Jacinta Allan - Leading a zombie government

[burge13]

https://www.news.com.au/finance/work/at-work/victorians-could-get-new-public-holiday-as-part-of-indigenous-treaty/news-story/ee27b05fbf09bdd3938e260e74db0f3e

lucky buggers get another public holiday, potentially!

Come on, Mali. Bring this in for SA

 

[Bunk Moreland]

It's a sad couple of days for the state.

I say that as someone who is likely to benefit greatly financially from her announcement, also.

I also say that as someone who has worked on the pointy end of some of these major infrastructure projects in this state, as well as on private equity projects like the ones she is hoping to attract and is well aware of the existing master plans to areas surrounding the suburban rail loop.

There's multiple issues with these "activity centers"

For starters - residential development is in the toilet. It's not from a demand perspective (well it is, but I will get to that), it's from a cost perspective. Feasibilities don't work at the moment. Building costs have never been higher, labour costs have never been higher. Material costs have never been higher. Companies, developers and investors as end users have never been taxed higher (they need to pay back the state debt afterall...).

Major residential towers in the volume they require haven't been getting greenlit and built for 3-4 years now. Most of the major towers in Melbourne are build to rent at the moment (which is very much TBA) or mixed use like hotels and commercial. The largest residential project in the CBD is currently on hold, because presales are nowhere near the number required for commencement despite massive media campaigns on it's announcement as the likely landmark Melbourne building of the future.

Now, if one of your sole target markets are simply first home buyers or downsizers etc (because investors are taxed out of it currently), then you need to offering a product at entry point prices for these buyers, otherwise whats the point? Something not easy to do with the costs of acquisition and construction these days.

Now we get to the product itself. First home owners don't want a 30sqm apartment value managed to the absolute bare minimum in construction quality in a 20 story tower on a major road or next to a train station. Sure, there are people that do want that product, but there's already enough supply of that product in the market to meet current demand.

First owners want houses. They want their own block, they want potential family homes, they want something that resembles something they grew up in.

How exactly does oversaturating residential suburbs with 10's of thousands of tiny/dog box apartments (and you have no idea how some of these developers can fit some of these in, as Victoria is one the one state that basically lets them do whatever they want regarding living space requirements) solving this issue? And then we can get to their true intention here. It's not to solve the housing crisis, it's a desperate attempt to raise the states revenue to pay for their financial crisis with development levies, stamp duty increases, rates, land tax etc and all the knock an tax revenue to this volume of additional dwellings.

Where's the public study which considerers the impact this will have on local infrastructure, like schools, hospitals, medical clinics, parks, open space, parking, sporting fields and amenities etc? Has this been costed into it?

What's further ridiculous is that it seems that the activity centers have all been concentrated in one area of Melbourne, the South East and Bayside, which is traditionally a family centric, residential pocket. Why not spread it throughout the city? Well the answer to that is fairly easy. It's because that section of the SRL will never get built after Stage 1.

The impact on some of these suburbs are going to be absolutely devastating imo. I say that not as someone afraid of not getting a park at my local cafe, but someone who has seen a suburb like Box Hill manifest into what the vision for some of these activities centers are. Which is truly gross, in all honesty.

Interesting article that agrees with what you’re saying. People simply don’t buy apartments. They don’t want them.

Sometimes you’ll settle for something you don’t want if there’s a significant price advantage. But with apartments there’s not. They’re not much cheaper than houses, because they’re expensive to build.

Suburban towers won’t work. You need townhouses at the very least, but of course they don’t deliver volume.

I’m a developer. Here’s why Jacinta Allan’s high-rise plan won’t get off the ground​

Max Shifman​

Property developer
October 23, 2024 — 2.58pm


I’m the chief executive of an established property development business – the kind of company Jacinta Allan is appealing to in her push this week to build more mid-level and high-rise apartments in the “activity centres” of established suburbs.

But despite this strong desire, we won’t be building these sorts of apartments any time soon. Why not? Because this sort of development is not feasible to build and sell, especially at scale, and won’t be for a while yet.

Large-scale housing development in “activity centres” sounds good in theory, but the numbers don’t stack up when compared to the costs of freestanding and medium density homes.

It costs at least three times as much to build a square metre of a new apartment compared with a good quality townhouse, or four times more than a new detached home. This means the only apartments that generate a suitable return on investment are premium, boutique apartments targeted at wealthy downsizers.

A generational shift is occurring towards accepting denser living, but we are a long way from new apartments being the solution to the housing supply problem. Two major hurdles stand in the way: the market and the economics.

First, the vast majority of buyers still want at least three bedrooms in their next home (or 2.5 bedrooms for first home buyers). Buyers also overwhelmingly don’t want these bedrooms to be in an apartment building.

This explains the growing chasm between the Victorian government’s aspiration to build thousands of “well-located” homes in established suburbs and the reality of delivering them.

The aspiration is a worthy one; who wouldn’t want new homes to be close to transport, jobs, open space and amenities? Who doesn’t want young people and key workers to enjoy the great suburbs and towns that exist across our state?

A key barrier to this is illustrated in a Westpac Housing Pulse survey from March this year, which showed that only 26 per cent of buyers in Melbourne were seeking an apartment or unit for purchase. This matches similar surveys over the years, including Infrastructure Victoria’s oft referenced “Our Home Choices” report of 2023, which showed just one in five people living in a greenfield suburb would consider an inner-city apartment or townhouse if the price was comparable (which it is not).

This dynamic would likely be different if apartments were significantly cheaper than detached houses, as in other parts of the world. But here is where the difficult economics creep in; across Australia, new apartments cost significantly more to build or buy than an equivalent new townhouse or detached house. The price of materials, high building standards, and labour costs all contribute.

Construction costs have risen so much that developers now need to sell apartments at the rate of $14,000 per square metre or more for a project to be feasible – around 40 per cent higher than selling rates pre-COVID. This translates into a small new one-bedroom apartment of around $650k, a two-bedroom apartment of 70 square metres at nearly $1 million, or a reasonably sized three-bedroom “family” apartment at around $1.5 million or more. These are not prices that are attainable to the bulk of median income earners, let alone first home buyers and lower income earners.

Contrast this with townhouses in established middle ring suburbs or a detached home in greenfield areas, which offer the same number of bedrooms and more space at almost half of the price. For example, a new three-bedroom townhouse in a middle-ring suburb such as Keysborough would cost under $800k, as would a new four-bedroom house in a greenfield suburb such as Clyde. No wonder these have been the most desirable housing types for owner occupiers in the recent past.

The apartment market is now almost entirely skewed towards premium, downsizer apartments, with entry-level units all but evaporating from sale.

That is why we have gone from building around 25,000 apartments per year in Melbourne in the mid-2010s, to just 4000 per year.

Higher apartment sales and production during that time were also driven by foreign investors who underpinned high-rise towers, along with local investors. Both have been discouraged to invest in Victoria by a combination of government taxes and policies.

With this week’s planning announcements focused around 60 activity centres across Melbourne, the Victorian government is selling an affordability dream to young people that cannot be realistically delivered. Speeding up planning in these activity centres will deliver little benefit if the result is a housing product that costs too much and doesn’t meet the utility of buyers.

Temporary off-the-plan stamp duty savings of $40,000 do not make up for the extra $700,000 a young family needs to find to purchase a relatively small three-bedroom apartment in the middle Brighton, no matter how desirable the area might be.

Governments should prioritise unlocking housing types that are more attainable and desirable for consumers in established areas, can deliver moderate density that is faster and more feasible for developers to deliver, and also cost the least in new infrastructure. Middle ring townhouses are the sweet spot.

The state can work with developers and landowners to identify large sites that can support mid-density housing in these areas and remove the barriers to development from public authorities. Walking back the dreaded windfall gains tax – where planning changes substantially increase land values – for residential projects in established suburbs would pay huge dividends in opening up land supply.

There are many pockets in existing suburbs that can deliver swathes of new homes that don’t require 12 to 20 storey apartment buildings. But they will need a departure from some firmly held planning and tax beliefs.

The recent announcement of unlocking more greenfields is another positive, but is not enough by itself. The Precinct Structure Plans program to unlock these new areas needs to ensure public authorities do their part to ensure this land can actually be developed, sooner. And these developments need to be coupled with a proper share of infrastructure spending to resolve the usual criticisms, such as missing public transport or local amenities. I expect doing so would cost a fraction of what is being spent on the Big Build projects.

Victoria’s planning bureaucracy seems to measure success not on the number of new homes they enable, but on how many of their pet policy reforms can be adopted. For every positive change, such as streamlining approval timeframes, they can’t help adding several new requirements that increase compliance or development costs, such as proposed new development infrastructure contributions.

Too-often they ignore industry advice on what will actually work, instead waving us away as purely self-interested. The consequence of this ideological and mistrustful approach is clear to see in the ever-reducing number of new homes being built.

The government needs to incentivise developers to build the kinds of homes people want, in places they want to live, that they can afford. This approach would deliver far more positive impact than holding firmly to a utopian but uneconomic ideal of how people should live.

 

[Nuggs Bunny]

Interesting article that agrees with what you’re saying. People simply don’t buy apartments. They don’t want them.

Sometimes you’ll settle for something you don’t want if there’s a significant price advantage. But with apartments there’s not. They’re not much cheaper than houses, because they’re expensive to build.

Suburban towers won’t work. You need townhouses at the very least, but of course they don’t deliver volume.

I’m a developer. Here’s why Jacinta Allan’s high-rise plan won’t get off the ground​

Max Shifman​

Property developer
October 23, 2024 — 2.58pm


I’m the chief executive of an established property development business – the kind of company Jacinta Allan is appealing to in her push this week to build more mid-level and high-rise apartments in the “activity centres” of established suburbs.

But despite this strong desire, we won’t be building these sorts of apartments any time soon. Why not? Because this sort of development is not feasible to build and sell, especially at scale, and won’t be for a while yet.

Large-scale housing development in “activity centres” sounds good in theory, but the numbers don’t stack up when compared to the costs of freestanding and medium density homes.

It costs at least three times as much to build a square metre of a new apartment compared with a good quality townhouse, or four times more than a new detached home. This means the only apartments that generate a suitable return on investment are premium, boutique apartments targeted at wealthy downsizers.

A generational shift is occurring towards accepting denser living, but we are a long way from new apartments being the solution to the housing supply problem. Two major hurdles stand in the way: the market and the economics.

First, the vast majority of buyers still want at least three bedrooms in their next home (or 2.5 bedrooms for first home buyers). Buyers also overwhelmingly don’t want these bedrooms to be in an apartment building.

This explains the growing chasm between the Victorian government’s aspiration to build thousands of “well-located” homes in established suburbs and the reality of delivering them.

The aspiration is a worthy one; who wouldn’t want new homes to be close to transport, jobs, open space and amenities? Who doesn’t want young people and key workers to enjoy the great suburbs and towns that exist across our state?

A key barrier to this is illustrated in a Westpac Housing Pulse survey from March this year, which showed that only 26 per cent of buyers in Melbourne were seeking an apartment or unit for purchase. This matches similar surveys over the years, including Infrastructure Victoria’s oft referenced “Our Home Choices” report of 2023, which showed just one in five people living in a greenfield suburb would consider an inner-city apartment or townhouse if the price was comparable (which it is not).

This dynamic would likely be different if apartments were significantly cheaper than detached houses, as in other parts of the world. But here is where the difficult economics creep in; across Australia, new apartments cost significantly more to build or buy than an equivalent new townhouse or detached house. The price of materials, high building standards, and labour costs all contribute.

Construction costs have risen so much that developers now need to sell apartments at the rate of $14,000 per square metre or more for a project to be feasible – around 40 per cent higher than selling rates pre-COVID. This translates into a small new one-bedroom apartment of around $650k, a two-bedroom apartment of 70 square metres at nearly $1 million, or a reasonably sized three-bedroom “family” apartment at around $1.5 million or more. These are not prices that are attainable to the bulk of median income earners, let alone first home buyers and lower income earners.

Contrast this with townhouses in established middle ring suburbs or a detached home in greenfield areas, which offer the same number of bedrooms and more space at almost half of the price. For example, a new three-bedroom townhouse in a middle-ring suburb such as Keysborough would cost under $800k, as would a new four-bedroom house in a greenfield suburb such as Clyde. No wonder these have been the most desirable housing types for owner occupiers in the recent past.

The apartment market is now almost entirely skewed towards premium, downsizer apartments, with entry-level units all but evaporating from sale.

That is why we have gone from building around 25,000 apartments per year in Melbourne in the mid-2010s, to just 4000 per year.

Higher apartment sales and production during that time were also driven by foreign investors who underpinned high-rise towers, along with local investors. Both have been discouraged to invest in Victoria by a combination of government taxes and policies.

With this week’s planning announcements focused around 60 activity centres across Melbourne, the Victorian government is selling an affordability dream to young people that cannot be realistically delivered. Speeding up planning in these activity centres will deliver little benefit if the result is a housing product that costs too much and doesn’t meet the utility of buyers.

Temporary off-the-plan stamp duty savings of $40,000 do not make up for the extra $700,000 a young family needs to find to purchase a relatively small three-bedroom apartment in the middle Brighton, no matter how desirable the area might be.

Governments should prioritise unlocking housing types that are more attainable and desirable for consumers in established areas, can deliver moderate density that is faster and more feasible for developers to deliver, and also cost the least in new infrastructure. Middle ring townhouses are the sweet spot.

The state can work with developers and landowners to identify large sites that can support mid-density housing in these areas and remove the barriers to development from public authorities. Walking back the dreaded windfall gains tax – where planning changes substantially increase land values – for residential projects in established suburbs would pay huge dividends in opening up land supply.

There are many pockets in existing suburbs that can deliver swathes of new homes that don’t require 12 to 20 storey apartment buildings. But they will need a departure from some firmly held planning and tax beliefs.

The recent announcement of unlocking more greenfields is another positive, but is not enough by itself. The Precinct Structure Plans program to unlock these new areas needs to ensure public authorities do their part to ensure this land can actually be developed, sooner. And these developments need to be coupled with a proper share of infrastructure spending to resolve the usual criticisms, such as missing public transport or local amenities. I expect doing so would cost a fraction of what is being spent on the Big Build projects.

Victoria’s planning bureaucracy seems to measure success not on the number of new homes they enable, but on how many of their pet policy reforms can be adopted. For every positive change, such as streamlining approval timeframes, they can’t help adding several new requirements that increase compliance or development costs, such as proposed new development infrastructure contributions.

Too-often they ignore industry advice on what will actually work, instead waving us away as purely self-interested. The consequence of this ideological and mistrustful approach is clear to see in the ever-reducing number of new homes being built.

The government needs to incentivise developers to build the kinds of homes people want, in places they want to live, that they can afford. This approach would deliver far more positive impact than holding firmly to a utopian but uneconomic ideal of how people should live.

You can tell this is written by somebody with a heavily vested interest in private-led property development. Max in his wisdom is calling for the government to keep doing the same thing, but collect less revenue from developers and spend more of the state's money to make their developments (investments) liveable. I suppose at least he is transparent in his self-interest.

No doubt he's correct in that it costs more per m2 to build an apartment. This is obviously going to be the case when you consider that most single storey dwellings are lightly constructed with minimal foundations, easy to access and generally put up by the lowest paid construction workers in the state. Apartments with deep foundations and basements have a considerably more involved build and, particularly with highrise, the pay scales are at the other end of the chart.

But there's more to developing land than building a dwelling - you've actually got to connect it to society. And even in spite of the DCP and CIL the cost of doing this is almost never fully recovered because the money simply does not go far enough. Freeway upgrades and train line upgrades that become necessary once the suburb has reached full are certainly not covered. There's no consideration for the true cost of establishing a school and getting people to staff it, generally only a grant for the land. There's no ongoing subsidy to emergency services who need to expand their area of operation to cover paddocks that are now full of houses. The state (taxpayer) foots the bill for all of this.

The author says that this could be done at a fraction of the cost of the Big Build - ironic given that projects like both Monash Freeway and the Suburban Roads Upgrade have been purely about easing the congestion caused by the thousands of extra cars entering the system at the extremities of the network. WGT, NEL, M80 Upgrades, Mordialloc Bypass, Mernda extension etc. the list goes on, literal billions spent on upgrading the transport network that is largely due to building the houses that the author can knock up at 25% of the cost of an apartment.

The approach isn't sustainable. If we extracted the true cost of these pop up suburbs from developers they would claim that housing would be unaffordable and that nobody would buy property in those areas. They're 100% right about that.

So the obvious alternative is moving the new builds to areas like the established inner and middle ring suburbs where the infrastructure is largely already existing and there is more than one way in and one way out. Townhouses are a good start, apartments will inevitably be necessary around the transport hubs as populations begin to grow. People may not like the idea of living like this but unfortunately it isn't 1980 anymore and the dream of owning a detached house 10kms from the city is not going to be possible for 90% of the population - arguably it already isn't.

 

[peetoo]

Interested in the comparison to overseas where costs are ‘cheaper’. I’m fairly sure overseas has much higher building costs than before.

But the article does underline the need for massive profit is a key factor too

 

[peetoo]

As it emerges that wedging liberals is a key motivator for the activity centre policy, I must say I hate when wedge is prioritised especially bad policy.
I say bad policy cos the numbers don’t appear to stack up

I reckon politically it can only benefit the teals anyway

 

[Pakenhamsaint]

That weather precipitated (pun unintended but on reflection welcome) the desal plant being built though - wheels and roundabouts.

A Murphy's law says it starts pissing down the moment it's finished.

 

[Sphynx]

Interested in the comparison to overseas where costs are ‘cheaper’. I’m fairly sure overseas has much higher building costs than before.

But the article does underline the need for massive profit is a key factor too

Our construction costs are roughly double some of the other more expensive global markets like NYC.

It’s all labour costs. Especially factoring we are in the gateway to China. Why do you think so many poms and Irish tradies are moving out in their droves?