Experts gather to solve the housing supply and affordability crisis

Tomorrow, the UDIA Urban Development Property Summit, brings together government leaders industry experts and economic gurus to discuss the state of the housing market in NSW and the economic environment to identify actions needed to help tackle the escalating supply and affordability crisis.

We need to examine the real causes of the housing supply shortage and put forward the solutions that all levels of government need to take action on, particularly the specific issues that are holding us back from driving an economic recovery in NSW.

There is more to this issue than the current rhetoric would lead us to believe and we while agree with Minister Stokes that “planning alone will not fix Sydney’s housing affordability crisis”, there is a great deal more that Planning needs to do in NSW if we are to turn around rising house prices.  What we need is a coordinated effort across all levels of government.  There are far too many agencies, many with competing priorities, which is resulting in governance being held back and a failure to make things happen in a coordinated delivery of growth.

In the Urban Development Institute of Australia’s submission to the Federal Inquiry into Housing Supply issues to examine taxes, charges and regulatory settings at local, state and federal levels – a number of factors were highlighted that speak directly to the issues that will be discussed at the Summit tomorrow:

Sydney is the 3rd least affordable city in the world and has had 2nd or 3rd ranking for 5 years.   Source: Demographia International Housing Affordability

Rapid price growth in NSW is a sign of undersupply and a cause for concern around affordability, both in Sydney and in regional NSW.  Data released this week by the ABS shows strong price growth in the detached house market in NSW over the last year. Detached houses in Greater Sydney experienced price growth of 24% in Financial Year 2020-21, and the rest of NSW experienced average price growth of 42%.  Median sale prices are now at all-time highs across NSW, driven by a hot market with insufficient new supply to meet demand. Dwelling completions are down 14% over the last 12 months and 26% from the peak in 2019.


Source: ABS 

Completions chart


Data to March 2021  Source: UDIA; ABS

Backlog of unsatisfied demand

According to the Productivity Commission White Paper released in May 2021, there is a backlog of 54,000 dwellings in NSW and despite this the forecast is for even lower dwelling completions over the next five years.

Dwelling Pipeline outlook – NSW

Source: UDIA; ABS; CoreLogic; Research4

Phillip Lowe quote

“The underlying driver in our housing market is the balance between supply and demand . . . It is hard to escape the conclusion we need to address the supply side if we are ever to avoid ever-rising housing costs relative to our incomes.”
Dr Philip Lowe, Governor, Reserve Bank of Australia – Remarks at Reserve Bank Board Dinner, April 2017.

RBA Zoning effect report March 2018 – $489,000 in Sydney

Zoning accounts for 42% of the price of a dwelling in Sydney according to the RBA’s report in March 2018 and this between 51% and 208% higher than the other Australian capitals.

Land Supply drought for new housing

At the end of the June 2021 quarter, there were only 334 housing lots ready for sale in Sydney.   This is to service an average annual uptake of 11,500 lots.

UDIA Greenfield Land Supply Pipeline Report 2021

Our report identified the anticipated schedule for future housing supply delivery and identifies the barriers which need to be resolved to meet demand for new homes across the Sydney Megaregion including Greater Western Sydney, the Illawarra, Central Coast, and the Hunter.

  • 32 locations that have estates which need to be rezoned by FY24 – and 13 of those locations are now urgent
  • As well as rezoning, 80 percent of lots that are hoping to be delivered between FY22 and FY29 require enabling infrastructure
  • Across a range of 16 major precincts identified as priority for rezoning by the NSW Government, they have faced an average wait of 5.6 years since their announcement and only recently the first few were approved.
  • Across most sub-regions, more than two-thirds of lots to be delivered are constrained by basic enabling infrastructure such as state roads, sewer and water infrastructure.

There is no doubt in our minds that things are set to get worse for housing affordability, as we watch developable land fast running out and apartment approvals and commencements are at close to record lows.

The market already lacked flexibility and the development-ready pipeline needed to service pre-pandemic demand, but will soon face a surge of additional pressures once our immigration and population trajectory returns to business-as-usual settings.

UDIA Solutions to combat the Housing Supply and Affordability Crisis in NSW

  • From a policy perspective, we have lodged our submission to the Federal House of Representatives Standing Committee on Tax and Revenue – Inquiry into Housing Affordability and Supply in Australia. This Inquiry recognises that the goal of home ownership is intrinsic to the Australian psyche, and yet it has never been more out of reach.
  • From a regional perspective there is a wide range of enabling infrastructure needed, especially water infrastructure, as identified in our Greenfields Land Supply Pipeline report. The report also calls for 29 more rezonings across the Sydney Megaregion to build the delivery pipeline over the next few years.
  • There is so much that can be done now to turn our current situation around with the right focus on industry acceleration and industry reform for long term solutions to improve productivity, including utilising at least $1b of the $3b in infrastructure contributions currently held by councils in the Sydney Megaregion, so that the development industry can again be crucial to our economic recovery and our cities global competitiveness.
  • The NSW apartment market is struggling with approvals down nearly 63% from the 2016 peak and commencements down 43% and falling. Based on the current trend, there could be a drop in supply of up to two-thirds over the next few years. There are 78,000 potential units in NSW that are approved but not commenced. The best way to fix the apartment market and reduce pressure on housing affordability in the short term is to find ways of converting existing apartment approvals into construction projects by tackling the financing problem and reducing pre-sales barriers.
    Our recommendations to government are:
    1. Extend the First Home Buyer grants and assistance scheme for apartments purchased off the plan.
    2. Remove/reduce foreign investor surcharges on new build apartments.
    3. Freeze Land Tax for 12 months for properties awaiting a DA approval.
    4. Provide loan guarantees in exchange for lower project pre-sales thresholds. The NSW Government provided up to $750m via a loan guarantee scheme to help Universities through the COVID-19 pandemic. We believe that an equivalent scheme for apartments could play a significant role in getting construction moving.
  • We need the Government to immediately re-open the construction industry to 100% site capacity and by doing so, get people back to work so that they can support their families.
  • Our governments need to work together to lead us strongly out of lockdowns, if we are to re-engage with the rest of the world, reopen boarders and restart immigration to take advantage of our good management through the COVID Pandemic.

ENDS

Media Enquiries:
Deanna Lane 0416 295 898 or dlane@udiansw.com.au.
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