Government-related charges account for a quarter of the total cost of some new Canberra housing packages, an alarming study has found.
The Australian-first research, commissioned by the Residential Development Council, reveals government costs are now the second largest component of the final cost for new housing buyers, even ahead of the price of land.
The study shows a huge rise in government costs during the past five years, with massive increases in state and territory based infrastructure charges, soaring compliance costs associated with increased government regulations such as the Building Code of Australia, and the introduction of the GST.
The figures are much higher than previous estimates and for the first time provide comparisons on a national scale.
In the ACT, government-related charges rose 237% in the past five years from $32,047 to $108,011.
This means for a new four-bedroom home and land package in the ACT costing $425,550, just over $108,000 – or 25.4% - would be government-related charges and compliance costs.
With a typical 25-year loan at an interest rate of 7.25 per cent, a new home-and-land buyer would make mortgage payments of $780 per month or over $126,000 in interest costs over the life of the loan – just to pay for the government-related cost of the purchase.
In analysing the break-up of government costs, it would appear that the Federal Government is a substantial beneficiary from residential activity, but a large proportion of this is GST which flows back to the states and territories.
Residential Development Council Executive Director Ross Elliott said the research exposed the myth that housing affordability had been squeezed in recent years due solely to free-market conditions such as investor demand, supply constraints and rising construction prices.
“This is clearly not the case. Government-related charges, levies, taxes and compliances have all played a crucial role in fueling the substantial increase in the new housing market,” he said.
“Housing affordability is a national issue and governments that express concern should look at this research and understand how their actions are contributing to that problem.”
Mr Elliott said the research also revealed that rising government costs were forcing some developers to shy away from housing projects.
“A significant concern is that developer margins are now getting squeezed to the point where developing new estates in some areas is no longer feasible,” he said.
“This is contrary to the often-expressed view by governments that developers will simply absorb additional costs.”
“This will not only add to concerns about housing affordability because of diminished supply, but it may also create a new problem – that of housing availability.”
The study focused on 10 major residential future growth markets across Australia, including Sydney, Newcastle and Canberra-Queanbeyan, and examined residential development costs from 20 new housing and new unit locations.
“We hope that governments and policy makers will not only look at this research but also learn from it,” Mr Elliott said.
Mr Elliott said the Residential Development Council called on governments at all levels to immediately stop any further moves which will add to housing costs.
“Then, we need to agree on alternate mechanisms to funding infrastructure, we need to reform our systems of development assessment, and we need to rethink artificial constraints on land supply, which are all combining to force prices beyond the reach of a generation of Australians.”
According to Catherine Carter, ACT Executive director of the Property Council of Australia, the finding of this report spells bad news for Canberra.
“Five years ago Canberra had a high level of housing affordability compared with the rest of Australia. This situation has changed for the worse, with Canberra now one of the least affordable places nationally.”
“Canberra’s real estate has become expensive to buy, and high rents present a disincentive for people wishing to relocate here. Clearly, housing must be affordable if Canberra is to achieve vital population growth.”
“This is an issue that needs to be addressed here in Canberra, as well as at a national level,” Ms Carter said.
Click here for full version of the media release including tables.
Ross Elliott, Executive Director, Residential Development Council, Property Council of Australia, 0407 177 591
Catherine Carter, ACT Executive Director, Property Council of Australia, (02) 6248 6902 or 0412 330 079