Projects Review Edition 19, 2020
Have Apartment Prices bottomed Out?
Upzoning
Changes to our Cities
Major Property Trends
Cover Photo East End – 28-30 Maroondah Highway, Ringwood
Contents 1
2
A Word From the Directors Spotlight
3 - 5
Current Projects
6 - 10
Have we seen the Floor in Aparment Prices?
11 - 15
Upzoning
16 - 17
The major changes in our cities that will kick off the 2020s
18 - 19
Proposed changes to the Retail Leases Act
20 - 23
The seven major property market trends in the 2020s
24 - 31
Build to Rent
Projects
Past Projects
3
East End
32
The Beckworth Profile
4
Balwyn Park
33
4
Broadway
34
McKinley
4
Timeless
35
232 Wattletree
5
East Grove
5
Wattle on the Park
5
Westerfolds
Contributors 6
Have we seen the Floor in Aparment Prices? - Urbis
7
Median Unit and House Prices in Melbourne - Urbis
8
Are we seeing Sales Speed Rebound? - Urbis
9
Not yet Enough to Trigger the Re-Launch - Urbis
10
Is that a Bobble in Approvals - Urbis
11 - 15
Upzoning - Secret Agent
16 - 17
The major changes in our cities that will kick off the 2020s - Elite Agent
18 - 19
Proposed changes to the Retail Leases Act - KCL Law
20 - 23
The seven major property market trends in the 2020s - Domain
24 - 31
Build to Rent - Urbis
+ 61 3 9822 9999 1111 High Street, Armadale VIC 3143
Disclaimer: Information provided is believed to be accurate as at the date of printing, no responsibility is taken for any errors or omissions. It is your responsibility to obtain independent, professional advice. Every effort is made to provide accurate and complete information in Marshall White’s (trading as Marshall White Projects) technical and regulatory newsletters. However, Marshall White cannot guarantee that there will be no errors. Marshall White and its contributors to the newsletter make no claims, promises or guarantees about the accuracy, completeness, or adequacy of the contents of the newsletters and expressly disclaims liability for errors and omissions in the contents of this newsletters. Neither does Marshall White and its contributors to the newsletter assume any legal liability for any direct, indirect or any other loss or damage of any kind for the accuracy, completeness, or usefulness of any information, product, or process disclosed herein, and do not represent that the use of such information, product, or process would not infringe on privately owned rights.
A Word From the Directors The Government’s new housing initiative , introduced the 1st of January, is the First Home Loan Deposit Scheme (FHLDS) where the government guarantees an off the plan purchaser‘s lender an additional 15 % of the purchase price (with 5 % put in by the buyer) thereby allowing buyers who meet the criteria to avoid lenders mortgage insurance (LMI). It seems to be a significant benefit to first home buyers, unfortunately however when the benefit only applies to a purchase price of $600,000 or less, it’s advantages are limiting. We recently reported to the media that 2019 was very much a year of two halves, with sales activity for the July - Dec half up a staggering 68 % from the six months prior. One of the major drivers for this increased activity was the resurgent empty nester lifting our average off the plan sales price at years end to just over $ 1.17 million, an increase of 16 % since the start of 2019.
Whilst we’ve learnt to be selective in what we start, some projects have been slower than anticipated. We commence a campaign believing we had both the product and price right by “Beta testing” through soft launches prior to our clients investing substantial amounts into media. However, buyers now take longer to make a decision (on average off the plan buyer’s journey has extended to five months) and brand-new, shiny projects are continually launched which butt up against the remnants of stock left within the market place from earlier campaigns. Very few single developers are able to run the same number of projects as we do whilst spanning most areas of Melbourne, such as Sunshine through to Noble Park – however, if nothing else, 2019 has shown us what the buying market needs and just as importantly what it doesn’t.
So, what does all of this mean to a developer? Should you be launching townhouses out at Sunshine in 2020 or boutique apartment projects in Glen Iris? Interestingly, we did this last year and both developments found a ready buying audience from within a crowded marketplace.
Without question 2020 will be a year of growth. We know it’s a long way to go to return to the heady times of 2017 (how good did we all have it!). The off shore market (with perhaps the exception of Hong Kong) will be many, many years behind the recovery demonstrated by the local market throughout this year.
Still, a number of our clients like to simply roll out what’s worked for them in the past, with affirmations like “I want to be known in the market place for this type of product, within these area’s” or just as simply “If it ain’t broke, then don’t fix it”. Changing your company direction with regards to product type or location comes with inherent risks, such as losing a target market or creating a product the market doesn’t like. This can typically set most developers back years in lost revenue or opportunity.
From “boutique” developments such as 555 Burke Rd Hawthorn East to “mini suburbs” at 28 – 30 Maroondah Hwy Ringwood, we expect to continue to cater throughout the year to a local market (94% of all sales last year) and owner occupiers (84% last year) and also for what we expect to be reduced days on market and a decreased cost per sale.
The answer is simple …and it’s just numbers. We’re in a fortunate position that at any stage in a year to be working through 15 – 20 projects. We’re able to keep a watchful eye on a market’s reaction and how changed conditions will determine days on market, cost per sale (media and collateral) and a buyer’s acceptance of certain specifications.
The best developments we work through are the ones where we can have input at pre planning. Conversely the most difficult ones are the sites that have been sold with a selling agent indicating an “optimistic” (see unrealistic) resale rate per sqm for the end product. Nobody, old or new to the development game want to do a project for practice. Please talk to us when you’re ready
Leonard Teplin Director
Mark Dayman Director
T: 03 9832 1191 M: 0402 431 657 leonard.teplin@marshallwhite.com.au
T: 03 9832 1193 M: 0409 342 462 mark.dayman@marshallwhite.com.au
1
Spotlight
Ranko Cvjeticanin Director With over twenty years of real estate experience, Ranko has a proven track record of achieving outstanding sales results in the industry. During this time period, Ranko has seen substantial change in the real estate profession but his professional approach to every facet of every transaction hasn’t wavered. Part of the project development team at Marshall White, Ranko’s natural positive energy and enthusiasm and ability to relate to people from all walks of life has been invaluable. His genuine integrity and personal service style quickly makes clients feel at ease. Balance has always been and continues to be crucial to Ranko’s consistency throughout his career. Away from the office he spends time with his son and family and he is dedicated to keeping fit and physically active.
2
Liam Adey
Georgie Lupson
Sales Executive
Executive Assistant
Personable, positive and hardworking, Liam strives toward helping people achieve their off the plan purchasing requirements.
A stellar work ethic and determination has seen Georgie flourish in her role in the Marshall White Projects team. Approachable and genuine, Georgie is a sales administration specialist whose professionalism and positive outlook make her a delight to engage with.
Maintaining open channels of communication, Liam easily develops a natural rapport with his buyers. Liam finds the development industry to be incredibly rewarding as it revolves around making connections with people and perfectly suits his positive mindset. Combined with his strict time management, perfectionist nature and a refined attention to detail, Liam is well suited to his role at Marshall White projects. Active by nature and a big believer in the value of physical fitness and a healthy social life, Liam divides his free time between playing basketball, spending time with his friends and supporting his beloved Hawks.
Georgie possesses superb attention to detail and exceptional management skills, ensuring she is impeccably organised and well prepared at all times. With broad experience across a range of departments, Georgie is a valuable team member who understands clients’ needs. Educated at Loreto Mandeville Hall in Toorak, Georgie is highly knowledgeable of the Stonnington area and loves sharing her recommendations with clients. Outside of work, Georgie is involved in local sports and is an avid golfer and AFL footballer in the VAFA league. A fervent supporter of the Melbourne Football Club, Georgie also enjoys travelling and exploring Melbourne’s great beaches.
Project
East End 28 - 30 Maroondah Highway, Ringwood
3
Project
Project
Balwyn Park
Broadway
7 Cherry Road, Balwyn
630 Glen Huntly Road, Caulfield South
Project
Timeless 555 Burke Road, Camberwell / Hawthorn East
4
Project
Project
East Grove
Wattle on the Park
2a Kenilworth Grove, Glen Iris
2 Wattle Grove, McKinnon
Project
Westerfolds 8 Yolande Court, Templestowe
5
Have we seen the Floor in Aparment Prices? urbis.com.au
SALE PRICE - MOVING ANNUAL AVERAGE
?
2017-Q2
2017-Q3
2017-Q4
2018-Q1
2018-Q2
2018-Q3
2018-Q4
2019-Q1
2019-Q2
$1,400,000
$1,200,000
$1,000,000
$800,000
$600,000
$400,000
$200,000
$0
Sydney
Source: Urbis Apartment Essentials
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Ubris
Melbourne
Inner Brisbane
Gold Coast
Perth
Median Unit and House Prices in Melbourne urbis.com.au
ND IN
MEDIAN UNIT PRICE
MEDIAN HOUSE PRICE
NEW APT PRICE AS % OF MEDIAN UNIT PRICE
NEW APT PRICE AS % OF MEDIAN HOUSE PRICE
PRECINCT
NO. OF PROJECTS
AV. PRICE OF NEW APARTME NTS
Central
48
$858,400
$537,900
N/A
160%
N/A
Inner North
52
$589,800
$520,750
$1,147,735
113%
51%
Inner East
37
$939,700
$606,700
$1,931,770
155%
49%
Inner South
17
$883,900
$603,100
$1,610,760
147%
55%
Inner West
30
$543,600
$471,100
$949,270
115%
57%
Northern Corridor
32
$574,500
$527,500
$1,033,170
109%
56%
North-Eastern Corridor
36
$677,000
$643,650
$1,488,540
105%
45%
Eastern Corridor
65
$613,000
$660,200
$1,355,830
93%
45%
South-Eastern Corridor
70
$817,300
$613,700
$1,363,235
133%
60%
Western Corridor
9
$1,149,750
$510,300
$980,185
*N/A
*N/A
All Precincts
396
$678,600
$578,700
$1,334,800
117%
51%
Source: Urbis Apartment Essentials * insufficient sample
Ubris
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Are we seeing Sales Speed Rebound? urbis.com.au
% Sales of Available Stock 2017-Q3
2017-Q4
2018-Q1
2018-Q2
2018-Q3
2018-Q4
2019-Q1
2019-Q2
18% 16% 14%
13% 11%
12%
10%
10%
10%
11% 9%
9% 7%
8% 6%
5%
4% 2% 0%
1 Bed
Source: Urbis Apartment Essentials
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Ubris
2 Bed
3 Bed
Not yet Enough to Trigger the Re-Launch urbis.com.au
APARTMENT LAUNCHES BY CITY
H
2018-Q2
2018-Q3
2018-Q4
2019-Q1
2019-Q2
2019-Q3
55 50 45 40 35 30 25 20 15
10 5 0
Sydney
Melbourne
Inner Brisbane
Gold Coast
Perth
Source: Urbis Apartment Essentials
Ubris
9
Is that a Bobble in Approvals urbis.com.au
APARTMENT APPROVALS BY CITY
E
Sydney
Melbourne
Inner Brisbane
Gold Coast
Perth
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0
2017-Q2 2017-Q3 2017-Q4 2018-Q1 2018-Q2 2018-Q3 2018-Q4 2019-Q1 2019-Q2
Source: Urbis Apartment Essentials
10
Ubris
THE SECRET AGENT REPORT VOLUME 86 - NOV 2019 SECRETAGENT.COM.AU
UPZONING DOES IT MAKE HOUSING MORE OR LESS AFFORDABLE? Secret Agent
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Upzoning Vol.86 Nov 2019
Upzoning by Jodie Walker
Affordable housing is an issue many cities are currently facing. Upzoning is a potential solution to the issue, however prominent geographer Michael Storper suggests that upzoning actually makes housing more expensive.
WHAT IS UPZONING? Cities have been expanding at record rates as a result of urbanisation and a growing population. The demand for jobs in city centres is high, as is the demand for housing. This has created an affordability issue in urban areas. Housing affordability isn’t a problem unique to the big cities like New York, Paris and Tokyo; it is also common amongst places such as Dublin, Seattle and Melbourne. New supply can’t keep up with demand in these areas and there is a need to increase the supply of housing whilst minimising costs. Both rents and house prices are reaching levels that are unattainable for many. The migration of people into cities is slowing in comparison to rates from earlier this decade. Many people can no longer live near their places of work. This has given rise to a school of thought known as “housing as opportunity.” It argues that the affordability issues faced by many of the world’s cities is due to restrictive zoning and the associated rules. The best way to solve the affordability crisis is to increase the supply of housing by removing these restrictions. The process in which zoning restrictions and building codes are removed to allow for higher density housing is called upzoning. Upzoning as a definition is simple. However, the deregulation of land zoning has consequences that are much more complicated to predict. THE CASE FOR UPZONING The main benefit of upzoning is the increased supply of housing in highly desirable urban areas. One of the biggest issues faced by cities is a lack of housing. More supply would allow more people to live in these areas which in turn would help that city to continue to grow.
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Upzoning Vol.86 Nov 2019
Designs for the Green Spine development in Melbourne. The increasing supply of apartments in Melbourne help the city cope with its growing population. (Image from abc.net.au)
It has been proposed that making housing easier to build by removing restrictions would allow for taller buildings which contain more apartments. This would flow on to increased supply and eventually falling prices.
In addition to increasing supply, deregulating zoning would remove the zoning tax that seems to be built into the price of property. Housing is expensive to produce and this is partly due to zoning regulations. A study by the RBA (2018) found that in Australian cities, zoning restrictions as well as increased demand, have resulted in the significant growth of property prices above what their physical structure is actually worth. Similarly, the gap between apartment sale prices and construction costs is due to zoning. For example, it is estimated that zoning restrictions increase the cost of a detached house in Sydney by 73% above the costs required to provide it (the structure and land). In Melbourne this zoning price increase above marginal cost is 69%. This effect is apparent in other cities across the world to a different extent. It seems to be larger in cities with tighter restrictions and barely existent in places were there are no restrictions. (RBA, 2018)
If an area has lots of amenity, including jobs, then creating more high density homes is the only way to allow for more people to live in that area. This would continue to improve the economy of that city. If supply keeps up with demand, property prices and rents rise more slowly which means more people can afford to live there. Less people are also displaced. The housing as opportunity consensus claims that upzoning will increase affordability for lower income people through increased supply. (TPR, 2019) This will make more housing available to every body, whether they have a high paying job or not, thus reducing inequality and segmentation in the housing market. In regions were zoning restrictions apply, their removal is the first step in enabling this to happen. THE CASE AGAINST UPZONING The impacts of upzoning may benefit the city in the long term, but in the short term it means disruption to existing residents and a lot of uncertainty. Reduced parking requirements for individual apartments results in more people fighting over limited existing parking spaces. More people means that there is more congestion and noise which is something that needs to be dealt with on a daily basis. New developments change the scale of what exists in that area. If they are not designed well, they can also change the entire ambience. Whilst upzoning might be positive for certain demographics, it can be a negative experience for those already living there. UPZONING
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Upzoning Vol.86 Nov 2019
Upzoning on its own is also unlikely to help a city grow. According to Michael Storper (2019), the reduced migration of people into cities isn’t due to lack of supply or an affordability issue – it's due to the types of jobs being created there and the skills required for those jobs. People are still moving into the city. What is changing is the types of people moving in and how they are accommodated. They are typically younger, highly skilled and are willing to live in smaller apartments. This is intensifying the income inequality between regions within the same country. Instead of a mix of jobs being located across the country, the high paying, high skilled jobs are concentrating in the city centres. “The affordability crisis within major urban areas is real, but it is due less to over-regulation of housing markets than to the underlying wage and income inequalities, and a sharp increase in the value of central locations within metro areas, as employment and amenities concentrate in these places.” (Storper, 2019) Upzoning to allow for more housing won’t solve the affordability issue. It could in fact make it worse.
In his review, Storper looked at the relationship between land area, population migration and house prices. It was concluded that there is no consistent relationship between those three aspects of a city. Instead, what drives growth in house prices is the distribution of income across cities. For example, cities like San Francisco have high paying jobs that attract skilled workers. House prices were driven up because they had the “fundamental economic forces that causes the skilled to want to be in the big metropolitan areas today.” (TPR, 2019) Skilled workers are still moving into prosperous cities because the payoff in terms of much higher incomes compared to what they would get in other areas is so great. Upzoning might increase supply but it would simply give them more options. Blue collar workers and low income people still won’t be able to afford housing in these areas. Increased supply could have downstream effects on lagging regions but this type of trickle down effect is strongly argued against by Storper. It is often thought that prosperous buyers moving into new supply would free up older apartments for those lower down the income distribution ladder. Often, this is not what happens. Those older style apartments are kept as investment properties, or they free up supply for others within the knowledge based economy to take up that apartment. The
added supply means that new skilled workers come in from other big cities and push up incomes at the top end of the pay cycle. This then feeds back into the property market. This is reinforced by the fact that those who live in the city are not moving out to the suburbs at the same age as what previous generations did. It is thought that this could be due to people spending more time focusing on building their career before settling down, and also the longer time required to commute thanks to increased congestion. (Autor and Fournier, 2019)
Living close to work is more valuable than what it has been in the past. This has resulted in competition for housing in the city that is created by skilled workers since the older workers are not moving out to make room for the younger ones. Simply providing more supply by loosening zoning restrictions would not address housing affordability for those living in the suburbs. Further, it would not make those areas more desirable to blue collar or low income workers, especially if they couldn’t get work there due to not having the right skills. Upzoning would simply enable and attract more skilled workers to live close to their jobs. For example, the tech boom in Seattle led to huge pressure for re-zoning sections of the housing market. Limits on the number of units built on a section of land were removed, as were height restrictions. For many areas the requirement to provide parking on site was also removed. Upzoning in Seattle aimed to create more affordable housing for everybody. Instead, high paid tech workers who were willing to pay expensive rents for small apartments moved into the area. Families and less affluent people were forced to move out. Upzoning created more supply but it didn’t make housing more affordable. Despite the continuous construction of new units, Seattle saw the fastest growth in rents between 2010 and 2015 than any other place in the USA. (Pitts, 2017) Increased density through the construction of taller buildings doesn’t necessarily contribute to cheaper houses because it isn’t feasible to sell them at a cheaper rate. It would seem like if you have a plot of land and built 50 apartments on it you could sell each of these cheaper than what you would sell two houses on the same block of land. However it doesn’t work like this. Apartment buildings that are too tall don’t translate into more affordable housing because they simply cost a lot to build and so have to be sold at a certain price in order to make UPZONING
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Upzoning Vol.86 Nov 2019
them worthwhile. As you build higher, there are increased demands from an engineering perspective and additional requirements for the building. These include complicated lift systems, fire prevention and escapes, water pressurisation and supply as well as heating and cooling systems. They all contribute to additional costs associated with construction of high rise apartment buildings. There is the need to use floor space for the structural core of the building. This puts restrictions on the actual floor plans that the apartments can have. Further, building in more congested areas also means that the construction takes more time. These added costs equate to higher sale prices. An analysis of upzoning in Chicago neighbourhoods found that upzoning had the opposite effect of what was expected. (Freemark, 2019) The study compared the effects of two sets of zoning reforms which encouraged denser development, on property values between 2010 and 2018. The findings showed that upzoning did not affect housing supply, and instead of reducing prices it resulted in rising house prices in the areas where building sizes increased. It was thought that upzoning increased prices by increasing the value of the land. If a parcel of land has the ability to be turned into a tower of multiple apartments, it is more valueable to the owner than what it is if zoning restrictions mean that the land can only have a single house on it.
In the short term, upzoning increases the value of the land and the property that sits on it, but doesn’t actually increase supply until the land is developed. Upzoning itself doesn’t mean that land will be developed and that supply will necessarily increase. In their study, the RBA noted that although zoning does play a role in increasing property prices in our cities, simply removing it may not cause prices to fall by the same amount. Physical land cost in cities such as Sydney is expensive because it is scarce. Even if zoning was relaxed, property would still remain expensive. Upzoning in Australia would have a varied impact on the supply and cost of housing in different areas depending on how expensive the land was to begin with. In areas where land is limited (usually due to constraints such as CBD regions or coastal areas), upzoning might not reduce prices at all. For example, Fishermans Bend in Melbourne went through a big rezoning to allow for residential development without mandatory height limits and as a result the cost of land in this precinct doubled. (Johanson, 2012) This area is constrained by the Yarra River and already popular suburb of Port Melbourne. The end result might be that the finished product of a swath of brand new apartments may
actually stimulate higher prices than reduce them, if what is suggested above is correct.
Overall, normal supply and demand principals do not always apply to housing markets. An increase in supply doesn’t always ease demand enough to decrease price. This is because there are so many other factors influencing house prices. These include occupation patterns, migration, immigration and other barriers. Supply policies as well as the structure of job and incomes all have a role to play in determining house prices in cities. (Storper, 2019) CONCLUSION Ensuring cities continue to grow is important. This means that they need to have jobs available and enough housing. Upzoning is a potential way to enable more growth, especially in areas where land is limited. It has been thought that upzoning could help create more affordable housing by increasing supply. However, this hasn’t been the case in cities where upzoning has taken place such as Seattle, Chicago and Melbourne. The impact upzoning may have on property prices is complicated. Often, ideas that become the dogma of the day turn out to produce the opposite effect to what was expected once a generation has passed and the results can be observed. The best intentions may be in play, however the complexity of the human system is so vast that many solutions are likely to be bad ideas on reflection. There are no magic bullets and many things will need to be attempted to ensure that cities remain places for all walks of life with the understanding that negative consequences will be unavoidable in some way or another.
REFERENCES Autor, D.H. and Fournier, J. (2019). “Work of the past, work of the future.” Richard T. Ely Lecture to the AEA, Atlanta, January 4. https://economics.mit.edu/files/16560 Florida, 2019, https://www.citylab.com/life/2019/01/zoning-reform-house-costs-urbandevelopment-gentrification/581677/ Freemark, 2019, Upzoning Chicago: Impacts of a Zoning Reform on Property Values and Housing Construction, Urban Affairs Review Johanson S (2012), ‘Developers in the Zone on New Industrial Landscape’, The Sydney Morning Herald online, 5 December, viewed January 2018. Available at <http://www. smh.com.au/business/property/ developers-in-the-zone-on-new-industrial-landscape20121204-2at78.html>. Pitts, 2017, https://www.youtube.com/watch?v=Jex02iV52pM RBA, 2018, The effect of zoning on house prices. TPR, 2019, https://www.planningreport.com/2019/03/15/blanket-upzoning-bluntinstrument-wont-solve-affordable-housing-crisis
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The major changes in our cities that will kick off the 2020s A drop in car ownership, smaller houses, walkability impacting property prices, residential blocks atop shopping centres, and ‘mini Melbournes’ in outer suburbs. These are the city trends that will begin to emerge next year and mark the commencement of a new decade in urban planning. Elite Agent
(02) 8231-6669
editor@eliteagent.com
The forecasts come from one of Australia’s most experienced, recognised and multi-award winning urban planners and designers, Mike Day, co-founder and director of RobertsDay.
The most common examples will be residential apartments constructed on top of shopping centres. Mr Day believes this will also help to reinvent shopping centres.
Mr Day, who is on several planning and design committees and is a fellow of the Planning Institute of Australia, says with 2020
3. Climate, environment and health will direct planning decisions
signalling the start of a new decade, what takes place in the next 12 months will set a precedent for the next 10 years. “As our population grows, and innovative new technologies and ideas emerge, future generations will look back at the 2020s and point to it as a decade that reshaped our cities – especially our outer suburbs – more than any other decade in the last century,” Mr Day said. “The most significant changes will come about as a result of an increase in our population, more compact housing, a drop in personal car ownership, and a desire for health and wellness in our communities. “Up until now, communities have been built around vehicles. Now, they will be built around pedestrians, cyclists, and ‘light’ modes of public transport such as e-bikes, trams and buses. Millennials and Baby Boomers will drive the demand for these changes.” Mr Day’s 10 city forecasts for 2020 and beyond 1. ‘Mini Melbournes’ will emerge in our outer suburbs Mr Day notes cherished inner neighbourhoods in Sydney, Melbourne and Brisbane are in demand not just because of their location. Their layout of small parks, little main streets, terraces, shop-top housing, laneways and public transport at their doorstep are highly attractive to residents. From 2020, designers and developers of fast-growing new communities in outer suburbs will use inner-city area templates to create equally attractive new communities, which will ‘urbanise the burbs’. 2. The growth of ‘mixed-use’ developments and the emergence of ‘overlapping use’ buildings Next year, more mixed-used developments will emerge to create self-sufficient communities framed around walkability. Good recent examples are Kinley, Williams Landing and Burwood Brickworks in Melbourne, and Fairwater in Sydney. In addition, State Government planning systems are already beginning to change and promote ‘overlapping use’: the creation of residential properties on top of retail and commercial sites, and vice versa.
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Australia is one of the 193 countries which adopted the 17 Sustainable Development Goals by the United Nations General Assembly for 2030. Mr Day said at the same time, the public is beginning to expect organisations to have a stronger purpose by responding to climate change. In 2020, air quality, water quality, waste management, green spaces, public spaces, public health and more will impact developer and urban planning decisions. The most enlightened urban developers who Mr Day and his team are working with are focussed on ‘Planet, People, Purpose and Profit’. 4. Lower rates of private vehicle ownership We will see a shift away from car-centric communities as more Australians in their teens and 20s will defer – or opt out of – getting a driver’s licence if they reside in a compact, connected, mixed use, walkable neighbourhood. Mr Day said the loss of interest in personal vehicle ownership will be largely due to the cost of owning and maintaining cars and traffic congestion. The RACQ has estimated that a small car costs more than $6000, and a medium-sized car more than $10,000 a year to run – this is equal to servicing approximately $100,000 of a mortgage.[1] ‘Affordable living’ is now the catchcry, rather than ‘affordable housing’, as the cost of transport in the growth areas of our capital cities now often exceeds the cost of housing. 5. Growth in sustainable and affordable mobility on demand in our suburbs The slowing interest in car ownership is also be due to growing and widespread on-demand technology-supported transport options such as Uber and electric bikes and scooters, and affordable public transport initiatives such as trackless trams. Mr Day said trackless trams cost taxpayers just one 10th of the outlay required for traditional trams – enabling Governments to afford to place them in outer suburbs, not just inner cities. This will help support growth in more compact housing in 2020.
6. Townhouses are the big trend for 2020 With home buyers’ growing lack of trust in new apartment blocks, due to recent construction crises, and their desire to have a direct street frontage and an urban courtyard, more developers and house builders will produce townhouses. Mr Day noted the unique benefits of townhouses are that they can be strata-free, and enable residents to engage with each other on streets reclaimed for walking as cars are garaged at the rear. Townhouse sizes can range from 80sq m up to 400sq m, and they are relatively affordable – an 80sq m townhouse can sell for as little as $300,000 (depending on the location).
and Australia use Walk Score, and local property buyers and renters are already beginning to seek properties with a score of over 70. 9. Separation of roads, bicycle paths and pedestrian paths Mr Day noted a segregation of roads, cycleways and pedestrian paths has been established and is working in Europe and will begin to grow in Australia’s major cities. Banning cars entirely from CBDs, which has been debated for year, is an overreaction.
7. An increase in transit-based walkable neighbourhoods
As the health and wellness of residents will become a major focus for urban planners, designers, councils and developers, we will see the emergence of walking and cycling ‘superhighways’ (continuous paths) from next year to foster physical activity and social cohesion.
Pedestrian friendliness will be a major benefit that property buyers
10. A return to smaller homes and centralised amenities for
will start to look for. With this, will come an increase in public spaces, which will give communities a sense of identity and a soul.
communities
8. A good Walk Score will add $30,000-$50,000 to individual property values If you haven’t yet heard of Walk Score, you will in 2020. This is a system, with a score from 1-100 that measures the ease of walkability of any address to residents’ daily needs, such as schools, shops, parks and places of work. A Walk Score of 70, for instance, indicates that there is transit and therefore is the threshold that a resident at that address can access important amenities without the need for a car.
Mr Day said homes have doubled in size in the last 20 years, as we’ve tried to cram home theatres, pools, coffee hubs, offices and gyms into them. This has had the effect of segregating us from our local neighbourhood centres or ‘hubs’. Next year will see the trend towards smaller homes that are connected to amenities in centralised community locations within walking distance. He further noted people in their teens and 20s, the elderly and those of modest means are less able to afford cars, driving the need for such amenities in close proximity to homes.
Just like a property’s proximity to good schools, a high Walk Score value will be an asset that will add value to a property. Every point above 70 is worth between $700-3000 in value for a property. Mr Day said more than 30,000 real estate agents in North America
Elite Agent
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Proposed changes to the Retail Leases Act Last year, the Retail Leases Amendment Bill 2019 (the Bill) was introduced to the Victorian Parliament. If passed, the Bill will make substantial changes to the law relating to retail leases in Victoria. Some of those changes will benefit landlords and others will benefit tenants. Phone +61 3 8600 8888
kcllaw.com.au
Summary of changes The Bill: • Allows landlords to recover costs for essential safety measures from retail tenants. This applies to existing leases; • Requires landlords to return security deposits within 30 days of a lease ending; • Allows a tenant to request an early market rent review, before an option to renew is exercised; •Gives the tenant a 14 day ‘cooling-off period’ to avoid being bound by the exercise of an option to renew if the tenant has not requested an early market rent review; • Increases the time within which landlords must give disclosure statements and proposed leases to new tenants; • Requires landlords to give a more comprehensive disclosure statement on renewal; and • Requires landlords to give tenants more detailed information before the last date an option to renew may be exercised. Essential safety measures (ESM) In May 2015, the President of VCAT issued an advisory opinion that a landlord could not recover from a tenant costs a landlord incurs in complying with the landlord’s obligations under the Building Act in respect of ESM. The Bill reverses this position and provides that a landlord may recover from a retail tenant ESM costs if the tenant has agreed to pay those costs in the lease. Recoverable costs include the capital costs of installing equipment and fixtures to satisfy ESM requirements. Curiously, the right of a landlord to recover those costs is only given under the Bill to landlords under retail premises leases and not landlords under other commercial leases. Further, the Bill provides that this amendment will apply to existing leases. There is, however, no saving provision for disputes regarding ESM costs that may be subject to proceedings at VCAT or which may have already been decided by VCAT in favour of tenants. Security deposits The Bill provides that a landlord must return to a tenant a security deposit within 30 days after the lease ends if the tenant has performed all its obligations under the lease. Currently, a landlord must only return a security deposit 'as soon as practicable'.
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KCL Law
Once a lease ends, landlords will need to promptly determine if the tenant has complied with all its obligations, including its make good obligations. Early rent review The Bill provides that if a lease contains a market rent review, a tenant may request an early rent review within 28 days after the landlord gives the tenant all of the information required in respect of the option to renew (see below). When a tenant requests an early rent review, the last day the tenant may exercise its option is extended to 14 days after the tenant receives written notice of the valuer’s determination of the market rent. Cooling-off The Bill provides a tenant with a 14 day cooling-off period after a tenant exercises an option to renew. Within the cooling-off period, a tenant may notify the landlord that it does not wish to exercise its option to renew if the tenant has not requested an early market rent review. If a tenant gives that notice during the cooling-off period then the option to renew lapses and the lease term is extended by 14 days.
Options for renewal - Notice to tenant No later than 3 months before the last date an option for renewal may be exercised, the landlord must notify the tenant of: • The last date by which the option to renew may be exercised; • The rent payable for the first 12 months under the renewed lease term; • The availability of an early rent review under the Act;
Also, if there is any change to the proposed lease, the landlord must notify the tenant of those changes. If the Landlord fails to do so, it risks substantial fines (up to $8,261 for individuals and up to $41,305 for corporations). Disclosure Statements - Lease renewals The Bill provides that on renewal, the landlord must give the tenant a disclosure statement that either:
• The availability of a cooling-off period under the Act; and
• Sets out changes to the information set out in the last disclosure statement given to the tenant; or
• Any changes to the last disclosure statement given to the tenant.
• Is not more than 3 months old.
If the landlord fails to give to the tenant all that information by the no later than 3 months before the last date an option for renewal may be exercised and the lease term may be extended substantially (the 'extended period').
This change will see landlord’s preparing more comprehensive disclosure statements on renewals than is currently required.
The Bill provides that the rent payable for the extended period is to be: • Where a tenant requests an early rent review, the rent then determined if it is less than the rent last payable during the lease term; or • Where a tenant has not requested an early rent review, the rent set out in the landlord’s notice, if it is less than the rent last payable during the lease term. Disclosure Statements - New leases Currently, the landlord must give the tenant a disclosure statement and the proposed form of lease 7 days before the tenant enters into the lease. The Bill extends this period to 14 days before the tenant enters into the lease. If the landlord fails to give these documents 14 days before tenant signs the lease, then the lease term is deemed to start 14 days after the documents are given.
KCL Law
Further updates The Bill may yet be amended before it is passed by Parliament. Accordingly, further updates relating to the Bill will be issued when necessary. Further exclusions from retail premises leases The Minister for Small Business also determined that retail premises do not include premises that are used wholly or predominantly for agricultural, pastoral, horticultural or apicultural activities, including grazing and agistment. More information To discuss the proposed changes to the Retail Leases Act, or for property and real estate advice, please contact: Morgan Scholz - Head of Property T +61 3 8600 8890 E mscholz@kcllaw.com.au Geoff Kliger - Senior Special Counsel and Accredited Property Law Specialist T +61 3 8600 8878 E gkliger@kcllaw.com.au
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The seven major property market trends in the 2020s After a decade of price boom and busts, Australia’s property market will see big changes in the 2020s. Trent Wiltshire
Economist, Domain
Property prices are likely to rise at a slower pace than they have in previous decades, mainly because interest rates cannot fall much further. Major demographic trends will be a driving force. Australia’s big cities will continue to grow and so will large regional towns. Public transport will become more important as congestion gets worse. Renters will become a more powerful political voice.
In the short-term it’s likely the RBA will cut the cash rate further. If unemployment remains elevated, the RBA may implement unconventional monetary policy to push borrowing rates even lower. If this occurs, home loan rates will be well below 3 per cent by the early 2020s, with some borrowers paying close to 2 per cent.
cent by the early 2020s, with some borrowers paying close to 2 per Strong population growth will continue, but may be more spread cent.
This article predicts the major trends that will shape the Australian property market
out than in the 2010s Strong population growth will continue, but may be Rapid population growth will continue in the 2020s, which will more spread out than in the 2010s underpin ongoing strong demand for housing. Interest rates will remain low in the 2020s.
Rapid population growth will continue in the 2020s, which will Australia’s population is growing at a faster rate than almost all advanced economies. In the 2010s, Australia’s average annual underpin ongoing strong demand for housing. population growth was 1.6 per cent. Faster population growth in the 2010s was mainly due to higher immigration. The government is Australia’s population is growing at a faster rate than almost forecasting that strong population growth will continue in the next all advanced economies. In the 2010s, Australia’s average annual few years. The decline in interest rates in recent decades was a global population growth was 1.6 per cent. Faster population growth in the Population growth was concentrated in Melbourne and surrounding phenomenon. Interest rates were pushed down by an ageing regions, Sydney, and south-east Queensland in the 2010s (see table). population, strong economic growth in Asia, high debt levels and 2010s was mainly due to higher immigration. The government is lower rates of potential economic growth. These causes of low rates will likely persist into theforecasting that strong population growth will continue in the next 2020s, meaning global interest rates will remain low in the next decade. few years. Population growth was concentrated in Melbourne and surrounding regions, Sydney, and south-east Queensland in the 2010s (see table). Interest rates are likely to remain at very low levels in the 2020s. So it’s unlikely that there will be a property price correction caused by rapidly rising interest rates. But as rates can’t fall much further, they’re unlikely to be a major cause of higher prices over the next decade, as they were in recent decades.
Many Australian cities experienced rapid population
Many Australian cities experienced rapid population growth in the growth in the 2010s, and this is likely to continue in the 2020s 2010s, and this is likely to continue in the 2020s
City
Population growth, 2010 to 2018
Population in 2018
Melbourne
20.7%
4,784,608
Geelong
19.7%
268,277
Sunshine Coast Gold Coast – Tweed Heads Brisbane Darwin Sydney Perth
Ballarat
Canberra – Queanbeyan
20.3% 18.9%
333,436 679,127
16.7%
2,379,724
15.4%
4,835,206
15.1%
105,471
15.9% 15.3% 14.8%
134,544
2,020,138 457,563
Notes: Estimated resident population at 30 June each year. Only Significant Urban Areas with a minimum Notes: Estimated resident population at 30 June each year. Only Significant Urban Areas 100,000 people in 2018 are included. Latest available data is June 2018. Source: ABS 3218.0. with a minimum 100,000 people in 2018 are included. Latest available data is June 2018. Source: ABS 3218.0.
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But these trends are likely to change in the 2020s. More migrants may move to smaller cities or large regional towns rather than Sydney and Melbourne. The federal government is pushing for this to happen. It has created new regional skilled worker visas and is offering other incentives to migrants who move anywhere but Sydney, Melbourne and Brisbane. Regional towns will continue to become more attractive to migrants as they grow. Policies aimed at encouraging regional migrations will be more successful if proposals for better transport connections between regional towns and major cities proceed. And if the mining sector continues to rebound, Western Australia and Queensland will attract more migrants. Policies aimed at encouraging migrants to settle in regional areas have generally been unsuccessful. However, higher property prices in Sydney and Melbourne compared to other parts of Australia may now mean migrants will be more willing to settle away from the two major cities.
While strong population growth in the 2020s is the most likely scenario, population growth could begin to slow. The government has cut the annual permanent migrant intake to 160,000 from 190,000. International student numbers may plateau as universities reach capacity and changes to skilled working visas may mean fewer skilled immigrants. But any reduction in immigration will likely be modest. It is very difficult to significantly reduce Australia’s migrant intake without causing economic and social harm. But even a minor reduction in population growth can have a big impact over a decade. If annual population growth of 1.6 per cent continues in the 2020s, then Australia’s population will be approximately 30 million by December 2029 (see table). If annual population growth slows to 1.3 per cent, then Australia’s population will be around 29.1 million at the end of the decade.
population growth slows to 1.3 per cent, then Australia’s population will be around 29.1 million at the end of the decade.
Slightly higher rates of population growth make Slightly higher rates of population growth make a big difference to a big difference to population numbers in a decade’s time population numbers in a decade’s time
Average annual population growth rate in 2020s
1.7% 1.6% 1.5% 1.4% 1.3%
Average annual net overseas migration (approximate)
307,000 278,000 248,000
219,000
190,000
Estimated population at December 2029 (millions)
30.3 30.0 29.7 29.4 29.1
Note: assumption is that natural increase is 145,000 in the year to the September quarter 2019, and Note: assumption is that natural increase is 145,000 in the year to the September quarter 2019, and grows by 0.5 per cent each grows by 0.5 per cent each quarter (so reaches 178,000 in 2029), with net overseas migration making quarter (so reaches 178,000 in 2029), with net overseas migration making up the remainder. Sources: ABS 3101.0; Domain Group. up the remainder. Sources: ABS 3101.0; Domain Group.
Public transport will become more important and car ownership may start falling Public transport will become more important and car ownership Sydney and Melbourne appear close to the population tipping point where car ownership falls as congestion and the cost of car parking Proximity to public transport in Australia’s major capital cities will makes car ownership less attractive (even as incomes keep rising). Proximity to public transport in Australia’s major capital cities will Currently, Sydney and Melbourne have higher rates of car ownership become more important in the 2020s as cities expand and traffic become more important in the 2020s as cities expand and traffic than other cities of comparable size, and a much higher rate of car congestion worsens. Car ownership may also start to fall as more congestion worsens. Car ownership may also start to fall as more ownership than mega-cities like New York, Seoul, London and Tokyo. people favour public transport and other forms of transport. Greater demand for proximity to public transport will mean people favour public transport and other forms of transport. Traffic congestion has risen and is expected to get worse, despite more medium-density dwellings and apartments will be built in significant investment in new roads. Infrastructure Australia forecast established suburbs as these areas typically have the best access Traffic congestion has risen and is expected to get worse, that the annual cost of road congestion will increase from $19 billion to public transport. New developments will need fewer car parks, in 2016 to $39 billion in 2031. despite significant investment in new roads. Infrastructure which will improve affordability. Developments will instead need more space for share-cars and bikes. Australia has very high rates of car ownership due to our high Australia forecast that the annual cost of road congestion will increase incomes, sprawling cities and vast distances in regional areas (see More medium-density housing and larger apartments will be built graphs). from $19 billion in 2016 to $39 billion in 2031. in the 2020s But car ownership patterns are changing and will continue to More medium-density housing and larger, family-friendly Australia has very high rates of car ownership due to our high evolve in the 2020s. apartments will be built in the 2020s. These larger apartments will have three or four bedrooms and also more communal areas such as incomes, sprawling cities and vast distances in regional areas (see Car ownership has plateaued after rising consistently for decades. gardens or playgrounds. Passenger vehicle registrations per 1000 people was 509 in 2001 graphs). (see graph). This rose to 579 in 2016 but it has remained broadly When people consider the trade-offs between price, size and steady since then. The main reason for this is that fewer young location, many say they would like to live in a medium-density But car ownership patterns are changing and will continue to evolve people are getting a licence or buying a car, instead they are relying dwelling, such as a townhouse or terrace, or an apartment, in a on public transport, ride-sharing and car-sharing services. in the 2020s. suburb closer to the city rather than a detached home in an outer suburb. But there is a substantial undersupply of medium-density This trend will strengthen in the 2020s and will spread to different Car ownership has plateaued after rising consistently for decades. housing and apartments within Australia’s major capital cities. age demographics, meaning car ownership rates may begin to fall. More city-dwellers will opt to use public transport, bikes, electric Passenger vehicle registrations per 1000 people was 509 in 2001 (see scooters, ride-sharing and car sharing services. may start falling
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With Australian cities growing and congestion increasing, demand for medium-density housing in established suburbs will keep rising. The construction of these dwellings should accelerate in the 2020s. Governments and councils are changing planning rules to enable more construction, although progress has been slow. Developers, architects and builders are building innovative mediumdensity developments which will attract new buyers, and greater scale should help bring construction costs down. With limited land in and around CBDs, developers will need to look beyond city centres to build in the suburbs. Detached houses may also become smaller due to rising land prices, smaller families and also environmental concerns. The average house size fell to a 17-year low in 2019, although houses are still 25 per cent bigger than 30 years ago.
More energy-efficient dwellings that are better suited to the warming climate will be built in the coming decade. Consumers will demand more energy-efficient, well-designed and smartly-oriented buildings. Governments will also likely change building standards. A new National Construction Code was adopted in May 2019, but energy-efficiency requirements were not changed, with the â&#x20AC;&#x153;6 starâ&#x20AC;? minimum standard for standalone homes remaining despite the warming climate (see graph). Building standards may also be changed in response to the apartment defects and flammable cladding disasters and the 2019 bushfires. If tenants do gain more political power there may also be a requirement for landlords to meet higher minimum standards around energy efficiency and heating/cooling.
New homes will be more energy efficient and better suited to a warmer climate
Australian mean temperature anomaly
Source: Bureau of Meteorology Annual Climate Statement 2019
Source: Bureau of Meteorology Annual Climate Statement 2019
If tenants do gain more political power there may also be a requirement for landlords to meet higher minimum standards around Tenants will become a more powerful political group The increase in renters is most pronounced among young and middle-aged households (see table). Rising house prices are A growing number of renters will make tenants a more powerful energy efficiency and heating/cooling. probably the major factor driving this trend, but social changes, such as later marriage and further study, are also playing a part. Tenants will become a more powerful political The rising number of middle-aged households renting means more The proportion of households that are renting from private landlords group people are now long-term renters. This is a big societal change as has been trending up for decades. At the end of 1994, 18.4 per cent political constituency, which will probably result in tenancy laws swinging more in favour of renters.
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renting has typically been viewed as a stepping stone to buying
A growing number of renters will make tenants a more powerful (most renters want to own their own home when they can afford to buy). political constituency, which will probably result in tenancy laws swinging more in favour of renters. The proportion of households that are renting from private landlords has been trending up for decades. At the end of 1994, 18.4 per cent of Domain households rented privately. By 2017, this had increased to 27.1 per
of households rented privately. By 2017, this had increased to 27.1 per cent. If the trend continues in the 2020s, 31.5 per cent of households will be renting privately by 2030.
people are now long-term renters. This is a big societal change as renting has typically been viewed as a stepping stone to buying (most renters want to own their own home when they can afford to buy). A lot more middle-aged households now rent privately A lot more middle-aged households now rent privately
1997-98
2007-08 2017-18
2027-28 (projected)
Change, 1997-98 to 201718 (percentage points)
Proportion of each age group that rents privately 15 to 24
69%
25 to 34
78% 78% 84% 9
40% 50% 57% 66% 16
35 to 44
22% 27% 33% 38% 11
45 to 54
12%
55 to 64
8%
65+
5%
17%
11%
26%
19%
11%
7
4
22%
16%
9
Notes: 65+ for 2007-08 is the average of 65-74 and 75+. Source: ABS 4130.0. Notes: 65+ for 2007-08 is the average of 65-74 and 75+. Source: ABS 4130.0.
7% 9%
The number of tenants will likely increase by more than the number of new landlords. It’s likely many new rental properties will be owned by The number of existing landlords. Institutional landlords, such as “build-to-rent” tenants will likely increase by more than the number Ageing Baby Boomers will need new housing of new landlords. It’s likely many new rental properties will be owned The housing needs of ageing Baby Boomers will change Australia’s developments, are also likely to own a growing share of the rental by existing landlords. Institutional landlords, such as “build-to-rent” housing stock. developments, are also likely to own a growing share of the rental stock. stock. The oldest Boomers will be in their mid-80s at the end of the decade, with the youngest around retirement age. Many older The growing number of renters will give tenants more political clout. The growing number of renters will give tenants more political clout. Boomers will need more residential aged care by the end of the Long-term renters are also likely to be even more passionate about 2020s. The Aged Care Financing Authority estimates that 76,000 Long-term renters are also likely to be even more passionate about improving conditions for renters. And as people become more new residential aged care places will be needed over the decade politically engaged as they get older, a larger cohort of older renters improving conditions for renters. And as people become more from 2017 to meet growing demand. will mean renters’ political voice will get louder (if recent trends continue, almost 40 per cent of 35 to 44-year-olds will be renting by In addition, new dwellings that enable seniors to live independently politically engaged as they get older, a larger cohort of older renters the end of the 2020s). for longer will need to be built, as well as existing homes renovated. will mean renters’ political voice will get louder (if recent trends These new dwellings could be townhouses and units with few stairs A stronger political voice for renters will likely result in changes to or elevators, accessible bathrooms and low-maintenance gardens. tenancy laws. Changes could include renters getting more security continue, almost 40 per cent of 35 to 44-year-olds will be renting by Planning rules will need to change to enable these types of dwellings of tenure (such as through the removal of no-grounds evictions and to be built near where retirees live as there is a strong desire among longer notice periods), renters being able to make modifications to the end of the 2020s). retirees to “age in place”. their homes and dwellings needing to meet higher energy-efficiency A stronger political voice for renters will likely result in changes to standards. Some changes to tenancy laws are already happening, Governments will need to undertake reforms so retirees are not most notably in Victoria. discouraged from downsizing. Possible reforms include abolishing tenancy laws. Changes could include renters getting more security of stamp duty, including part of the home in the age pension assets A larger cohort of older renters may also force the government to include some of the value of the family home into the age pension assets test. The current rules can create inequities, as asset-rich home owners can receive the full pension while some renting pensioners miss out.
Domain
test and changing planning rules.
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The key to unlocking the future liveability of Australia’s cities For nearly two decades, Australian cities have been consistently ranked among the world’s most liveable. But the dial is shifting. Consumer priorities have changed, and our cities aren’t responding quickly enough, particularly when it comes to housing. The new Australian dream has adapted to modern society, with consumers increasingly wanting accommodation that’s close to work, offers high quality amenities and guarantees security of tenure. It’s no longer just about owning a house and living in the suburbs. Population growth represents a significant challenge. Almost 1.6 million additional homes will be needed by 2029* and even with conservative assumptions on rental demand, that translates to 500,000 more rental properties (Urbis).
*ABS Population Projections 2017-66. (2016). Australian Bureau of Statistics. http://stat.data.abs.gov.au/Index.aspx?DataSetCode=POP_PROJ_2011
24
Ubris
In response, a new approach is required – one that addresses this emerging demand and in doing so retains our enviable liveability and economic productivity. Governments and the market must provide consumers with a range of housing options to choose from – and quickly.
A new approach is required – one that addresses this emerging demand and in doing so retains our enviable liveability and economic productivity.
IN 2016, NEARLY HALF OF AUSTRALIANS AGED 20-34 RENTED
DELIVERING FOR THE DEMAND A straight comparison between annual dwelling demand and the number of apartments approved in the inner-city areas of Sydney, Melbourne and Brisbane show since the beginning of 2018, fewer apartments are being approved to build. If this trend continues, supply shortages could have an impact on prices and rents through every segment of the market. Across the Eastern Seaboard’s inner-city markets, we only have 1.5 years’ worth of housing demand in apartment supply that is under construction. There is a further 2.2 years of demand in the pipeline that is approved – but not yet selling. Selling remains the core issue holding up supply, and unless amendments are made to the approach, this number will continue to grow.
20-34 FROM 2006–16 DEMAND FROM RENTERS AGED:
35-49
20-34
grew from
grew from
All areas are growing, in particular 20-34 and 55+
1,532,300 2,115,600
to
993,500 to 1,312,800
50-64 grew from
519,300 to 796,100 2019
2029
Change 2019-29 (No.)
Australia
Australia
Australia
Population
25,474,000
30,259,000
+4,785,900
Dwelling Demand
9,649,000
11,206,000
+1,557,000
Renter
2,981,000
3,463,000
+482,000
DEMAND TABLE
Source: ABS; Department of Employment, Skills, Small and Family Business; Urbis
Ubris
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BUILD-TO-RENT HOLDS THE KEY Build-to-rent (BTR) is the quickest solution to increase choice and capacity at scale.
For Australian cities to thrive, an increased supply of high-quality rental accommodation is needed. These will house global talent for multi-national companies and promote local labour mobility while meeting the demand for greater choice of housing across a variety of price points in our growing cities. With an additional 285,000 key worker jobs forecast for the next 10 years, the need for quality housing that enables mobility has never been greater.
Incentivising BTR could bring forward the delivery of a pipeline of approved projects resulting in three years of housing supply in the inner city â&#x20AC;&#x201C; if released for development. Currently, it takes three years to deliver a project post approval, substituting it for BTR will cut this timeframe down by at least one year on each project â&#x20AC;&#x201C; helping bridge the supply gap on the horizon.
THE BENEFITS TO ALL STAKEHOLDERS ARE CLEAR
TENANTS
High-quality accommodation with attractive amenities Long-term tenancy options Reduced fear of eviction Improved (and centralised) management Proximity to work, particularly for essential services personnel
OWNERS
GOVERNMENT
Stable, long-term income
Enhanced labour mobility
Long-term viability thanks to higher construction quality
Eases housing crisis pressure
Strong demand and scarcity of new supply Counter-cyclical defensive investment
Onsite job creation and multiplier effects Reduced daily congestion-based inefficiencies Can be scaled quickly, and delivered throughout cycles Improved construction standards
Flexibility to relocate
Decreased risks associated with poor construction quality
BTR IS A LEVER FOR ECONOMIC STIMULUS
Growing that to 50,000 units, or around 1/3 of the inner-city apartment pipeline on the eastern seaboard could support 11,000 jobs per year in the construction phase, as well as an average of $1.5bn in Gross Value Added (Urbis). If incentives were to further shorten the timeframe of delivery or amplify volume of units the economic benefits would increase.
26
Ubris
11,000
Annual Construction Jobs
Conservative estimates indicate that stimulating BTR delivery to a scale of 10,000 units ($2bn in construction investment) could support an average of 2,200 jobs per year linked to the construction phase alone.
2,200 0
10,000
Source: REMPLAN
20,000
30,000
BTR Units
40,000
50,000
GOVERNMENTS CAN UNLOCK ITS POTENTIAL With some key changes, governments can turn a ripple into a wave. While BTR is gaining traction, it’s still trying to prove its viability. Government policy does not currently support its emergence in any Australian jurisdiction. There is a risk that government policies that burden the BTR market with minimum social and/or affordable housing requirements during the sector’s embryonic stage, will inhibit it from becoming an established asset class. With further support from governments, the sector has the potential to become large enough to improve liveability and affordability.
BTR supporters in Australia aren’t necessarily seeking more favourable concessions than other asset classes – they’re simply seeking a level playing field. Adjusting tax and planning policies will have the greatest impact on growing the BTR industry. Tax reform in the UK, including providing land tax concessions, was the lever that kick-started BTR’s rapid growth. BTR supporters in Australia aren’t necessarily seeking more favourable concessions than other asset classes – they’re simply seeking a level playing field.
6,580
AUSTRALIAN BUILD TO RENT PROGRESS
3,590
4,140
2,250
650
1,610
1,250 360 Q3 2017
Completed in Past Year
1,890
1,600
90
Q3 2019
Q3 2018
Under Construction
830
Planned
Rolling Annual Total
*Firm projects only (excludes projects in early planning that could come forward once a formal application or approval is in place) Source: Cordell, Local Councils; Urbis
Ubris
27
MANAGED INVESTMENT TRUSTS BTR should be given a level playing field it should be reclassified as ‘commercial residential’ and allow foreign investors’ returns to be taxed at a concessional rate of 15%. Income from residential real estate housing is currently denied the concessional 15% rate applicable to income from most other real estate asset classes for eligible foreign investors in Managed Investment Trusts (MITs). Overseas-based BTR investors through MITs are taxed at 30% in comparison to the 15% tax rate for local superannuation funds and eligible foreign overseas investors in other asset classes. The reasons behind the increased withholding tax rate for MIT investments in residential housing included that, further incentives should not be given for foreign investment in a residential property market that was already overheated. The policy failed to recognise that foreign investment in BTR will not have an inflationary impact on the housing market. In fact, as we outline below, it is likely to have the opposite effect. It also failed to identify that purpose-built BTR accommodation has strong similarities to other forms of commercial property investment.
This is a significant impediment to the BTR industry, as it makes BTR less attractive for foreign capital – a key driver of the Australian property industry.
28
Ubris
These include office and industrial, where local and overseas investors are motivated by the possibility of earning long-term, stable rental income, and foreign investors are incentivised to do so by the concessional MIT rate. Comparable assets such as hotels and student accommodation are classified as ‘commercial residential premises’ by the government and qualify for the MIT concessional rate. This is a significant impediment to the BTR industry, as it makes BTR less attractive for foreign capital – a key driver of the Australian property industry. This is a concern for the broader Australian economy as the property industry is one of the nation’s biggest employers, and reduced activity in the industry has a major multiplier effect on a national scale. Adjusting the MIT rules to provide a level playing field for BTR has the potential to stimulate and stabilise residential property development, which will benefit the broader economy.
LAND TAX Under the current law, and on an asset by asset basis, states stand to gain more land tax revenue for BTR projects than Build-to-Sell (BTS). Under the traditional BTS model, states can collect little or no land tax since the individual apartments owned by individual landlords may fall below the land tax threshold. By contrast, residential towers developed as BTR, with a single landlord, will be well above the land tax threshold (and likely be at the highest rate, particularly if foreign owner surcharges apply). Given all the policy benefits associated with having more BTR, as well as the potential for
significantly higher land tax revenue and the fact BTR will create substantial employment throughout residential development cycles, state governments should strongly consider providing land tax concessions for BTR projects, if only to level the playing field with similar BTS assets. To make BTR more attractive to foreign investors, foreign land tax surcharges should be removed for BTR investment. Rather than offering favourable conditions, this would merely bring BTR in line with other, more commercial residential assets, including in those jurisdictions which already characterise hotels and student accommodation differently to residential housing. It would help unlock BTR’s full potential in Australia.
PLANNING POLICY The planning policies in each state can be used to ensure the BTR sector reaches its full potential in Australia. Currently no Australian jurisdiction has specifically defined what a BTR asset is. It falls under the general concept of ‘residential accommodation’. For BTR developers committed to holding assets for the long-term, defining BTR may provide an opportunity to optimise the overall community and economic benefits from BTR by adopting tailored planning policies to encourage high quality design outcomes. For example: • requirements for minimum apartment sizes and layouts, and private open space could be re-framed for BTR assets that have high levels of amenity and service for occupants, in the common areas of the building; and • greater density for BTR development could be incentivised over residential developments in priority areas, such as communities where key workers are in rental stress, given the role BTR can play in improving Australia’s affordability and liveability. A thriving BTR market will improve affordable housing capacity in Australia. To achieve change in planning policy, BTR developers should consider the impact they can have on affordable housing. Some developers may be able to partner with an affordable housing provider to deliver a percentage of affordable units or units at a discount market rent, servicing key workers. As referenced earlier, there is also a discussion to be had regarding the quality of communal spaces within these developments and clearly articulating the service provided to residents. Possibly, too, restrictions could be placed on title to ensure the asset must be maintained as BTR for a certain minimum period.
Ubris
In cases where affordable housing is offered, we believe BTR operators should still be able to operate the entire asset, including any affordable housing component. Not only would this ensure a more consistent experience for all occupiers, and provide maximum flexibility to operators, it would also alleviate any concerns BTR operators may have that the affordable housing component becomes marginalised within the building. A component of affordable housing should not be an automatic assumption by planning authorities, as there are indirect benefits which flow from encouraging BTR. Here is how we see it unfolding: • The first wave: In essence, this is the portion of the market who are looking to ‘make renting more enjoyable’, more secure and provide a better level of service to tenants. As seen overseas, early adopters of BTR units are predominantly middle-to-high income professionals and young families seeking convenience, community and a higher quality rental experience. • The second wave: Where the indirect affordability gains become apparent is in BTR’s ‘second wave’. With enhanced BTR supply you begin to move people up the rental demand diamond into BTR – leaving greater capacity at the more affordable end. • The third wave: As a result of the first two waves, BTR creates a layered rental market with more price points than at present. By increasing supply, it relieves pressure on social and affordable housing schemes and provides choice to those unable, uninterested or unwilling to invest in home ownership.
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HOLISTIC VIEW OF THE RENTAL DEMAND DIAMOND The broadest part of the rental market can afford to pay more rent and may be willing to do so with a superior service offering. This is where the first movers in BTR are focussing their efforts and their success will be key to understanding future scale and direction of this emerging asset class. Different groups are pitching their view of what BTR is, should, or could be at different points of the market spectrum. Some are hoping to find a potential delivery vehicle for much needed affordable housing. Others are focussing on the higher serviceoriented private market that can afford to pay more for superior service and the convenience and security of purpose-designed and managed rental accommodation.
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%
Luxury Rentals
Affordability Threshold
The current rental market has both a depth and breadth of requirements. There is a spectrum, and the extent to which either end benefits from BTR supply remains subject to many factors (e.g. investor appetite, customer appeal, development costs, labour costs, supportable rents, rental growth, and planning and tax incentives). What is agreed, is that BTR represents a viable and fast route to increase housing capacity, which flows through to affordability and assisting to prevent a downwards trend through the spectrum into social housing and ultimately relieving the strain on public housing.
5% Can pay +30% 25% Can pay +20% 27% Can pay +10%
Private Rentals
BTR Core Market Key Worker Housing Affordable Housing
28% Paying 30-50% of Household Income on Rent 14% Paying > 50% of Household Income on Rent
Social Housing
Public Housing
ENSURING OUR FUTURE PROSPERITY
A ripple of momentum has started in this sector and if government policies can give it the level playing field it deserves, we will see the ripple turn into a wave.
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Ubris
BTR holds the key to ensuring the liveability of our future cities. Itâ&#x20AC;&#x2122;s a positive catalyst that can support gains against a housing shortage, cater to the demands of modern consumers, provide an attractive long-term investment and restore the faith in our construction industry.
WANT TO KNOW MORE? Weâ&#x20AC;&#x2122;d love to talk to you about the role for Build-to-Rent in unlocking the future liveability of Australiaâ&#x20AC;&#x2122;s cities. To speak to one of our team, please contact: Tim Chislett Allens Managing Associate T +61 3 9613 8190 M +61 412 397 392 tim.chislett@allens.com.au
Ubris
Michael Graves Allens Partner T +61 3 9613 8814 M +61 407 235 221 michael.graves@allens.com.au
Mark Dawson Urbis Director T +61 3 8663 4905 M +61 402 494 733 mdawson@urbis.com.au
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Past Project Profile
The Beckworth 184 Tooronga Road, Glen Iris thebeckworth.com.au
Price Range $815,000 - $1,650,000
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Apartment Type
No.
% of Total
Average Size per m2
Average Price per m2
Average Price
2 Bed, 2 Bath
2
11
77.0
$10,716
$824,250
3 Bed, 2 Bath
16
89
123.8
$11,107
$1,377,750
Past Project Profile
Profile 1443 Dandenong Road, Malvern East
Apartment Type
No.
% of Total
Average Size per m2
Average Price per m2
Average Price
2 Bed, 1 Bath
1
5
61.0
$8,770
$535,000
2 Bed, 2 Bath
19
95
71.3
$8,901
$634,789
profilemalverneast.com.au
Price Range $497,500 - $759,500
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Past Project Profile
McKinley 171 Wattletree Road, Malvern
Price Range $712,500 - $2,995,000
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Apartment Type
No.
% of Total
Average Size per m2
Average Price per m2
Average Price
1 Bed,1 Bath
1
7
53.0
$10,481
$555,500
2 Bed, 2 Bath
4
29
70.8
$11,125
$786,875
3 Bed, 2 Bath
8
57
120.3
$11,117
$1,335,082
4 Bed, 4 Bath + PR
1
7
236.0
$12,691
$2,995,000
Past Project Profile
232 Wattletree 232 Wattletree Road, Malvern
Apartment Type
No.
% of Total
Average Size per m2
Average Price per m2
Average Price
2 Bed, 2 Bath
5
28
84.3
$11,411
$963,000
3 Bed, 2 Bath
5
28
119.3
$13,987
$1,644,000
3 Bed, 2 Bath + PR
7
39
173.8
$12,880
$2,252,857
3 Bed, 3 Bath
1
6
180.9
$13,820
$2,250,000
Price Range $850,000 - $2,850,000
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Celebrating over 1 4 0 Successful Sell Outs Since the inception of Marshall White Projects in 2013 weâ&#x20AC;&#x2122;ve attempted to provide a insight into the ever changing world of property development by sharing the hard earnt lessons of those in the field and generous enough to share their experiences for the betterment of their peers. Marshall White Projects has evolved as a team, maturing in a market where buyers learn to expect more than ever before whilst developers must work harder to achieve the same results. They say knowledge is power, so we invite you to click on the button below and enjoy the resource of our first publication through to today.
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