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Why is property development is a dirty word

Property development is now a dirty word.

Lets start with some statistics:

The decade-long average shows new dwelling starts at around 14,000 per month.

At present across Australia it is just 11,000 per month – a 20% fall.  New house sales are down about 15% from long-term averages; a similar trend can be seen in the new apartment market, too.

This snapshot illustrates a more alarming trend – nationally there were 180,000 new dwellings built in 2003/04; this financial year it will be under 130,000.

New house sales peaked in 2002/03 with 113,500 transactions; this year just 78,000 new homes sold.  New apartments saw – according to the HIA-JELD-WEN Australia New Home Sales report – 38,500 sales in 2001/02 but today they report just 9,000 new unit sales.

Closer to home, in Queensland, 29,000 new dwellings were built in 2003/04, with just 17,500 built over the last twelve months.  Despite the recent building boost, just 950 new houses were sold across Queensland during April – the first time new sales dropped below 1,000 over the last decade or so.

Admittedly, the data on new home and apartment sales is from a survey, rather than a complete snapshot of activity, but it does provide a somewhat accurate picture of what is (well, isn’t really) going on in the new residential market across much of Australia.

So what gives? 

Our recent Matusik Pulse poll asked our subscribers and twits (twitter followers, for the digitally challenged) this question, “What is stopping new residential sales at present?”

Limited development finance and low valuations came in as the clear winner with just over a third of your votes.  Yes, developers are finding it harder to get finance at present (they have since late 2008) and many lenders require an 80% pre-commitment or above before they are willing to assist with finance.  Wave bye-bye to most new medium and especially high-rise apartment developments.

Higher taxes and charges on development came in second with about 20% of the vote.  On the Gold Coast, for example, taxes and charges make up 40% of the price of a new house and land package.

What this means to the average family is about $170,000 in extra interest over the life of a 25-year loan.

And somehow, there isn’t marching in the streets.

The cost of electricity rises and we see a cascade of letters to the editor, TV cameras taking still shots of utility bills and families crying about not being able to run the air-con.  But we hear nothing about how government is sticking it to the housing sector, and more importantly, to buyers.

This is about our sons and daughters people, not some overseas buyer or interstate investor.

The world economy is also taking its toll on demand – really, at the heart of this is a lack of confidence, and this is seen in our survey via job insecurity (14%) and a genuine lack of demand (13%).  A large component behind this limited demand has to do with slower population growth and increasing household size.

Poorer potential for capital growth makes up about 10% of the reasoning for the slow-down in sales, with one in twelve saying that developers are not meeting the market.

The usual chestnut – interest rates being too high – barely got a rating in our survey, attracting less than 4% of the vote.

If we don’t somehow boost home building, then many sectors of the Australian economy are left without much momentum.

Home building – as Craig James from Commsec often, and so rightly points out – affects not only builders and tradespeople, but also financiers, retailers, landscapers, building material companies, solicitors, accountants, agents, building service professionals and even independent property consultants!

Not that long ago, we, as a nation, prided ourselves on what we developed.  Today, development is a dirty word.

Well, look around people…

99.9% of what we enjoy involves development.  And before some whack job replies, saying they enjoy going to Cradle Mountain (and who doesn’t!), or to Moreton Island to go camping (again, who doesn’t!), how do you get there?  Teleport?

We must get real estate development on the front page again, and for all the right reasons. 

Development creates jobs; it is where we spend nearly all our time; and everyone who reads this post lives in a dwelling.  That was built, too.

Michael Matusik is the director of independent property advisory Matusik Property Insights.  Matusik has helped over 550 new residential developments come to fruition and writes the weekly Matusik Missive.  The Matusik Missive is free, however, reprinting, republication or distribution of any portion of this material, or inclusion on any website, is strictly prohibited without the written permission of Matusik Property Insights and may incur a charge.



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Michael is director of independent property advisory Matusik Property Insights. He is independent, perceptive and to the point; has helped over 550 new residential developments come to fruition and writes his insightful Matusik Missive


'Why is property development is a dirty word' have 2 comments

  1. Avatar for Property Update

    June 29, 2012 @ 10:33 pm Building Inspections Melbourne

    I couldn’t agree more. With the amount of property i see day in day out its no wonder it become like this.

    Reply

  2. Avatar for Property Update

    August 24, 2012 @ 3:01 pm Sunland Property Developers

    Big fan of Michael Matusik and this article does not disappoint. How can property developers do their part changing the perception of this word? Perhaps theres a need to ignite a new spark of creativity in projects? Create more vibrant communities to really give buyers something to talk about? The recent news about creating a cultural precinct on the Gold Coast is another good start.

    Reply


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