Amazingly, the NSW Government has belatedly made a big step forward in addressing the slow-motion crisis that is our housing undersupply.
The housing supply issue has gone off the boil a little in recent weeks, with growing evidence that net migration is falling swiftly back from its recent highs caused by the GFC and the Howard Government’s system of allowing student visas to become de facto bridges to permanent residency. But that merely means the gap between housing demand and housing supply will stop growing at an accelerating rate. There’s a long way to go before the gap actually starts shrinking.
And while the NSW Government was up to its old tricks on social housing, announcing “a $2.6 billion investment in social housing” much of which was actually Commonwealth funding, its raft of initiatives on housing actually address some of the structural impediments that have prevented the housing market from responding effectively to rising demand.
The two key elements are the stamp duty exemption for dwellings bought “off the plan” up to $600,000, and the new cap on developer charges announced last Friday.
The stamp duty exemption (and the discount for downsizers or housing bought during construction or completion) reflects that Governments have woken up to the problem of simply stimulating demand through their efforts to improve affordability, and are now focusing on directing demand to where it is most productive – new housing supply.
The exemption has already copped criticism because of the threshold and the claim that a lot of housing and apartments aren’t bought off-the-plan.
The $600,000 threshold will have to be looked at if the exemption is going to stay in place longer than its scheduled two years – and if it works, it should be kept. Indeed, it could form the basis of a major, Henry Review-style overhaul of land taxation. But at the moment, industry figures Crikey spoke to don’t believe it’s too low.
And David Bare, the Housing Industry Association’s NSW Executive Director, pointed out to Crikey that in fact the majority of new housing is bought off-the-plan. “If you go to any development site, even if the process appears seamless to the buyers, they sign two contracts — one for the land, the second for the house, which might be based on the display home.” According to Bare, the inclusion of vacant land in the exemption and discount is also important, given previous discounts only related to housing. The exemptions and discounts should be particularly appealing to volume builders. “The members I’ve spoken to about this are really excited about this,” Bare said.
The new cap on development levies that local councils can change — at $20,000 per block — will not merely cut costs — some NSW councils are charging up to $40,ooo — but provide greater certainty for developers and improve their chances of obtaining finance, because they know the maximum levy that they’ll face per block.
Nathan Rees introduced a $20,000 cap but enabled the Local Government Minister to give exemptions to councils, rendering the cap meaningless. Under the approach announced last Friday, councils that want to charge more will have to appeal to IPART, and justify the costs on the basis that the infrastructure for which the levy is being charged is directly related to the proposed development – not to future developments or to improve the amenity of existing communities. If IPART agrees, the council will be able to charge higher rates for the development, but won’t be able to hit developers themselves. “There’s a very strong governance process overlaying this, although a lot of the details haven’t been worked out yet with councils,” said Bare.
The result is that developers can approach finance sources with greater certainty about the taxes they’ll face.
Roozendaal has also announced funding of up to $35m to assist and incentivise local councils to speed up Development Approval processes and better coordinate them with their other planning processes.
The result is a shift away from simply throwing money at the problem of affordability to addressing structural impediments — long-term ones like the fragmented and bureaucratic Development Approval Process and ever-higher charges for developers — and ones that have cropped up more recently, such as Australian banks’ post-GFC aversion to financing property development.
While dying governments are usually associated with policy debacles and profligacy, Eric Roozendaal has proved the exception in at least one key area.
I see another Schwab vs Keane stoush coming…
Delighted to see some public servants with some back bone left in Treasury & not lying in the fetal position any longer.My worry is that some of the sources of the cash could well be siphoned off BER fees as well as double counting of Fed money. My next worry is the cash splash before the state election so there is nothing in the kitty to get on with a proper administration next year. At the end of the day we still have Nick Greiner to thank for even instilling the discipline of State Govt accounts in the first place so at least we have something to look at unlike before his era. Dear public servants hold on it is almost over the gulag will be ended.
Bill Hayden’s 1975 Budget
The “housing undersupply crisis” needs to be addressed in a way that does not perpetuate the insane expansion of our capital cities. These financial incentives, however welcome, need to be matched with some ballsy planning initiatives that recognise that suburbs stretching from Sydney to Goulburn is environmentally irresponsible (both in terms of pollution / emissions impacts and the devastation of regional biodiversity), financially unsustainable (in terms of travel and infrastructure costs) and socially undesirable.
How about gradually transitioning a couple of NSW government departments to larger regional centres? There are plenty of candidate towns on the New South Wales coast (and possibly some inland) that with a better airport, high speed rail link and augmented water supply would cope pretty well with major expansion – some would even have access to a decent port.
The same goes for Melbourne, Brisbane and Perth as well. Start with Nowra, Coffs Harbour, Wollongong, Newcastle, Geelong, Townsville, Geraldton, Bunbury, Albany…
I’m not convinced there actually is a housing undersupply, more a problem with overprice. The cost-shifting of council and state govt utility charges for new dwellings and subdivisions in the heady noughty days of easy credit have not helped. In other words, councils and state govts somewhat venally took advantage of a perception of easy credit and easy money to borrowers to start levying on a ‘user pays’ basis — to the point where the FHOG/B really just served to partially offset these new levies, expenses no longer borne by taxpayers in the community generally. Unfortunately, the easy credit circumstances also meant that existing housing prices also skyrocketed without these extra infrastructure levies being placed on them.
So the govt cost-shifting has been capped. Stamp duty has been waived in many cases. Once again, though, as usual, house prices are completely uncapped in the feral housing market, which usually means that purchasers will be gouged by vendors up to the very limit of whatever they can borrow from the bank, irregardless of the long-term interest burden or likelihood of foreclosure. Let’s hope that the new prudential lending arrangements forced on the banks post-GFC means that lending won’t run out of control yet again, thus creating a new price bubble in housing — where any savings made in the categories of infrastructure levies and stamp duty immediately get capitalised into the asking price of housing by the vendor.