We often talk about the housing shortage and the need for supply, but what are the pragmatic ways governments can achieve this? And where do investors fit in?
Bodies as influential as the OECD have pointed the finger of blame for surging house prices at the Reserve Bank for keeping interest rates s…
We often talk about the housing shortage and the need for supply, but what are the pragmatic ways governments can achieve this? And where do investors fit in?
Bodies as influential as the OECD have pointed the finger of blame for surging house prices at the Reserve Bank for keeping interest rates so low, adding more demand for housing to a sector which has for years struggled to satisfy the number of buyers in the market.
More supply is often cited by market commentators and industry bodies, including the Real Estate Institute of NSW, as the most important solution to the problem.
But creating more housing choice goes beyond addressing the disparity in supply and demand. There’s a critical economic urgency at play because of the huge budget black hole COVID-19 has created.
Real estate transactions are, and will continue to be, the most important contributor to the economic recovery that we’re only at the beginning of. No other industry has the capacity to play as significant a role. Tax from the purchase of real estate in the form of stamp duty is fuelling the economy.
It’s plain to see. Revenue NSW figures show that the amount of transfer duty collected in July 2021 – over $1.1 billion – was the largest amount collected in any July published on the Revenue NSW website.
It was the same story in August 2021. The transfer duty collected for the month – again more than $1.1 billion – was the largest amount collected in any August published on the Revenue NSW website.
At this rate, the amount of transfer duty the NSW Government has budgeted for this financial year will be exceeded by about $1 billion. Eye-watering figures that paint a very clear picture: real estate transactions will continue to be relied upon to power the economy and repair the budget in the years ahead.
Investors will have an increasingly important role to play. That is, if they have quality properties to choose from. Let’s take a look at what can actually be done, with urgency, to address the supply issue and provide investors with that choice.
Regions must take the reins
The exodus of people from Sydney, empowered by working from home flexibility and with renewed lifestyle priorities, has seen key regional markets benefit from an influx of new people. With that influx has come undue pressure on local housing markets and many have been caught unprepared.
Some are responding. In June 2021, Tamworth Regional Council brought together stakeholders for a regional housing forum while earlier in the year in Ballina, in northern NSW, a taskforce involving local agents and housing groups was established with a view to looking at density in certain areas.
The challenge for areas spiking in popularity is to respond with new housing and infrastructure to cope with that growth, unlocking flow-on economic benefits to other industries.
For investors, regional markets stepping up to this challenge may be worth checking out. Prices might be rising, but as these local economies expand and then mature, long-term sustainable growth is a reasonable expectation.
Council clarity and leadership
Councils clearly have an important role to play in facilitating new housing supply. However, traditionally, there has been too much politics in local planning. All too often a minority of vocal residents successfully exert their influence to scuttle an entire community’s progress.
It’s time to be brave. Councils need to have a vision for what they determine the community needs and wants. Their obligations go beyond the here and now, so that vision must encompass the medium to long term. And it should be there for all to see.
A clear and publicly available document setting out council’s vision, covering components like housing targets, permissible heights and density, will assist everyone, including developers. With a clear vision and a commitment to work constructively with those with the expertise to shape the urban form, councils can take the leadership position people expect of them.
A simplified system
The planning system has been described as “designed to make you give up”. It’s not unusual for an application to take 18 months to navigate the approval process. That’s 18 months of costs incurred for no gain. It’s obviously unsustainable.
There’s significant scope to make the planning system simpler without compromising on the quality of developments.
It starts with a commitment to working constructively. When a council is willing to cooperate with developers, developers can assist council achieve their vision for the community. It sounds simple but all too often the relationship between council and developers is adversarial. Consequently, the consent authority becomes the Land and Environment Court.
If developers know in advance what “yes” and “no” means in relation to developments and council’s vision, they can stop wasting their time and that of council. With a known strategy, developers can start having genuine conversations with buyers. Investors can investigate new projects with greater certainty.
This doesn’t mean councils should open the floodgates for developers to start building vanilla, uniform, density without design and amenity. Councils must still set the vision. But doing nothing, building nothing, is not an option.
Take the axe to tax
All three levels of Government enjoy significant revenue from property taxes. The NSW Government is addicted to stamp duty revenue. At the same time, housing affordability is apparently an issue Government takes very seriously.
There’s a disconnect here. Taxes and charges contribute to the cost of new housing to the tune of 40 per cent. It’s a good place to start if Government is serious about having a conversation with the community about housing affordability.
The burden imposed on transacting and holding real property is disproportionate. The solution is for Government to expand this tax burden more broadly. Revenue need not suffer through a fairer allocation.
Reasonable reform to property taxation to remove cost barriers and encourage new supply is the best solution available to make housing more affordable. Until then, the current available housing stock will continue to fall well short of demand, and prices will continue to rise.
