$6.8bn stamp duty bonanza – at the expense of FHBs

From Mortgage Professional Australia.

Huge NSW revenues from stamp duty have lifted state out of debt but prospective homebuyers are suffering

The New South Wales State Government received $6.8bn from stamp duties on residential property over the past year, the State’s 2017-18 Budget has revealed.

The NSW State Government is now free of debt, with a $4.5bn surplus expected for 2016-17 and a surplus of $2.0bn expected next year. Stamp duty makes up a huge proportion of the State’s income, with revenues jumping 10% over the past year and expected to grow 6% each year for the next three years.

As the State Government grows richer, NSW’s first home buyers are struggling. In a CoreLogic survey of Australians of all ages, 48% of those in NSW said stamp duty was the most significant obstacle to housing affordability. Three-quarters of respondents felt that removing or reducing stamp duty would be an effective way to improve housing affordability in New South Wales.

CoreLogic found that the average household in Sydney would take 1.7 years of no spending whatsoever to save a 20% deposit. Getting on the housing ladder in Sydney was far more expensive than any other city, including Melbourne.

Stamp duty concessions

Perhaps buoyed by its new found wealth, NSW is finally following the lead of other states such as Victoria by expanding stamp duty concessions.

From July 1 stamp duty for FHBs will be abolished for new homes up to $650,000 with discounts on properties of up to $800,000. Additionally, grants of $10,000 will be available for new homes of up to $600,000 and for FHBs who build their home. Stamp duty will no longer be charged on lenders mortgage insurance.

Over the past twelve months, 45.4% of dwellings sold across New South Wales had a price tag of $650,000 or less, notes CoreLogic director of research Tim Lawless. However, in the Sydney metropolitan area, just 25.8% of dwelling sales were at a price of $650,000 or less.

The State’s stamp duty concessions may push Sydney FHBs towards units, given 33.5% of units sold in the last 12 months went for under $650,000. On a $650,000 dwelling purchase, a FHB will save $25,000 by not paying stamp duty.

According to Lawless, “we can expect first home buyer sales to stall over the remainder of June and likely surge higher from the beginning of the new financial year.”

Mortgage Growth In Adelaide and Hobart

We finish our series on mortgage growth by looking at data from Adelaide and Hobart and plotting the relative change in volumes of loans between 2015 and 2017, by post code, drawing data from our core market models, and geo-mapping the results.

Here is Adelaide.

Here is Hobart.

The yellow shades show the areas with the largest growth in the number of mortgages, the red shades show a relative fall in volumes. You can click on the map to view full screen. This is a picture of mortgage counts, not value, we may look at this later.

Compare these pictures with those for Sydney, Melbourne, Brisbane and Perth and we see just how different these markets are!

Of course this is just one of the many potential views available from the 140+ fields which are contained in our Core Market Model.

Who’s responsible? Housing policy mismatched to our $6 trillion asset

From The Conversation.

Does the Australian government have the policy, organisational and conceptual capacity to handle the country’s A$6 trillion housing stock? We ask this question in a newly released research report. The answer is critically important to both household opportunity and prosperity, and to the management of our largest national asset.

Australians’ wealth is overwhelmingly in our housing. As of late 2016, our housing stock was valued at $6 trillion. That’s nearly double the combined value of ASX capitalisation and superannuation funds.

Clearly, the way the housing sector is managed has huge implications for household prosperity and opportunity. The public debate about high house prices, for example, reveals a gnawing anxiety that the distribution of housing as an asset has shifted too far in favour of a growing class of rentiers rather than households.

Housing also has clear national economic implications. This relates both to its scale as an asset, and to the way it provides shelter for those most in need where that need is clear.

Any misallocation of housing to low-productivity uses is potentially a major drag on the economy. This necessarily requires a wide understanding of productivity.

How is Australian housing policy framed?

We asked whether there is a clear systematic policy framework through which the Australian government understands the dynamics of the housing system and its contribution to productivity. We might expect such a framework to be clear and prominent given recent public and policy attention to housing questions.

To better understand the Commonwealth’s approach, we surveyed recent major housing policy reviews by the government. We assessed how housing was conceived in terms of its economic and social dynamics, its influence on productivity, and the role of policy in shaping these effects.

There is no shortage of documentation to appraise. Our sample included the Henry Review of Taxation (2010), the National Housing Supply Council report series (2009-2013), the Productivity Commission inquiry into planning (2011), the COAG Report on Housing Supply and Affordability Reform (2012), the Financial System Inquiry (2014), the Federation Report on housing and homelessness (2014), and (albeit not a government report) the Senate Inquiry into housing affordability (2015).

We also prepared an inventory of housing policy instruments operated by governments in Australia to understand how these were conceived within the policy reviews. We found 13 policy instruments that influence housing systems. These operate across housing, economic and fiscal policy and at multiple tiers of government.

A picture of incoherent policymaking

We were surprised to discover that few of the major policy reviews provided a systematic framework for understanding the economic role of housing.

There is thin evidence, at best, that these inquiries constructed or articulated a systematic conceptual understanding of the links between the housing system and economic productivity.

Even the Productivity Commission’s inquiry into planning and zoning, which focused on housing affordability, did not offer a conceptual framework for understanding the influence of planning regulaton on urban or national productivity.

Our review of these documents further shows there is no coherent framework articulating how policy objectives link to instruments and their effects. Housing policy, despite the $6 trillion value of housing, seems strangely incoherent. Australia doesn’t currently have a minister for housing.

The debate over negative gearing during 2015 and 2016 partly demonstrates our contention. During this period we counted at least six reports by non-government organisations articulating a view on the purpose and effect of negative gearing. Nowhere could we identify a government policy document articulating a clear, extended and analytically based position on this policy explaining its purpose and effects.

Our search for an explanation of these gaps in policy was not exhaustive. But we did assess the current administrative orders for housing within the Australian government.

Responsibility for understanding housing issues is divided. The Department of Social Services is responsible for social housing, rent assistance and home ownership. The Treasury has responsibility for housing supply policy.

Elsewhere, the Reserve Bank deals with monetary policy and financial stability. The Australian Prudential Regulation Authority APRA manages macroprudential policy. And the Tax Office (ATO) administers tax concessions. The Productivity Commission offers occasional advice on housing.

Yet there appears to be no obvious co-ordinating point in government that oversees housing. No one authority is responsible for formulating a coherent systematic understanding of housing and its effects on productivity and Australia’s economy or society generally. The National Housing Supply Council established in 2009 partly filled this role, but was abolished in 2013.

Further dispersion appears via COAG, which is convened by the Commonwealth government. COAG periodically marks out a housing issue, such as land supply, for discussion with state governments and to formulate policy recommendations. But COAG communiques are typically short political statements and not analytically founded.

Within state governments, responsibilities for different aspects of housing are typically spread across several agencies.

What needs to be done?

Our report demonstrates weaknesses in Australia’s approach to housing and housing policymaking. There is evidence this is deliberate. For example, the Coalition members’ minority response to the 2015 Senate inquiry into affordable housing rejected almost all of its policy recommendations. Many of these would rectify some of the deficits we have identified.

The weak formal coordination in housing policy contrasts with other sectors such as energy, defence, biosecurity, disability, heritage, drugs and road safety, among others. Each has a dedicated national strategy articulating policy objectives, problem conceptualisation and coordination of policy instruments.

It is doubtful that housing is less significant to the nation, economically or socially, than these sectors.

We recommend that the Australian government reflects on the position of housing within the architecture of government. The $6 trillion national asset that housing represents deserves much better understanding of its dynamics and effects on the national economy, including productivity.

We argue that Australia needs a federal minister for housing, a dedicated housing portfolio, and an agency responsible for conceptualising and co-ordinating policy. The current fragmented, ad-hoc approach to housing policy seems poorly matched to the scale of the housing sector and its importance to Australia.

Authors: Jago Dodson, Professor of Urban Policy and Director, Centre for Urban Research, RMIT University; Sarah Sinclair, Lecturer in Economics, RMIT University; Tony Dalton, Emeritus Professor, Centre for Urban Research, RMIT University

Mortgage Growth In Greater Perth

We continue our series on mortgage growth plotting the relative change in volumes of loans between 2015 and 2017, by post code, drawing data from our core market models, and geo-mapping the results.

Here is the Greater Perth picture.

The yellow shades show the areas with the largest growth in the number of mortgages, the red shades show a relative fall in volumes. You can click on the map to view full screen. This is a picture of mortgage counts, not value, we may look at this later.

Of course this is just one of the many potential views available from the 140+ fields which are contained in our Core Market Model.

Next time we will look at Adelaide and Hobart.

Fraudsters target brokers in Sydney hotspots

From The Adviser.

Incidents of fraud through the broker channel are skyrocketing, according to Equifax, which has now revealed the top suburbs where fraud is most prevalent.

Speaking at the Pepper Money Insights Roadshow in Sydney yesterday, Equifax BDM Steve Arsinoski shared data from the Veda shared fraud database, highlighting a 33 per cent year-on-year (YOY) increase in fraud. Identity theft is the fastest growing type of fraud, with an 80 per cent YOY increase.

“Thirteen per cent of frauds reported were targeting home loans and there has been a 25 per cent year-on-year increase in frauds originating from the broker channel,” Mr Arsinoski said.

“What we have noticed is that fraud through the broker channel is increasing, and that may be because fraudsters are becoming more sophisticated in the way they are applying for certain products. With the technology they have available they can fabricate certain documentation,” he said.

Equifax data found that 27 per cent of all mortgage fraud cases involved falsifying personal details.

While online is the preferred channel for fraudsters (57 per cent), 15 per cent of fraud cases are coming through the broker channel and 13 per cent through branches.

“Branch channel fraud is around 13 per cent, which showed signs of slowing down in 2015 but there has been a resurgence. We are finding branch fraud is continuing to increase,” Mr Arsinoski said.

“Broker fraud is sitting at 15 per cent. It is not drastically higher than branch fraud, but what is alarming is that we are seeing that 25 per cent growth form the previous year,” he said.

Over 72 per cent of all fraud cases are occurring in the Greater Sydney and Melbourne areas. Mr Arsinoski highlighted that Paramatta, in Sydney’s west, was a particular hotspot.

However, the fastest growing areas for fraud in Australia, with a 130 per cent increase in incidents over the second half of 2016, were Newcastle and Lake Macquarie.

Richmond, in Sydney’s north-west, recorded a 127 per cent surge in incidents over the half, while Baulkham Hills and the Hawkesbury region saw a 111 per cent increase.

Illawarra, Brisbane Inner City, the Sunshine Coast and Geelong were also named as fraud hotspots.

The four main types of mortgage fraud are falsifying personal details (71 per cent), identity takeover (19 per cent), fabricated identity (4 per cent) and undisclosed debt/serviceability fraud (4 per cent).

Mr Arsinoski urged brokers to report fraud as early as possible and suggested how it can be identified.

“If you could find or pickup fraud early on and identify any discrepancies, raise them earlier rather than letting the loan application go through. If the lender finds some inconsistencies and reports it to the originator, this is going to be a massive waste of your time and effect your commissions,” he said.

“The biggest impact on a broker is the loss of credibility. I’ve spoken to many brokers and they say reputation and their brand are the most important things in being able to generate leads and referrals.”

How brokers can combat fraud:

  • Ask questions to uncover fraudsters. The face-to-face interview is the best time to get to know your customer and do a thorough needs analysis. It is also the perfect opportunity to find holes in their story. Use your intuition.
  • Validate information via internet searches
  • Ask the borrower to identify any C-level executives at the organisation they say they work for
  • Get consent to record the interview
  • Look out for an unencumbered property offered as security.
  • Ask for original payslips or bank statements, or have the client download them in front of you.
  • Use ZipID for identity verification

Mortgage Growth In Greater Brisbane

We continue our series on mortgage growth plotting the relative change in volumes of loans between 2015 and 2017, by post code, drawing data from our core market models, and geo-mapping the results.

Here is the Greater Brisbane picture.

The yellow shades show the areas with the largest growth in the number of mortgages, the red shades show a relative fall in volumes. You can click on the map to view full screen. This is a picture of mortgage counts, not value, we may look at this later.

Of course this is just one of the many potential views available from the 140+ fields which are contained in our Core Market Model.

Next time we will look at Perth.

Is residential property near a tipping point?

From InvestorDaily.

Non-settlement of new supply could be the factor that puts an end to the Australian residential property boom, writes Quay Global Investors’ Chris Bedingfield.

Australian house prices. It’s the topic of the week, month, year and decade, and it seems everyone has an opinion. The list of house-price ‘culprits’ is long – negative gearing, concessional capital gains tax, immigration, low interest rates and record housing debt.

But blaming these issues for high house prices rarely stands up to any real scrutiny.

It is useful to define property into two broad buckets: ‘commodity’ and ‘franchise’.

Franchise property has very high barriers to entry – either by planning or location constraints.

No amount of capital is capable of replicating the asset. Best-in-class malls, on-campus student accommodation and manufactured housing are examples of franchise property.

Commodity property is easily replicated or substituted at a price. Office property, industrial and storage are good examples – as is residential property.

With commodity property, when prices are above replacement cost, a profit motive exists to supply the market with new stock.

Conversely, when prices are below cost, supply is constrained until prices recover. As a result, prices oscillate around replacement cost, which generally increases in line with inflation.

The law of unintended consequences – Part I

Since 2012, in response to the fall in business investment (mainly mining), the Reserve Bank of Australia (RBA) sought to stimulate the economy by lowering interest rates.

The strategy succeeded and residential investment replaced business investment, so much so that today the rate of new supply dwarfs anything we have seen in Australia for almost 40 years.

Chillingly, Australia’s current rate of relative supply resembles that of the US market in the period leading up to March 2006, and it’s hard to ignore the parallels between today’s Australian residential market and the US housing market of 2006, just before it collapsed.

In the US, the 2000 ‘dot-com’ bust was successfully replaced by a residential construction cycle thanks to low interest rates.

This boom inevitably led to a housing bust and prices fell back below replacement cost.

In Australia, the mining investment bust of 2012 was successfully replaced by a residential construction cycle also thanks to low interest rates.

Valuations in Australia today are clearly stretched and the risk of some type of price correction is inevitable.

In the US, the rise in default rates was the catalyst, but we don’t think the same dynamic will occur in Australia. There is another theory.

The law of unintended consequences – Part II

Since 2012, as prices pushed above replacement cost, housing approvals – which eventually convert into new supply – have subsequently increased, particularly in Sydney, Melbourne and Brisbane.

The Australian Bureau of Statistics says it takes between 11-18 weeks to convert a dwelling approval to a dwelling start.

Once construction starts, average completion time is approximately 32 weeks for houses.

Adding approval and construction time, it should take around 12 months for approvals to convert into completions (longer for apartments, shorter for houses).

Therefore, despite the recent decline, approvals still remain well above the long-term average.

We can expect approximately 55,000 additional dwelling completions per quarter for at least the next four quarters, or 220,000 over 12 months.

At the same time, bank regulators and the RBA are seeking to cool the residential market.

This includes placing a growth limit on investor loans to less than 10 per cent per annum ($55 billion), and reducing ‘interest only loans’.

These measures could not come at a worse time, despite being for the purposes of financial stability and the overall health of the housing market.

Based on the estimated 220,000 dwelling completions expected in 2017, around $176 billion is required to settle the new supply, assuming an average settlement price of $800,000 per dwelling.

The final credit requirement could be as much as $150 billion.

This may require the banking system to exceed the 10 per cent threshold limit for investor loans, and unravels most of the effort to contain investor credit growth since 2015.

Non-settlement of new supply may be Australia’s version of ‘rising default rates’.

What does it mean?

Of course, the property market may not play out this way. The banks may simply ignore the regulators and push through additional credit to ensure settlement.

Cash sales may be greater than we expect, or non-bank lenders may step in and fill the void.

But as long as prices remain materially above replacement cost, new supply will continue, with a further $150 billion of settlements required for 2018.

If a housing correction does occur, the downside will not be limited to residential developers.

Housing construction will collapse and the economy will slow. Local office REITs will suffer as banks react to an economic recession by cutting staff (and office requirements).

Local industrial property will suffer too, as business investment contracts. This is likely to place pressure on the Australian dollar as the RBA reacts by cutting interest rates.

These events will benefit any unhedged global investment strategy. As a manager with an unconstrained global investment approach, we invest a vast majority of our investor capital outside Australian REITs.

The risks are building, and the limits being imposed on new investor borrowing at a time of record new housing deliveries may turn out to be the tipping point.

One irrefutable point is clear: it is not the time to have all of one’s eggs in the same ‘economic basket’.

Chris Bedingfield is principal and portfolio manager at Quay Global Investors.

NSW gov’t unveils housing affordability measures

From Australian Broker.

The NSW Government has announced it will spend more than $720m over the next four years to address the key issue of housing affordability.

“Our number one priority as a government is to get more houses built and to market to help make new homes more affordable,” Minister for Planning and Housing, Anthony Roberts said.

“We are working on many fronts to make owning a home a reality for more people, by streamlining and simplifying the planning system so housing approvals can be fast-tracked and are continuing to release and rezone more land.”

The 2017-18 NSW Budget includes $117.8m over four years of new investment to deliver infrastructure, housing and employment initiatives, review land use and infrastructure strategies for priority growth areas and implement regional plans.

In addition there are address housing affordability by expanding Priority Precincts and Priority Growth Areas to deliver around 30,000 additional dwellings, and to support the reform of Infrastructure Contributions, to:

  • Develop framework plans for priority precincts and growth areas
  • Review and develop proposals to update planning legislation
  • Implement the State Environmental Planning Policy review
  • Develop a framework for applying statutory strategic planning to non-metropolitan areas
  • Develop more effective conditions of consent that are better integrated with environmental protection and other licences
  • Develop a strategic policy framework for social and affordable housing in key locations
  • Develop and implement Windfarm Assessment Guidelines and Social Impact Guidelines
  • Develop a framework for managing land use conflicts in regional areas

Roberts said that reforms to financial contributions by developers towards new developments would further support the provision of local infrastructure and speed up the delivery of housing.

Other Budget initiatives include:

  • $14.4m ($40m over four years) of new investment to address housing affordability
  • $12.5m ($70.6m over four years) of new spending to accelerate major project assessments; support Joint Regional and Sydney Planning Panels operations across NSW; deliver high quality, timely assessments and post-approval activities for major projects; improve environmental impact assessment; support planning system mergers across local government and drive regional growth and improve environmental outcomes

“This Government is committed to making housing in NSW more affordable for everyone and this is a responsible and well-targeted budget that will do just that,” Roberts said.

Tracking Mortgage Growth In Great Melbourne

We continue our series on mortgage growth, plotting the relative change in volumes of loans between 2015 and 2017, by post code, drawing data from our core market models, and geo-mapping the results.

Here is the Greater Melbourne picture.

The yellow shades show the areas with the largest growth in the number of mortgages, the red shades show a relative fall in volumes. You can click on the map to view full screen. This is a picture of mortgage counts, not value, we may look at this later. Relative to other states, there was significant expansion over this period.

Of course this is just one of the many potential views available from the 140+ fields which are contained in our Core Market Model.

Next time we will look at Brisbane.


Auction preliminary clearance rate of 69.6 per cent

From CoreLogic.

There were 2,407 auctions held across the combined capital cities this week, with a preliminary auction clearance rate of 69.6 per cent. Last week, the final clearance rate fell to 67.8 per cent, recording the lowest clearance rate year to date, across 1,279 capital city auctions. This is the 3rd week in a row now where the combined capital city clearance rate has trended below 70 per cent. At the same time last year, auction volumes were lower than this week, with 2,183 properties taken to auction and a clearance rate of 67.4 per cent. Across Sydney, preliminary results show an improvement in the rate of clearance after last week’s final result saw the clearance rate drop below 70 per cent, however as more results are collected it’s likely Sydney’s final clearance rate will again slip below the 70 per cent mark.  Melbourne’s auction results have also moderated, however the clearance rates remain well above 70 per cent, indicating some resilience in selling conditions relative to Sydney.