Urban IQ: Where The Victorian Housing Affordability Strategy Falls Over

In this video update, UDIA Victoria digs deeper into the Homes for Victorians housing affordability strategy, and talks about the broader economic impacts we can expect to play out in the Victorian housing market over the next 3-5 years.

The key message pushed by UDIA is that investors are central to keeping Victoria’s housing market affordable. Investors provide a steady stream of rental capacity and ensure the development sector can get projects up off-the-ground and deliver stock to investors, owner-occupiers and renters. Discouraging investors; as the Homes for Victorians strategy does; is not a good move for housing affordability.

Key points

  • There are three main unintended consequences that UDIA sees with the Homes for Victorians strategy, each associated with skewing the supply/demand balance and therefore negatively impacting upon housing affordability.
  1. Impact on house prices: The demand for houses in Melbourne’s growth areas and established suburbs will increase but supply will not, which will drive up house prices rather than making them more affordable.
  2. Impact on rental affordability: A decline in investors purchasing and leasing out new housing will limit rental supply and push up prices for renters.
  3. Impact on new housing supply: Removing stamp duty concessions for investors purchasing off-the-plan properties will decrease the supply of new housing, pushing up costs for home buyers.

IMPACT ON HOUSE PRICES

  • Based on the profile of many first home buyers (FHBs), the abolition of stamp duty for FHBs will likely result in an increase in both the demand for house and land packages in Melbourne’s growth areas, and in smaller houses in Melbourne’s established suburbs. The already strong demand for these forms of housing will increase in the short term as a result, which will lead to a rise in house prices for these products.
  • What can a FHB get with the new stamp duty concessions, under the $750,000 cap attached to the concession?
  1. A 3-bedroom house in the outer suburbs sells for a median price of $507,000.
  2. A 3-bedroom house in the middle suburbs has a median price of $750,000, being the top end of the Homes for Victorians stamp duty concession cap.
  3. For those looking to buy in the inner suburbs of Melbourne, the only dwelling type available within the stamp duty concession cap would be a unit, with a 2-bed unit going for a median price of $585,000.
  • In the medium and longer term, the number of houses priced under $750,000 will decline as Melbourne’s median house price rises, but the Homes for Victorians strategy does not anticipate increasing the $750,000 cap in the future.

RENTAL AFFORDABILITY

  • Under Homes for Victorians, stamp duty concessions will no longer apply to investors buying off-the-plan properties.  This may lead to less investment in the residential property sector; meaning rental stock will diminish leading to an increase in the price of renting in Melbourne.
  • Many people save for 3-5 years for their home deposit with a significant portion of their income going toward paying rent.  If rents become more expensive because there are less homes to rent, FHBs will spend more money paying rent which they would otherwise be put towards their deposit.

NEW HOUSING SUPPLY

  • According to Charter Keck Cramer, the removal of off-the-plan concessions for investors would add $23,000 to the cost of buying a $500,000 apartment off-the-plan. That figure rises to $29,000 when purchasing a $600,000 apartment.
  • Investors currently account for approximately 50% – 60% of new apartment sales activity.  These purchases make up a large portion of the high number of pre-sales required by the banks for a development project to receive construction finance and commence.
  • Currently, investors are given an incentive to buy off-the-plan, which leads to pre-sales, which gives developers and the banks that finance development projects the market certainty they need to commence a project; and start turning planning approvals into construction jobs which in turn deliver new houses. Without the incentive, investor interest may decline and this will limit new housing supply.

About Urban IQ

URBAN IQ is a market intelligence initiative by UDIA’s Victorian division.

 

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