[+] Crunch Time: Incentives Urged to Fix Housing’s ‘Absolute Disaster’

Charter Keck Kramer, the national property analyst and consultant. has called on governments—State and Federal—to introduce sweeping incentives to solve Australia’s worsening housing crisis. Describing what it called “an absolute disaster” the consultancy warned it would take a lot more than one or two interest rate cuts to stimulate buyer demand. Interest rate cuts, plus a waiving of the Goods and Services Tax (GST) for construction materials, an overhaul of stamp duty taxes on property purchases, and a further reduction to the controversial Managed Investment Trust (MIT) withholding tax, were all needed to encourage local and international investors. In fact, Charter Keck Kramer’s national executive director Richard Temlett says he wants to see major changes like these allowed for when treasurer Jim Chalmers hands down the Federal budget Tuesday week. In a sometimes gloomy, other times withering assessment of the of the build-to-rent and build-to-sell markets, Temlett told about 250 industry figures at The Urban Developer ’s annual Melbourne Residential Summit his team had been very outspoken with the government over what incentives are actually required. “I really hope that when the budget comes out it offers incentives to those markets, because that’s what they actually need to gain a bit of momentum,” he said. Temlett pointed to building costs, which he said had increased 40 to 60 per cent, which meant some projects had become unfeasible. Investors—local and foreign—were no longer in the residential market and as a result apartment pre-sales “are extremely difficult to get”. “But what that really means is that supply—of launches and projects for sale, as well as apartment completions—are at decade lows,” Temlett told the summit. ▲ Charter Keck Kramer’s Temlett has a laundry list of incentives he says governments must introduce. “It’s an absolute disaster given the record levels of population growth … the strongest levels of population growth since the 1950s.” He said it was still possible to get debt, but at much higher terms, which meant a lot of projects were not moving ahead. Some build-to-rent developers were converting projects to build-to-sell and even to student accommodation. “As a result, we’re going to continue to have the rental crisis and the housing affordability crisis, until government steps in when rates get cut.” Temlett was not alone in his assessment of the residential sector, nor of what needs to be done to address it. RPM Real Estate Group manager of research and data Michael Staedler said he took solace in the fact that it was being called a “national crisis”, rather than a state-based issue. “A national crisis tends to garner more media attention, which means the government tends to do a little bit more, quicker,” he said Staedler spoke on the supply and demand dynamics of Greater Melbourne’s greenfield development, presenting statistics to show 7976 lots were sold in the 12 months to March this year—down 29 per cent on the previous 12 months. “The established house market, particularly in Melbourne, corrected over the last couple of years,” he said. “We peaked in mid-2022, but we are still 17.5 per cent below that peak price at the moment. BtR and BtS apartment supply ▲ Source: Charter Keck Cramer “But from a land perspective, the land market always tracks behind the established market, then it tends to overshoot.” He wants to see more Precinct Structure Plans (PSPs) come to market. These are land-use and infrastructure plans to guide the development of an area over time. They set out the preferred locations of residential and employment land and infrastructure, and provide guidance for transport and parking, urban design, heritage, open spaces and integrated water management. But Staedler said many of those had been shelved, which would eventually cause further issues with housing supply. “It’s not for the lands market to solve all the issues and it’s not for the apartment market,” he said. “You do need all levels of government to operate together in a cohesive manner to solve the issues.” Luke Skurrie, managing director of the Melbourne-based builders Ironside, told the summit labour shortages and sub-contractor performance were still key risks for the industry. “Subcontract insolvencies over the past few years has been astronomical, and while it has it slowed down, it’s still having an impact on the market, and that’s increasing prices,” he said. “There’s less confidence in delivery and productivity because of labour shortages, so that’s one of the hidden things that you don’t realise when you’re looking at construction costs.” ▲ Some build-to-rent developers are converting projects to build-to-sell and even to student accommodation, to get them out of the ground. Skurrie’s warning came as Master Builders Australia released a report saying that despite government investment in housing, 80 per cent of the additional new homes that could have been built will never see a shovel hit the ground. The report, The Cost of Letting Productivity Slip , assesses the cumulative impact of positive and negative changes in the industry over the next five years. Master Builders Australia chief executive Denita Wawn said that in the best-case scenario, new home gains had been eroded by a prolonged labour supply shortage, materials price growth and industrial relations reforms. “This outcome will likely worsen when the full package of industrial relations reforms and current union-led pattern EBA (Enterprise Bargaining Agreement) negotiations have been finalised,” Wawn said. “The [Federal] Government must align its policies with the long-term objectives of the industry.” Charter Keck Kramer’s Temlett said market sentiment remained weak. “And I think that the Reserve Bank of Australia would be a bit silly to actually increase rates. If it does, it will really just postpone the rebound of the markets. ▲ RPM’s Michael Staedler, Urban DC’s Danny Ciarma and Abadeen’s Andrew Leoncelli at The Urban Developer’s Melbourne Residential Summit. “We anticipate it is going to start getting a little bit more positive when sentiment improves, and that comes down to when rates are actually cut. The reality is it looks like it may only be in November this year, but it really is going to take a lot more than that … it’s those incentives that need to be introduced. “If that doesn’t happen, well we’re going to have an ongoing rental crisis and housing crisis because I don’t see a world where we’re going to get enough supply mobilised.” Developer Urban DC director Danny Ciarma agreed. “The market’s there, and probably 50 per cent of buyers are prepared to accept the new pricing levels, but people are sitting on their hands,” Ciarma said. “And I just think it might go sideways for a while until those people jump back in. And unfortunately they might find that the prices will be higher when they do jump back.” Abadeen property Group Victorian managing director Andrew Leoncelli said he was seeing green shoots in the investor market. “I think savvy investors, and we’ve seen them recently, understand that in two years’ time when something does get delivered, the interest rate environment will be different, rents will be soaring but we’ll invariably be needing new supply,” he said. Gross lot sale, Melbourne growth areas ▲ RPM data shows 7976 greenfield lots were sold in the 12 months to March this year—down 29 per cent on the previous 12 months. But pressed on where the investment capital was coming from, Leoncelli said there was “absolutely zero international purchasing”. “And they have not had a hand in anything we have worked on for the past four years,” he said. That’s in keeping with Charter Keck Kramer’s research. Outside the summit, Temlett likened the housing crisis to that period in Australian immediately after World War II. “The government needs to introduce more emergency measures to deal with this,” he told The Urban Developer . “While it might sound like an intense thing to do, it’s something that should seriously be considered. I’m not saying indefinitely … just for a couple of years to stimulate supply, to make it attractive, to make it financially viable. “The housing crisis has been two decades, 20 years, in the making,” he said. “It didn’t happen because of the pandemic, and it’s short-sighted for the government to turn around and say the pandemic has caused all of this. “They need to incentivise suppliers, change planning, reform taxes and support buyer demand. “I would go as far as to say it is political suicide for any government going into an election not to make this it’s main focus.” ▲ About 250 industry figures attended The Urban Developer’s annual Melbourne Residential Summit. You are currently experiencing The Urban Developer Plus (TUD+), our premium membership for property professionals. Click here to learn more.

Residential
Ralph Nicholson
Sat 04 May 24

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ResidentialRalph NicholsonSat 04 May 24

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