07/08/2007 - 22:00

Finger pointing no solution

07/08/2007 - 22:00


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Housing affordability in Perth has reached a crisis and the blame game has started in earnest.

Housing affordability in Perth has reached a crisis and the blame game has started in earnest.

According to the property industry, the state has either consciously or incompetently squeezed supply by ramping up costs, delaying approvals and giving preference for infill ahead of new development on the urban fringe.

But the government reckons it’s the developers that have caused the problem by gouging big fees between buying empty land and selling its packages to desperate consumers.

This week, the Urban Development Institute of Western Australia released a report which found Western Australia the least affordable state.

Planning and Infrastructure Minister Alannah MacTiernan reportedly responded by saying land could be sold directly to the public to cut out the middle men.

At least one thing is being acknowledged here – there’s a supply problem, and it’s not a shortage of actual land.

Conservatives believe the true cause is policies enacted more than a decade ago to halt Perth’s sprawl and contain the populated area, increasing density so that the city would become more efficient.

The results are obvious.

Block sizes have been scaled back, backyards have been sold off as battleaxes, and houses have increasingly pushed to the boundaries of the land on which they are built.

Some consider this is the direct result of land rationing.

The industry argues that there is no reason, other than artificially imposed restrictions, for the shortage of land we have suddenly encountered in WA; not just in Perth, I might add, but all over the state.

With any rationing comes a rise in cost, and as costs rise, people have to make do with less. In a war or natural disaster, rationing is a reasoned response to a real or anticipated shortage of supply. In an otherwise normal market it just distorts prices.

What’s more, homebuyers and investors have become used to this and factored these prices into their thinking, even speculating that the spiralling cost will continue, thus exacerbating the problem.

Those with new-found real or paper wealth derived from stock markets, private business sell-offs, cheap credit, high wages and property trading, continue to buy here, or bid up prices in ‘under-valued’ Melbourne. Those with a regular job or just starting out in life are left by the wayside.

Late last year, the Institute of Public Affairs examined the issue in detail and found a number of costs that inflated the cost of a typical new home by almost double.

That’s $180,000 per new home identified by the IPA in unreasonable land costs and a new generation of government charges.

There was, on average, almost $110,000 in developer and government charges per block. This included about $32,000 per block in offsets for open space, school and public transport that was not imposed on earlier developments.

But the cost of undeveloped land was found to be the biggest issue at $156,000 for a 550 square metre block, or more than $2.8 million a hectare.

The IPA was very clear about where the blame lay.

“This is clearly absurd for a resource that is naturally abundant but restricted in supply by planning laws,” researchers Louise Staley and Alan Moran said in their document entitled Fixing the Crisis: A Fair Go for Homebuyers.

A price of $60,000ha or $3,300 per block would more realistically reflect is transition from rural to urban zoning, they stated.

Just how this enormous gap has occurred was not detailed, but developers have been complaining about the slow state government approvals process for years, a situation which was acknowledged with the appointment of land release coordinator Marion Thompson last year.

Through her the government has also sought to prioritise subdivision applications and clearances, reduce timeframes for clearances of subdivision conditions to six months, and introduce an electronic land approvals and tracking system to identify delays.

There have also been significant breaks given to first-home buyers, something which is either well-targeted or window dressing, depending on who in the property industry you speak to.

But there is a further problem that the government may well have unwittingly created.

The high cost of land has been factored into people’s decision making.

And it’s not just the young and skilled we need to work here who are electing to live elsewhere.

There are also the investors who have tracked the shortage of supply, a long-term trend, and put considerable capital into buying property.

It has become a game for those with capital. With turnaround time for a development extending in time to several years, those with money are the only ones who can afford the wait.

Land development has become increasingly the area of big players who always, in my view, do better from regulation – no matter what industry you consider.

Many property companies have amassed huge and valuable land banks – some into the billions of dollars.

They would have a lot to lose, not just on paper, should land prices suddenly fall.

That might satisfy some on the government’s benches, but the ramifications are huge.

When the property market starts to fail, the jitters spread far and wide.

Somehow, the government will need to find a way that allows everyone to be a winner, and our economy may just provide the growth to do that – if the situation is quickly dealt with and carefully managed.


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