There’s finally hard data on the huge role of foreign buyers in Australian property

From Business Insider.

We now know how many houses foreign investors are buying in New South Wales and Victoria, the hotbeds of Australia’s housing affordability debate.

According to new research based on data obtained under a Freedom of Information request by Hasan Tevfik and Peter Liu, research analysts at Credit Suisse, foreigners are buying property at an annualised rate of $8 billion per annum, equating to 25% of new supply in New South Wales and 16% in Victoria in the past 12 months.

“We have been able to gather new data from the state revenue offices of New South Wales and Victoria that reveal the size, source and changes in foreign demand for Aussie housing,” the pair wrote in a research note on Thursday.

“The data is new and is available because state governments now collect taxes from foreign buyers.”

The bombshell figures suggest that, along with local investors, the level of foreign investor activity in the housing markets has been a significant driver of the price growth of recent years, and the overwhelming majority — a staggering 80% in NSW — is coming from China.

In a note to clients, Tevfik and Liu write:

Now there is credible, official data on the amount of foreign demand for Aussie housing. We made a Freedom of Information Act request for this data and you can imagine our excitement (we are nerds and love new data) when the state governments of NSW and Victoria complied. Here is what the data reveals.

1. Foreign demand for housing in NSW is currently running at an annualised rate of $4.9bn and is the equivalent of 25% of new supply. We think this is extraordinary given that current supply is nearing peak cycle. In Victoria foreign buyers are hoovering up 16% of new supply.

2. When we talk about foreign buyers we are really talking about Chinese buyers. The Chinese have accounted for almost 80% of foreign demand in NSW. The second biggest group, the Indonesians, account for just 1.7% of foreign demand.

3. It is clear foreigners have been able to settle on their Aussie properties more recently despite the numerous impediments of capital controls and the lack of lending by Aussie banks. There is little evidence so far to suggest the flows have stopped.

“The taxes collected imply foreigners are currently purchasing an annualised $4.9 billion of New South Wales housing and $3.1 billion in Victoria,” say Tevfik and Liu.

According to recent data from CoreLogic, the median dwelling price in Sydney increased by 18.9% in the 12 months to mid-March, and by 14.7% in Melbourne. From January 2009, prices in Sydney have surged by 106%. Melbourne price growth has been similarly strong, increasing by 89%.

The rate of price growth has concerned policymakers, with the federal government examining a range of policy responses in its forthcoming budget to address affordability, and the central bank flagging increasing concerns about financial stability.

“In New South Wales there were 1,503 properties settled involving foreign buyers from October 2016 to January 2017 and they totaled $1.63 billion in value.

“Chinese buyers settled on 1,211 or 80% of them and accounted for 77% of the total purchase value.”

Source: Credit Suisse

 

Tevfik and Liu say that the Chinese figures include buyers from not only mainland China but also Hong Kong, Macau and Taiwan.

There is also little indication that they are having trouble in meeting their settlement obligations, yet.

“In New South Wales there were $225 million of foreign settlements in October 2016 and this rose to more than $450 million in both November and December. In Victoria the value of December settlements was 50% higher than in November,” they say.

“So despite the capital controls put in place in China, and the local banks refusing to lend to purchasers from abroad, foreign buyers were still able to find the financing to complete their transactions.”

In late 2016, China’s central bank begun vetting capital transfers abroad worth $US5 million or more. Previously, only transfers worth $US50 million were required to be reported to authorities.

Those restrictions were tightened further at the beginning of this year with regulators stipulating that people could not purchase foreign exchange for overseas investment, including for buying houses.

With the tax data on foreign purchases now several months old, whether this is impacting the ability of Chinese investors to settle is, as yet, unknown.

According to a report in The Australian earlier this month, many Chinese buyers were struggling to settle upon apartments that they had previously purchased in Melbourne.

Investors Rule (For Now)

The latest data from the ABS for Lending Finance in January just reinforces the story that investor loans were so, so strong.  Owner occupation housing finance grew 0.5%, to $20.1 billion, personal finance was up 0.4% to % 6.9 billion and overall commercial lending fell 0.9%, down to $43 billion (thanks to significant falls in non-investment housing)

However, the share of lending for investment properties, of fixed commercial lending rose to 38.4%, the highest proportion since May 2015, and the share of commercial lending for investment property now stands at 19.1% of all lending, again the highest since May 2015.

The individual monthly movements reinforce how strong investment lending was.  There was also a 5.1% fall in revolving commercial lending.

Another view, which looks just at housing confirms the story, with construction lending for investment up 5%, and investment lending for investment up well over 1%.

The state level data also confirms that the bulk of the investment property lending is in Sydney and down the east coast to Melbourne.

We say again, this is not good news, because such strong growth in finance for investment properties simply inflates banks balance sheets and home prices, raises household debt, and escalates systemic risks. We need to funnel investment into productive business enterprise, not more housing.

Expect regulatory intervention soon.  Better (very) late than never.

Saving The Backyard And Boosting Liveability

The Victorian State Government is taking action to protect the much-loved backyard and keep more garden space in local suburbs.

Minister for Planning Richard Wynne announced the changes today, which follow a review of suburban Residential Zones. The review found the zones had been implemented in an inconsistent manner across Melbourne, but the proposed changes will protect suburban character, no matter your postcode.

 

The changes are linked to the Government’s refreshed Plan Melbourne, a blueprint for ensuring our suburbs develop and grow, but never at the expense of neighbourhood character.

There will no longer be a cap on how many dwellings can be built on a block, but new requirements mean developments must have a mandatory percentage of garden space.

It’s all about giving more Victorians access to the outdoor space that is the cornerstone of great homes, and giving kids more opportunities to form their childhood memories in backyards every day all over the state.

Under new rules, blocks between 400-500 square metres require a 25 per cent minimum garden area, blocks between 501-600 metres need 30 per cent, and blocks larger than 650 square metres must have a 35 per cent garden area.

The former Liberal government’s version of Plan Melbourne failed to address housing affordability, and ignored the need for a long-term plan that allows for growth but prevents over-development.

We’ve listened to councils, industry and members of the public to right those wrongs – and to maintain our renowned liveability.

Plan Melbourne aims to deliver:

  • Jobs and services closer to where people live
  • A fixed urban boundary
  • Sustained investment in infrastructure, such as Melbourne Metro Rail and level crossing removals
  • Clarity about where growth can occur in the suburbs
  • Responses to climate change by reducing Melbourne’s carbon footprint and growing a green economy
  • A greater focus on social infrastructure such as parks
  • Well-connected, 20-minute neighbourhoods

The Victorian Government’s plan to change some requirements of the residential zones will improve housing outcomes in our suburbs says the Housing Industry Association (HIA).

The Government’s announcement today that elements of the residential zones will be amended is seen as a logical starting point to improve residential planning outcomes.

HIA has argued that the new zone provisions introduced in 2014 have had the effect of limiting the design of new homes together with restricting the location of small medium density developments.

New Home Lending falls back in January

Figures released today by the ABS indicate that the volume of loans for new homes eased back during January, said the Housing Industry Association.

During January 2017, the total number of owner occupier loans for the purchase or construction of new homes fell by 1.0 per cent and was 0.4 per cent lower than a year earlier. The volume of loans for new home purchase declined by 0.3 per cent during January with lending for the construction of new dwellings dipping by 1.4 per cent.

In January 2017 the number of loans to owner occupiers constructing or purchasing new homes increased in three states. Compared with January of last year, the volume of loans rose most strongly in Queensland (+13.1 per cent), followed by South Australia (+9.2 per cent) and Victoria (+8.8 per cent). The largest reduction occurred in Western Australia (-9.3 per cent), followed by Tasmania (-3.5 per cent) and New South Wales (-1.2 per cent). The volume of lending rose by 22.1 per cent in the ACT but was down by 54.8 per cent in the Northern Territory over the same period.

“Despite the reduction during January, the actual volume of loans for new homes remains at a very elevated level – about 99,620 loans were made over the year to January 2017,” noted HIA Senior Economist Shane Garrett.

“There are two dynamics going on with respect to new home loans. With 2016 representing the strongest year for new dwelling starts since the end of WWII, a huge number of new homes are now becoming available for purchase making lending volumes in this area accordingly high. However, the number of loans to people constructing their own home has actually been falling back since mid-2014 and this trend has affected overall lending activity,” Shane Garrett concluded.

Investors Boom, First Time Buyers Crash

The ABS released their Housing Finance data today, showing the flows of loans in January 2017. Those following the blog will not be surprised to see investor loans growing strongly, whilst first time buyers fell away. The trajectory has been so clear for several months now, and the regulator – APRA – has just not been effective in cooling things down.  Investor demand remains strong, based on our surveys. Half of loans were for investment purposes, net of refinance, and the total book grew 0.4%.

In January, $33.3 billion in home loans were written up 1.1%, of which $6.4 billion were refinancing of existing loans, $13.6 billion owner occupied loans and $13.5 billion investor loans, up 1.9%.  These are trend readings which iron out the worst of the monthly swings.

Looking at individual movements, momentum was strong, very strong across the investor categories, whilst the only category in owner occupied lending land was new dwellings.  Construction for investment purposes was up around 5% on the previous month.

Stripping out refinance, half of new lending was for investment purposes.

First time buyers fell 20% in the month, whilst using the DFA surveys, we detected a further rise in first time buyers going to the investment sector, up 5% in the month.

Total first time buyer activity fell, highlighting the affordability issues.

In original terms, total loan stock was higher, up 0.4% to $1.54 trillion.

Looking at the movements across lender types, we see a bigger upswing from credit unions and building societies, compared with the banks, across both owner occupied and investment loans. Perhaps as banks tighten their lending criteria, some borrowers are going to smaller lenders, as well as non-banks.

We think APRA should immediately impose a lower speed limit on investor loans but also apply other macro-prudential measures.  At very least they should be imposing a counter-cyclical buffer charge on investment lending, relative to owner occupied loans, as the relative risks are significantly higher in a down turn.

The budget has to address investment housing with a focus on trimming capital gain and negative gearing perks.  The current settings will drive household debt and home prices significantly higher again.

Home building isn’t a fix for affordability

From The Conversation.

Politicians and the powerful property lobby continue to argue that building more houses is the solution to Australia’s chronic affordability problems.

But a “supply-side solution” – as propounded by NSW Premier Gladys Berejiklian as well as Prime Minister Malcolm Turnbull and Treasurer Scott Morrison – will only work if affordability is just a supply-side problem. Evidence suggests this is not the case. In fact, our analysis shows that Australia is almost a world leader in rates of new housing production.

How Australia compares

One way to assess Australia’s supply performance is to compare it with other developed countries. The graph below compares the number of dwelling completions per 1,000 persons across 13 countries, for the years 2010 and 2015. On this measure, Australia’s new housing production is second only to South Korea’s.

Australia delivers two-thirds more homes per 1,000 persons than the US and four times more than the UK. When we measure supply as a proportion of existing stock, Australia again ranks second with a rate double that of the US.

OECD questionnaire on affordable and social housing; World Bank population growth and total population figures, Author provided

A slightly different approach takes into account population growth. This involves measuring dwelling completions per head of new population. Here Australia’s performance sits in the middle of the pack.

We are delivering just over 0.5 dwellings per head of new population compared to more than 2 in South Korea. This rate is, however, still ahead of the UK and comparable to the US. Again, that suggests inadequate supply is not the major cause of the affordability crisis.

OECD questionnaire on affordable and social housing, World Bank population growth and total population figures, Author provided

State comparisons of supply

At a national level, supply seems pretty healthy. But there are significant state variations. This might, on the surface, be used to explain different patterns of price growth.

The table below shows that New South Wales has produced fewer new homes per 1,000 people than Australia overall over a 30-year period. The difference was particularly marked between 2005 and 2015.

State comparisons of new housing supply. ABS building activity Australia cat. 8152; ABS Australian Demographic statistics Cat 3101, Author provided

However, higher supply output in the other states has certainly not created affordable markets. In NSW, the last two years have delivered significant supply growth yet prices have continued to rise just as fast. So why do prices rise with supply growth?

Demand drives supply

In a market-driven housing system, price stimulates new housing supply. In Australia new supply has responded relatively quickly to price rises (despite the continuous rhetoric from the property lobby about planning).

But there is always some lag due to the time it takes to secure necessary approvals and physically construct property. There is no such lag with demand meaning there is often a sustained mismatch between the two – positive or negative.

In a rising market, development becomes more profitable and land values rise, meaning greater returns for all concerned. Potential future capital gains stimulate investment activity. Price rises also allow owner-occupiers to trade up as the equity in their own dwelling increases.

In such circumstances, increased levels of housing supply do little to satiate demand created by population growth and the appetite of investors.

Western Australia has had an incredible level of housing completions over the last 30 years, as shown in the table, with 2014 and 2015 particularly strong. In the last 12 months, dwelling commencements have collapsed by more than 25%. Prices have been falling slowly for almost three years driven by the contraction in the resources sector and strong levels of new supply.

However, even under these conditions, WA housing affordability shows little sign of improving for those on low incomes. The market still cannot deliver housing for those at the bottom end of the market.

The housing market is simply unable to deliver housing that is affordable to those on lower (and, increasingly, moderate) incomes because there is a minimum cost of delivering housing that meets minimum community standards. This is made up of the land price, the physical construction costs of the dwelling, and the profit required for taking on the development risk.

This is why market intervention and subsidy are essential to deliver options for those on low incomes.

Targeted interventions are needed

Two strategies are needed to deliver affordable housing to the lower end of the market.

First, demand-side measures need to be better targeted to stimulate investment in new supply, particularly affordable rental housing, rather than simply fuelling demand.

Second, any government serious about improving affordability needs to put more resources into the community housing sector. This could be funded in two ways: partly by taxing the windfall gains from development and partly by reallocating existing demand-side subsidies.

The community housing sector can operate counter-cyclically. This means it can maintain housing supply even when house prices stagnate or fall – which is good for the economy.

A bigger community housing sector is the supply solution Australia really needs. The bond aggregator model currently working its way through consultation offers some hope of delivering this expansion.

Targeting supply to deliver housing for those on low incomes and reining in demand-side incentives that fuel prices will make some difference to affordability for those most affected.

There was some encouragement over the weekend. Scott Morrison discussed the rental market and social housing as part of the affordability solution. This was a welcome change from trotting out the tired old supply arguments and threatening to fuel demand through more home ownership incentives.

Let’s hope the treasurer follows through and delivers some much-needed “whole of housing market” thinking in the May budget.

Authors: Steven Rowley, Director, Australian Housing and Urban Research Institute, Curtin Research Centre, Curtin University; Nicole Gurran, Professor – Urban and Regional Planning, University of Sydney; Peter Phibbs, Chair of Urban Planning and Policy, University of Sydney

Could 3D-Printing help solve the housing affordability problem?

From Zero Hedge.

While 3D-printing may have been faded away in recent years from the spotlight of core “disruptive” technologies, that may soon change again after a company managed to 3D-print an entire house in just 24 hours. Located in Russia, the following 400-square-foot home, or 37 square meters, was built in just a day, at a cost of slightly over $10,000.

As profiled in the Telegraph, the company Apis Cor, 3D-printing specialists based in Russia and San Francisco, built the house using a mobile printer on-site. According to the company, the walls of the building were printed and painted in just 24 hours.

What makes Apis’ process unique is that while 3D-printing a home usually involves creating the parts off-site and constructing the building later, Apis Cor uses a mobile printer to print their apartments on-site. As profiled here, in 2015 the world’s first 3D-printed apartment building was constructed in China, with the structures printed off-site.

However, the Apis process is unique in that it eliminates the need to transfer the printed blocks to the construction site.

“Printing of self-bearing walls, partitions and building envelope were done in less than a day: pure machine time of printing amounted to 24 hours,” the company said.

The main components of the house, including the walls, partitions and building envelope are printed solely with a concrete mixture. Once the house has been completed, the printer is removed with a crane-manipulator and the roof is then added, followed by the interior fixtures and furnishings, as is a layer of paint to the exterior of the house.

The total construction cost of the house: $10,134.

The initial house consists of a hallway, bathroom, living room and kitchen and is located in one of Apis Cor’s facilities in Russia. The company has claimed that the house can last up to 175 years.

Nikita Chen-yun-tai, the inventor of the mobile printer and founder of Apis Cor, explained his desire is “to automate everything”.

“When I first thought about creating my machine the world has already knew about the construction 3D printing,” he explained. “But all printers created before shared one thing in common – they were portal type. I am sure that such a design doesn’t have a future due to its bulkiness. So I took care of this limitation and decided to upgrade a construction crane design.”

He adds: “We want to help people around the world to improve their living conditions. That’s why the construction process needs to become fast, efficient and high-quality as well. For this to happen we need to delegate all the hard work to smart machines.”

Apis Cor has claimed to be the first company to have developed a 3D printer than can print whole buildings on-site.

For now the technology is in its infancy, however in a few years, the deflationary pressures unleashed by Apis-Cor and its competitors could results in a huge deflationary wave across the construction space, and would mean that a house that recently cost in the hundreds of thousands, or millions, could be built for a fraction of the cost, providing cheap, accessible housing to millions, perhaps in the process revolutionizing and upending the multi trillion-dollar mortgage business that is the bedrock of the US banking industry.

First Home Owner Grant To Double In Regional Victoria

The Victorian Government has announced the First Home Owner Grant will be doubled in regional Victoria. The Grant will increase from $10,000 to $20,000, commencing 1 July 2017. The Government expects up to 6,000 first home buyers will receive extra assistance.

This is in addition to the recent land release announcement.

The increased grant will be available to first home buyers building new homes valued up to $750,000, and is an additional $50 million investment in regional Victoria over the next three years.

The grant will be applicable to contracts signed from 1 July 2017 to 30 June 2020, at which time, the Government will review the benefits for first home buyers and businesses in regional Victoria.

However, our analysis of such grants, not only here but overseas is that they simply lifts prices by the same amount. It is a zero sum game.

Whilst we understand the political agenda, this move is unlikely to improve housing affordability and access to property.

Dwelling approvals continue to fall in January

The number of dwellings approved fell 2.1 per cent in January 2017, in trend terms, and has fallen for eight months, according to data released by the Australian Bureau of Statistics (ABS) today.

Here is the data charted by the HIA. They say “new dwelling approvals have been falling back over the past year, particularly due to a reduced inflow of new multi-unit projects”.

In trend terms, dwelling approvals decreased in January in the Australian Capital Territory (19.4 per cent), Queensland (6.8 per cent), New South Wales (4.8 per cent), Northern Territory (1.7 per cent) and Western Australia (0.3 per cent). Dwelling approvals increased, in trend terms, in Tasmania (3.0 per cent), Victoria (2.9 per cent) and South Australia (1.1 per cent).

In trend terms, approvals for private sector houses fell 1.2 per cent in January. Private sector house approvals fell in New South Wales (2.2 per cent), South Australia (1.4 per cent), Western Australia (1.4 per cent), Queensland (1.0 per cent) and Victoria (0.3 per cent).

In seasonally adjusted terms, dwelling approvals increased by 1.8 per cent in January, driven by a rise in total dwellings excluding houses (6.6 per cent). Total house approvals fell 2.2 per cent

The value of total building approved fell 2.9 per cent in January, in trend terms, and has fallen for six months. The value of residential building fell 0.9 per cent while non-residential building fell 6.8 per cent.

Future Housing Starts Lower

According to the Housing Industry Association, during the year ended September 2016, there were over 229,000 dwellings that commenced construction. While this is still an exceptionally high level of activity based on historical experience, the annualised level of commencements has eased since peaking at over 231,000 in the year ending in the March 2016 quarter. This is supportive of HIA’s view that the current new residential building cycle is likely to have peaked in 2016.

Detached houses

Despite the decline in the total number of commencements, the detached house segment of the market has proven resilient.

There were 29,634 detached houses commenced during the September 2016 quarter, which makes a total of 115,953 commencements in the year up to this point.

The prevailing dynamics in the detached house market during 2015/16 were a marked contraction in the level of activity in Western Australia counter balancing the ongoing resurgence in the Victorian and New South Wales markets. While there were variations in other state and territory markets, when we take a national perspective these two factors eclipsed the rest. However, we are now well into 2016/17 and approaching a new phase of the cycle which will have a fresh dynamic. The headwinds afflicting WA may soon subside and Sydney and Melbourne’s time in the sun may be drawing to a close.

From a national perspective, detached house commencements are forecast to ease by 1.7 per cent in 2016/17 ahead of a further decline of 7.3 per cent in 2017/18. After falling to a low of 104,800 starts in the 2018/19 year, the level of detached house building is forecast to gradually improve across the out years of the forecast horizon.

Multi-unit dwellings

The ‘multi-unit’ market has weakened overall. After a very strong result in the March 2016 quarter, the number of multi-unit commencements fell away quite sharply throughout the middle of the year.

However, there are markedly different trajectories for the semi-detached market (including townhouses, row and terrace type dwellings) and the market for apartments in buildings of four or more storeys.

The number of commencements for semi-detached dwellings continued to grow throughout the year. In contrast, the number of commencements for apartments in high-rise developments slowed as activity in Victoria and Queensland eased. The flow of new apartment projects getting underway in New South Wales has remained more buoyant and there is a record level of apartments in developments awaiting commencement.

In aggregate, there were a total of 25,202 multi-unit dwellings commenced in the September 2016 quarter, which is equivalent to 113,383 across the full year. HIA is forecasting that multi-unit dwelling commencements will remain at quite a high level in the 2016/17 financial year, albeit with an annual decline of 11.3 per cent. Looking beyond 2016/17 is when we anticipate commencements will post more significant declines. Multi-unit commencements are forecast to decline by around 25 per cent in 2017/18, and then by a further 12 per cent in 2018/19. The 2018/19 year is projected to be the low point of the cycle for multi-unit commencements, when 68,400 starts are forecast to occur.