14/07/2021 - 08:00

Where will all the housing go?

14/07/2021 - 08:00

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A new report suggests Perth’s capacity to meet housing demand is diminishing, as stock of readily developable land runs low.

 Where will all the housing go?
UDIA WA says land supply for new housing developments has been overestimated by as much as 37 per cent. Photo: Gabriel Oliveira

Restrictive planning controls, infrastructure constraints, and land fragmentation are among the key factors limiting the supply of housing to the market, according to the Urban Development Institute of Australia.

The institute’s latest report, ‘Housing our community: Acting today to avoid tomorrow’s housing crisis’, was launched at a recent UDIA luncheon, attended by Planning Minister Rita Saffioti, who assured guests the state government was working to tackle these issues, including by the removal of red tape.

“We understand the easy-to-develop land is disappearing and that we have to navigate the more difficult land … and also understand the challenges that come about with infill developments and development on land with fragmented ownership,” Ms Saffioti told event attendees.

“We understand the significant burden holding costs have on industry, planning uncertainty, and for government to better prioritise, and I think direct, our development fronts.

“We’ve continued to work with industry to make sure we supply great places for people to live and to develop great communities.

“And, as a result, we’re embarking on the second round of planning reform.”

That involves continuing to restructure Development Assessment Panels, which have already been reduced from nine to five panels, with plans to cull a further two DAPS and appoint permanent DAP members for consistency and decisionmaking next year.

Plans to form a special matters development panel is also under way, which is anticipated to provide a mechanism for state-significant developments in the future. But UDIA says more strategic planning changes are needed.

UDIA WA chief executive Tanya Steinbeck said the institute’s new report was a warning bell.

“If we keep progressing in a business-as-usual way, there is absolutely no doubt we are heading for a major housing crisis,” Ms Steinbeck told Business News.

“The current rental crisis is really just the tip of the iceberg.”

The UDIA report outlines four key issues emerging in the WA market: a lack of master-planned developments in the pipeline due to a scarcity of zoned land parcels with workable development constraints; planning delays stymieing the delivery of infill projects; discrepancies between the delivery of detached housing versus built-form development; and a lack of large, consolidated infill development sites currently available.

“We want to ensure there is a clear understanding around what is available and what can be realistically delivered within what timeframes, so that we can work collaboratively with government on the solutions,” Ms Steinbeck said.

“If we can agree on the problem, we can start working on the solutions.”

Unlocking supply

An additional 786,680 dwellings are needed by 2050 to meet the expectations set out in the state government’s Perth and Peel @ 3.5 million Planning Framework, which UDIA WA said equated to an average delivery of 20,170 dwellings each year.

The institute’s report highlights how subdued demand pre-pandemic had subsequently resulted in dwelling commencements falling below target, averaging about 16,700 new homes delivered per annum over the four years to December 2020.

This had provided a mistaken perception of the capacity and capability of Perth’s planning and development system to be able to deliver housing efficiently, particularly in periods of high demand, the report noted.

Exacerbating that perception is the current lack of regular, consolidated analysis of housing land supply for the Perth and Peel regions: UDIA’s report highlights the nine-year gap between the Perth and Peel Urban Land Development Outlook’s 2011-12 and 2020-21 reports.

Adding to those challenges is the assessment functions of the Western Australian Planning Commission’s Urban Growth Monitor (UGM). A recent review of the UGM found that by including land allocated for other uses – such as parks or Bush-Forever sites, together with its inclusion of highly fragmented land – there had been an overestimation of the actual supply of land for new housing development by as much as 37 per cent.

UDIA’s report also highlights the diminishing trend across the metropolitan area’s large masterplanned communities, where most estates are near fully developed: there are fewer than 10 large estates operating in most suburban corridors, while the north-east and south-west corridors have less than five years’ worth of lot supply remaining.

Ms Steinbeck said these estates had typically provided half of Perth’s new dwellings, helping keep a lid on house prices during periods of peak demand.

UDIA’s modelling of the relationship between land supply, economic growth, and house prices highlights the diminishing trend of WA lot stockpiling, with the volumes of lot supply and quarterly lot sales edging closer to hover around the same levels (see graph).

“Gone are the days when we can rely on the development industry to simply ‘turn on the tap’ and ramp up the production of new lots and apartments to meet a lift in housing demand,” Ms Steinbeck said.

DevelopmentWA chief executive Frank Marra said it was important to note that, in recent years, the market had adopted a different approach to acquiring land for development purposes.

DevelopmentWA would expect most major developers to be actively seeking to expand their land asset bases in response to their views on what the underlying demand for land is,” Mr Marra told Business News.

“Many developers no longer buy land decades in advance, but rather option land to use as and when required. “Developers, like many other companies, have moved to a ‘just-in-time’ production operating model to reduce holdings costs and improve affordability.”

That change in developer behaviour has likely been driven by subdued housing activity in recent years, where supply far outstripped demand (see graph).

Mr Marra also highlighted the shift in mentality in consumer appetite, as well as strategic planning.

“There has been a shift towards smaller living for a number of years. This reflects changing lifestyles and aspirations, which have driven demand for smaller lots and smaller dwellings,” Mr Marra said.

“The future of development in Perth will be a combination of both greenfield estates and maximising infill locations and will feature both large and small-scale developments.

“With the state planning strategies focusing on up to half the new housing coming from infill locations, the development industry’s focus needs to be on maximising the dwelling potential of land being developed, not the number of lots being produced.”

Mr Marra pointed to DevelopmentWA’s Montario Quarter project in Shenton Park, which only created 46 lots but has the potential to deliver more than 1,100 homes across different typologies: from single homes to medium density and apartment dwellings.

Boosting housing delivery

As part of the Perth and Peel @ 3.5 million Planning Framework, infill development must account for 47 per cent of the targeted 800,000 dwellings by 2050. Several municipalities, including Subiaco, Nedlands, and Leederville, have undertaken precinct plans to accommodate future density as part of that infill target.

The state government’s Market-led Proposals (MLP) process could further boost infill housing delivery.

Under the process, the private sector can submit unsolicited proposals in relation to state government-owned assets, including land, with 15 MLPs submitted for property since April 2019.

Among those to have reached stage two are Cedar Woods’ proposal for a residential project in Swanbourne, and Hesperia’s plans to deliver an urban infill development on the Graylands Hospital site in Shenton Park.

The South Fremantle Power Station could provide another opportunity for a residential infill development, depending on who wins the bid to redevelop the six-hectare site via Synergy’s recent expression of interest campaign.

However, Frasers Property development director Tanya Trevisan, who was a panellist at the recent UDIA luncheon, said the challenges stemmed beyond unlocking infill sites.

She said more needed to be done on a strategic planning level to support delivery.

“Infill has an additional challenge that housing doesn’t have; it’s significantly legislated in terms of requirements [i.e. fire and acoustic requirements] and that has a direct impact on the delivery cost: it’s roughly three times as expensive to deliver infill as a single project home,” Ms Trevisan told the event.

“So that’s quite profound. And construction cost doesn’t discriminate, it doesn’t care what postcode you’re building in.”

Ms Trevisan said that affected a developer’s ability to deliver infill in certain locations and its commercial viability.

Tanya Steinbeck says there needs to be a clearer understanding of actual land supply.

Recent trends revealed the average infill buyer was generally a downsizer looking to upscale their location, she said.

“We need to be authentic with land that is zoned for infill; we can’t just pick sites that are low-hanging fruit … major road intersections or right next to a railway track is not necessarily a site that suits itself to infill,” Ms Trevisan said.

“You really need to be able to offer a point of difference for infill to be successful and unfortunately that means the best sites for infill tend to be sites where the local housing is higher than our median house price.

“With some of the Metronet stations being offered to the market … there’s no great differential between the house price in that area and proposed infill.

“If we don’t get the commercial balance right, it’s really a very difficult ask.”

Besides cost of delivery, the nature of infill density development financing, which requires significant pre-sales, posed another obstacle to the speed of dwelling delivery, particularly in areas with below-average house prices.

Ms Trevisan said government backing of build-to-rent (BTR) developments was one solution.

For example, Frasers Property’s 350-plus apartment project in Brisbane was being underwritten by the Queensland government as part of its affordable housing strategy under a subsidised leasing fee.

Under a BTR model, a developer retains dwellings to then lease, removing the pre-sales component for financing and instead requiring substantial upfront capital.

Building on that idea is UDIA’s recommendation for the introduction of a strategic approach to prioritise development areas and allow proponent-led solutions to deliver housing supply.

That forms one of five recommendations included in the institute’s latest report, which also suggests that the state government take control of infill delivery with district-level planning strategies and establish a detailed housing supply monitoring program with live tracking of housing supply and demand, run by UDIA WA.

Removing pseudo urban growth boundaries that exist under the Perth and Peel frameworks also forms part of its agenda.

Without change, Ms Steinbeck said there was a perfect storm on the horizon.

“Just as we anticipate international borders reopening and an influx of people choosing to call Perth home, we will effectively have run out of developable land that can respond quickly and efficiently,” she said.

“These supply constraints will push up housing prices across Perth and Peel unless we address these issues now.”

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