Opposition Leader Kevin Rudd’s announcement at a Property Council lunch today of the ALP’s “New Directions for Affordable Housing” has prompted the nation’s housing developers to ask where the Prime Minister stands on similar issues.
The Residential Development Council – which represents major housing developers nationally – said that Kevin Rudd had acknowledged what industry groups have been saying for a long time – the problems of housing are a national problem, and that issues like restricted land supply, high new homebuyer levies, and dysfunctional planning systems, are major contributors to the problem.
“Kevin Rudd has acknowledged the magnitude of the problem as something generational which any Federal Government – or a prospective one – has a responsibility to engage in,” said Residential Development Council National Executive Director, Ross Elliott.
“His promise of a national policy summit in the short term is a step in the right direction, which will bring industry and all levels of government together to help solve what is becoming a problem of generational dimensions,” he said.
“The detail on how to solve these underlying policy problems however – many of which are due to state and local government policies – is still unclear. The idea of a summit to bring views together though deserves support.”
“It is now time for the Howard Government to elevate its policy commitment to this problem by responding with meaningful statements about how it intends to work with industry and other levels of government to avoid a generational divide in terms of home ownership.”
“Because of high housing prices – largely brought on by a combination of federal, state and local government policies – families now spend an extra six to ten years of their gross income to service just the increase in prices relative to incomes over the past decade.”
“That is six to ten years worth of incomes that won’t be spent elsewhere in the economy. The consequences of continuing to tinker with this issue at the margins, or of the mix of denial, pass-the-buck and shoot the messenger reactions which have typified many government responses to date, are alarming.”
The Residential Development Council wants the Federal Government to accept it has a leadership role in solving the problems, even though many of the policy issues are the jurisdiction of state and local governments. The RDC believes three things are needed to turn the problem around: an increase in the supply of zoned land to stimulate competition and provide housing choice; a reduction in the recent dependence on homebuyer levies to fund community-wide infrastructure; and immediate reform to Australia’s “broken” system of planning and development assessment.
The Residential Development Council believes that the mounting evidence of a generational problem for middle Australia was now too compelling to ignore:
Housing prices, for much of the post war period, have been around three to four times median incomes. In the late 1990s (in response to land supply restrictions and rising taxes) these began to escalate rapidly, and in several Australian cities housing is now more than seven times median incomes.
Four Australian cities (Sydney, Perth, Hobart and Melbourne) rated in the top 25 least affordable cities in Demographia’s 2007 global study of housing in 160 cities around the world.
Planning assessment is taking longer, costing more and delivering no extra community benefit. In NSW, there have been an extra 7 million days lost for local councils to process development applications, and the NSW Planning Minister Frank Sartor has admitted (AFR, 27/6/07) that administrative costs of planning assessment had blown out from 7% of development costs to 23%. The situation, says the RDC, is little better elsewhere in the country.
According to RDC research, government taxes, fees, charges and levies on new housing have risen by between 200% and 400% in just five years, adding around $60,000 to $100,000 to the cost of a new home, and now accounting for between a quarter and a third of the cost of the home.
Further RDC research shows that infrastructure levies are charging new home buyers for non-essential infrastructure – increasing these levies by (in the case of Sydney) $40,000 in five years after allowing for inflation
The collective impact of taxes, fees, charges, levies and compliance costs which apply only to new housing means that buyers of new homes are now paying many times the tax bill paid by millionaires buying inner city mansions. For example:
In Sydney, a $1.8 million Mosman house purchase would involve $84,000 in stamp duty, or 4.7% of the price. A new $570,000 house in the outer suburbs would attract $163,000 in taxes or 29% of the sale price.
A $1.35 million home in Ascot, Brisbane would attract just over $47,000 in stamp duty or 3.54% of the sale price. A new $464,000 home in the outer Redlands suburbs would attract over $62,000 in taxes or 13.4% of the sale price
A $1 million home in Hazelwood, Adelaide, would attract $41,000 in taxes or 4% of the sale price. A new $250,000 home in the outer northern suburbs would attract $31,600 in taxes or almost 13% of the sale price.
Evidence of housing shortages induced by government limits on supply was mounting:
Rental vacancy rates in most markets were heading to 1% or below, and weekly rentals rising rapidly
Land releases in many states now witness prospective homebuyers camping out over night to secure a parcel of land
RDC research shows a net shortage of 12,000 lots in major east coast Australian markets, rising to a shortfall of more than 50,000 lots by 2016 if land release policies do not change. The figures for Perth are a shortfall of over 25,000 lots by 2016 if policies do not change.
Land prices, as a percentage of house/land packages, have risen from around 30% to 40% of the package for several decades, rapidly climbing to more than two thirds of the cost by the 2000s.
The 2004 Productivity Commission report into First Home Ownership acknowledged the impact of supply restraints brought on by artificial urban growth boundaries, yet no state government has acted on this observation:
“…to the extent that an urban growth boundary is intended to constrain development, it is inevitable [PC emphasis] it will have some effect on land prices. For this not to be so, people would need to be indifferent to housing type and location, and the supply of dwellings would need to be just as readily expanded from established urban areas.”
State governments are increasingly leaning on the property sector to fund their budgets. Property taxes have risen from 5% to 10% of state budget revenues from the 1960s until the mid to late 1990s – after which they escalated to more than one third of state taxes and up to a half (in the case of WA).
70% of respondents to a poll on housing affordability at www.affordablehome.com.au said they thought that home ownership would not be possible for future generations of Australians, while a further 19% believed it will deteriorate further from the present crisis levels
In a separate poll this year, the community are holding governments accountable for the problem: almost two in every five people (39%) nominated state governments as the main drivers of the affordability problem. A further 14% nominated local governments while 19% blamed the Federal Government. The combined percentage of people blaming governments was an overwhelming 72% - compared with 9% who blamed developers and just 5% who blamed the banks.
Consumers were blamed for the problem by 14% of respondents.
Further information at www.affordablehome.com.au
Ross Elliott, 0407 177 591
The Residential Development Council is the Property Council of Australia's specialist industry forum for Australia's leading residential developers. Established in 2005 as a result of industry representations, the Residential Development Council focuses on key issues of concern to the residential development industry nationally and aims to show leadership in policy, research and understanding of industry fundamentals.