase will be pleased, as stamp duty exemptions will apply to all first home purchases up to $650,000 from July this year. That's a big change from the current scheme, which sees exemptions apply only to newly built homes up to $550,000, or land up to $350,000. Further concessions will apply all the way to $800,000, rather than the current $650,000. Additionally, a first home owner grant of $10,000 will apply to the purchase of a newly built dwelling up to $750,000, or an existing dwelling up to $600,000. That's a change from the current scheme that only offers a grant for first timers if they buy a new dwelling.

So, depending on what you're buying, first timers' up-front costs could be reduced by around $30,000. Of course, you'll still have to come up with a substantial deposit before you can borrow the balance, so you'd better keep up with your savings plan just to be on the safe side... and cross your fingers that the market has peaked, so that prices don't go up by another 50 or 60 grand before you can take advantage of those extra incentives. Then again, if you're already that close to buying into this market perhaps a correction, and protracted negative equity, is the last thing you want to contemplate right now... To which we say not to worry, with an army of reanimated first home buyers ready to let loose upon the market - each with a $30,000 spring in their step - it shouldn't take long for prices to start climbing again.

First home buyer incentives are only half the story, as changes to taxes and grants will also impact upon investors. Foreign investors will bear the brunt of it as they'll have to pay an increased surcharge on their stamp duty - doubling from 4% to 8% - as well as an increased surcharge on land taxes - increasing from 0.75% to 2%. But all investors will lose the New Home Grant, which was introduced in 2012 to encourage investors to increase supply by purchasing off-the-plan instead of established dwellings. And investors will no longer be able to defer their stamp duty liabilities when purchasing off-the-plan. The new policy could be an attempt to shift domestic investors back to trading in second hand stock - or perhaps it simply acknowledges that this is really what they're most interested in after all - while trying to keep new supply up by encouraging first timers to jump in off-the-plan. We'll need to keep on eye on the impact of this.

As for new supply, we'll take a look at the second and third aspects of the Government's housing affordability plan - fast-tracking supply and delivering more infrastructure - as soon as we can.