High land prices have all but killed the Australian housing industry.
Lower housing starts has led to lower GST revenues (house construction attracts full GST) and lower stamp duty receipts are crippling state budgets and cruelling the chances of low and middle income earners to get a start in the housing market.
What has caused this slump in housing starts? Land prices.
Raw land for new housing developments should be close to its agricultural value – in other words, around $10,000 per hectare. But land released for residential development fetches up to $1 million per hectare – 100 times the agricultural price.
Government land management agencies and private land developers may well argue a lot of land has been released for residential development, but clearly it is not enough.
Only when urban growth boundaries are removed will we know a piece of land’s true value. It will then be a trade-off between price and distance. People may be prepared to travel another 10 or 15 minutes by car (10 to 20km) to get a cheaper block.
To highlight the “‘X’ years supply of land available” argument, I heard a state bureaucrat say recently that the government had released enough land for 15 years supply. I raised my hand and asked “15 years supply – at what price?” He didn’t know what I meant. I said “at $200,000 a block it may well take 15 years to sell. So why don’t you double the price and then you’ll have 30 years supply?”
These points highlight the fact that, as with most central planning, housing planning is based on a fundamental flaw – that price does not matter. But as we know, price does matter. Imagine the demand for housing if land was $100,000 per block cheaper. Think LCD, LED and plasma TVs over the past five years.
Australia does not have, and never has had, a housing affordability problem, it has a land affordability problem. The cost of building a new house has hardly moved in 20 years. Land prices however have skyrocketed. By restricting the amount of land available on the urban fringes of our cities, state governments have sent the price of entry-level housing through the roof.
The reasons state governments give for these restrictions all centre on urban planning. They have persisted with their policies of urban densification (squeezing more and more people into existing suburbs), an idea that has failed all over the world.
Whether it’s traffic congestion, air pollution, the destruction of bio-diversity or the unsustainable pressure on electricity, water, sewage or stormwater infrastructure, urban densification has been a disaster. The evidence is overwhelming; urban densification is not good for the environment, it does not save water, it does not lead to a reduction in motor vehicle use, it does not result in nicer neighbourhoods, it does not stem the loss of agricultural land, it does not save on infrastructure costs for government and, worst of all, it puts home ownership out of the reach of those on low and middle incomes.
State governments use urban planning laws to restrict the amount of fringe land available and then drip feed it through their land management agencies to a land- starved housing industry at inflated prices. Hmmm. After a change of state government a few years ago, a former cabinet minister was asked why her government didn’t release more land to kick-start the housing industry. She replied: “We needed the money.” So much for urban planning.
And of course land developers with massive land banks on their books urge state governments to maintain the scarcity to maintain the ‘value’ of the developers’ inventory. Developers would be better off if they supported the removal of urban growth boundaries and allowed more broadacre land to come onto the market which they could buy at greatly reduced prices. With land prices significantly lower than they are today it wouldn’t take long for the industry to recover. Until land prices fall, there will be no recovery.
The Australian housing industry is building 40,000 fewer homes a year than it should be. That’s more than $10 billion worth of work a year the industry is missing out on. That’s a lot of bricks, concrete, timber, tiles, steel and, of course, labour.
Governments and industry associations have known for years this was coming but just played footsies with each other – read US economist George Stigler’s book Regulatory Capture to understand how and why this happens.
Australia’s economy has been seriously distorted due to a massive overinvestment in household debt. We have a housing industry on its knees. Getting all this back into alignment with reality will take time but it is a realignment that is necessary.
We cannot continue to deny the next generation a home of their own merely to satisfy the indulgences of urban planners and state government treasury officials.
This piece originally appeared in Business Spectator.
Bob Day AO is managing director of national homebuilder Home Australia.
Brighton Beach bathing box photo by Bigstock.
Comments
31 responses to “The Land Premium That’s Punishing Property”
Quote: She replied: “We needed the money.”
Brutally honest response. But when dealing with the public you need excuses that the public will accept…like the nonsense employed by Smart Growth advocates. So, you employ these people as your “true believers” to propagandise the public. And they do a damn good job because they actually believe in their own bullshit.
Maybe this is why politicians are so often stupid people? Maybe they’re gullible number two’s who do not realise that they’re being used as useful tools? For example, I think the NZ Green party is, functionally, the propaganda arm of the UN and maybe nothing more. And these ‘Green’ people, believe me, are babies. They will infuriate you with their often pathetic junk-level rationlisations in debate.
Hmmm…that was rather acid, wasn’t it? Sorry. But the central point is that propaganda, when and as required, will always be best distributed by people chosen for their capacity believe in what they’ve been fed. And sometimes that requires a silly mind.
Congrats for making it possible for creating this blog. I may not always visit this blog to see more updates but i will consider every valuable information i read here. Please keep up the good work and good luck for the upcoming post.To get more detail please visit : http://www.postallads4free.com
Bob
Writing from Britain it is hard to imagine that Australia plans for urban densification and artificially inflates the price of land as you describe. You have so much space.
The 1947 based planning system in Britain always sought to contain the working class from buying cheap farmland and building a bungalow in a garden, perhaps with a workshop. But much of Britain’s farmland is redundant, and even today the government cannot consider solving our housing affordability predicament by letting people build on it.
A hectare of ordinary farmland in Britain costs £10,000. But you can’t get planning approval to build on it. The cheapest hectare of land that would get planning approval costs £1,000,000 in towns where there is little economic dynamic. Thereafter think about paying upwards of £10,000,000 a hectare for sites in other towns and cities.
British suburbia was built at between 20 and 30 homes a hectare. If farmers were to charge £100,000 a hectare for a 500m2 plot each of 20 suburban plots would cost £5,000. That would give farmers 10 times agricultural value, but would reduce land prices to 5 per cent of the total cost of a £100,000 home. But at those prices the housing market would be awash with requests for NEW homes, not the overpriced piles of rubble that routinely sell for many times that.
Your worst case so far of 100 times agricultural value sounds like the bottom of our inflated development land market. But unless planners stop the policy of containment and densification it will not get better. What planning policy makers don’t seem realise is that planning is killiing the NEW home building industry. Containment and densification will not encourage construction in towns. It will just fuel land price speculation.
Or if planning policy makers do realise that, then the construction industry needs to aggressively confront the planning system and acquaint their heads with the pavement.
Ian Abley
http://www.audacity.org
novoline online spielen|There’s no denying the way that everybody adores fun, joy and diversion. Improvement of diversions of different sorts is a venture to fill this necessity. It makes them ends up being best menu for all to invest their recreation time in a fun skip manner. novoline kostenlos spielen ohne anmeldung|It moreover causes book of ra to give luxury for each joy seeker in characterizing their correct joy. This amusement acquaints refined routes with gain cash while having a ton of fun. It ensures day by day income simply by routinely playing this amusement. This is ready connected in present modern times we well.
Hello webmaster good day.
http://www.okumainc.com/part-accessories/performance-parts
Can I just say what a relief to find someone who actually knows what theyre talking about on the internet? You definitely know how to bring an issue to light and make it important. More people need to read this and understand this side of the story. I cant believe youre not more popular because you definitely have the gift.online classifieds
Yes it maybe they are grape a good number who do not realize that they’re being used as useful tools?
Regards,
Refurbished Tools For Sale
Build a professional network using telecom grade devices. The highly qualified network engineers of Antamedia will help you determine the best and most cost-effective hardware combination and ensure you never fail. hotspot software
A concrete slab may be used as a base for a patio or shed, or may simply be used to finish a basement floor. No matter what you’re using it for, the basic construction of the slab is the same in most residential applications. patio furniture lexington ky
The clarity in your post is just cool and i can assume you’re an expert on this subject. Well with your permission allow me to grab your feed to keep up to date with forthcoming post. Thanks a million and please keep up the enjoyable work. high PR backlinks
Large stock of Diablo 3 Gold are ready for you diablo gold ,Professional Diablo 3 Level Power Leveling service Simi Valley Garage Door Repair. g Diablo 3 Gold ,You can buy the cheapest and safest Diablo 3 gold here Buy Diablo 3 Gold so enjoy yourselves by signing up diablo 3 accounts and buying diablo III items
The crisis is faced by the business is of great magnitude. Businesses around the globe were hit so hard by the economic crisis that several businesses had to seek monetary assistance from the government in order to survive. Wedding cars Southampton
Aluminum is a difficult metal to weld using standard hot welding techniques due to its high melting point, so it is important to know how to cold weld the material to effectively create a strong joint. aluminum technology
With land prices significantly lower than they are today it wouldn’t take long for the industry to recover. Until land prices fall, there will be no recovery. free cell phone spy software
cell phone spyware
Recently I caught myself contemplating the importance of signs. Whether it’s to draw our eye to a new place of business, (Harry’s Hamburger Joint – Grand Opening!) remind us of a political candidate (Vote for Honest Abe!) or tell us what to do when we are driving, (merge, yield, slow, STOP!!), signs are everywhere, vying for our attention. http://ntxrealestategroup.com/
This website has very good content. Thank you for the great article I did enjoyed reading it, I will be sure to bookmark your blog and definitely will come back from again
side effects from raspberry ketones | what is meratol | proactol plus | capsiplex plus testimonials
The crisis is faced by the business is of great magnitude. Businesses around the globe were hit so hard by the economic crisis that several businesses had to seek monetary assistance from the government in order to survive custom writing essays
More and more users are using online banking, making financial transactions, purchasing things online on their tablets, and putting sensitive information on the web. banking in kentucky
It is not the employer who pays the wages. He only handles the money. It is the product that pays the wages.
Buy some pantone cufflinks.
I have been in look for of some information about it almost three time. You served me a lot indeed and analyzing this your publish I have found many new and useful information about this topic.naturalbreastenlargement.tripod.co.uk | bestmaleenhancement | real phen375 reviews |
Liked to study your website. I would like to recommend you that traffic show most people study weblogs on Monday. So it should motivate blog writer to create new create ups over the few days mainly.bestwrinklecream2013.webs.com | bestantiwrinklecream2013.webs.com | bestantiagingcream2013 |
When you have nice post then content helps you with latest information. here it is the same situation, i have new tips to reduce your fat in most quick way. freelance writing
Governments and industry associations have known for years this was coming but just played footsies with each other – read US economist George Stigler’s book Regulatory Capture to understand how and why this happens.
SEO Services Company
Along with other New laptop notebooks is that it is extremely personalized .
Buy backlinks
high pagerank backlinks
Along with other New laptop notebooks is that it is extremely personalized .
Buy backlinks
high pagerank backlinks
Hurrah! Finally I got a website from where I be able to truly obtain helpful facts regarding my study and knowledge. SEO packages
manual social bookmarking
I am really like it very much for the interesting info in this blog that to this website is providing the wonderful info in this blog that to utilize the great technology in this blog.
buy quality backlink
pr5 backlink
high Pagerank Backlinks
the price is not higher than China.:)
my shop http://www.cfdsite.net/
The Australian housing and building industry is one of the major employment industries in Australia, you might say that this is so also in other countries; but in other countries building houses is not as important as it is in Australia. Sell my house quickly in London
You should post on the readability for the blog. You can draft it’s practical. Your blog details/features might build up your resellers. http://rebelmouse.com/jennyboltonboostyourbustreview
I would love to stop by. But, I think it might have to wait until this summer. I did not know that Serlkay had ever expanded its size. I must say that a succesful family owned business in this day and age is a very refreshing sight! As well as this is a very refreshing site!
buy facebook fan page likes cheap