The current housing market is undoubtedly overheated with soaring prices in metropolitan and regional areas right across Australia. As a desirable seachange destination Port Macquarie is one of the hottest real estate markets for both buyers and tenants alike. Corelogic reports that house prices have risen by 10% across regional areas in the last year. Anecdotal evidence suggests that the prices actual rises over that period are much higher along the Mid-North Coast.
Many People are rightly concerned that this is creating a dangerous bubble of housing debt whilst at the same time pricing first home owners out of the market indefinitely. It is of serious concern that future generations may have less opportunity to afford their own home and thereby attain some form of financial independence.
Several factors are driving the market including high demand, lack of supply, very low interest rates and various government sponsored first homebuyer incentives. Australians returning from overseas and an increase in migration to the regions post COVID has created much of the demand in desirable areas such as Port Macquarie.
A key element influencing the cost of housing is the supply of zoned land provided with road networks, sewer, water and services. The complex and cumbersome NSW planning system has often delayed the supply of readily developable land being brought to market. Duplication of bureaucracy by Local, State and Federal Government places an increasing burden of compliance, delay and cost on the housing industry which is ultimately passed on to purchaser.
In any open market an increase in supply helps contain price increases so both council and state government can influence housing affordability by approving more zoned land for housing. Despite several attempts at reform the NSW Planning Legislation has recently become even more complex and cumbersome with the imposition of Sydney based regulations on our local land development sector.
A recent Daily Telegraph editorial praised the NSW Planning Minister, Rob Stokes for announcing the release of an additional 18,000 lots in Western Sydney. This editorial went on say that whilst this is a “good start” the Minister needs to keep going with further land releases in NSW. Evidence strongly indicates that regional growth areas like Port Macquarie also need more residential land to meet our housing demands.
Another key aspect of housing prices is the government levies and taxes being added to the base land value and housing production costs. For example a $650k house and land package in Port Macquarie’s new release areas would typically include combined government taxes, fees, charges and levies of approximately $90,000 or 14% of the purchasers cost. Close scrutiny is required on this revenue stream to identify any potential reductions that would improve affordability.
To their credit the NSW Government currently continues to provide stamp duty relief to first home buyers. A plan has been floated by the NSW Treasurer to allow purchasers the option of replacing the current up front stamp duty with ongoing annual land taxes. This is simply converting the up- front duties into a long term liability for the home owner and even more revenue for government. Stamp duty charged should simply reflect the actual service provided by Revenue NSW in any sale transaction which would amount to several hundred dollars at most.
Housing affordability has also been impacted over time with building costs rising above CPI for decades due to increasing building code requirements. The average new house today requires BASIX (insulation/energy efficiency/water tanks etc.), bushfire protection, acoustic measures and more robust foundation designs than those of decades past.
This combined with consumer demand for higher building standards, internal finishes (eg. stone benchtops, butlers kitchens etc.) and a significant increase in the size of houses to include double garage, en-suites, covered entertainment areas and theatre rooms results in an overall build price currently between $1500-$1600 per square metre. An average new home in 2021 is now around 220-230 sq.m in size at a built cost of $350,000.
Many contributing factors are affecting housing affordability including high demand, low interest rates, constrained land and house supply, high taxation, compliance burdens, increased building standards, and higher consumer expectations. Fluctuations in supply and demand will ultimately dictate house prices and hence affordability. However, all levels of government have a major role to play in adjusting policy settings, minimising taxes, ensuring that red tape is minimised and duplication of compliance eliminated.