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.

Where Is The Mortgage Growth In Greater Sydney?

One of the measures contained in the Digital Finance Analytics household surveys is the number of households with a mortgage in each post code across the country. By comparing our data from 2015, with 2017 we can spot some interesting growth trends, especially when we geo-map the data. Today we begin with Greater Sydney.

The yellow shades show the areas with the largest growth in the number of mortgages, the red shades show a relative fall in volumes. We see significant growth in western Sydney, where there has been significant residential development over this period. 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 Melbourne.

Auction Results 17 June 2017

The preliminary auction results for 17 June 2017 from Domain, show a national clearance rate of 71.3% with 1,041 sold, up from last week which was a long weekend, but lower than this time last year.

Sydney cleared 69.6% with 418 sold, compared with 72.2% with 654 sold this time last year. In Melbourne, 75.3% cleared with 549 sold compared with 69.2% with 654 sold this time last year. So some easing is visible.

Brisbane cleared 44% of 97 listed, Adelaide 80% of 72 listed and Canberra 55% of 53 listed.


Households Budgets Under Pressure – The Property Imperative Weekly 17 June 2017

Household financial pressures continue to build as the costs of energy rise, under employment lifts to a record and interest rates climb. Welcome to the Property Imperative weekly to 17th June 2017.

Power bills will soar by hundreds of dollars next month in east coast states, and experts blame policy uncertainty in Canberra. Two major retailers, Energy Australia and AGL, have announced they will hike prices substantially from July 1. A third, Origin Energy, is expected to follow soon. Energy Australia will increase power bills by almost 20 per cent, roughly $300 more a year, for households in South Australia and New South Wales. Gas prices will go up 9.3 per cent in NSW and 6.6 per cent in SA, adding between $50 and $80 to annual bills.

In this week’s economic news, whilst the headline unemployment rate remained at 5.7%, there are significant state variations. Unemployment remains above 7% in South Australian, and below 3.5% in the Northern Territory.

The really important, yet under-reported data related to underemployment, which is at its highest level since records began in the 1970s. The trend estimate of underemployment worsened from 8.7 per cent in December-February to 8.8 per cent in March-May, which means around 1.1 million Australian workers are crying out for more hours.

Pressure on interest rates are likely to continue, with the FED lifting the benchmark rate, and analysts are suggesting the FED funds rate is likely to normalise at 3.5% by 2020, and U.S. 10-year bond yields will rise back above 4%. It seems they were prepared to look through weak first quarter consumption and GDP and underlines concerns about US unemployment falling too far below its equilibrium rate.

But there is a knock of effect, in that the T10 bond yield is directly linked to the price of money on the international capital markets, and as Australian banks, especially the larger ones are reliant on international funding, this will put upward pressure on mortgages rates here.

So, putting all this together, we expect pressure on household budgets will continue to grow. We expect the number of households in mortgage stress to pass 800,000 quite soon. That’s getting close to a quarter of households.

Analysis of the latest Westpac and Melbourne Institute’s consumer sentiment index, which reported at 96.2 in June 2017, shows the “time to buy a dwelling index” which is a subset of the consumer sentiment index was at 90.9 points and is hovering around the lowest levels seen since the financial crisis.  Whilst Australians tend to be bullish on housing and its prospects, this data shows that sentiment towards housing has been consistently negative since February of this year.

Several more banks made changes to mortgage interest rates and underwriting standards.  For example, Bank West reduced the maximum LVR on interest only loans to 80% and some loan rates will rise between 4 and 34 basis points for both existing owner occupied and investor loans. On the other hand, the bank will reinstate applications from non-Bankwest customers for standalone refinance of P&I investor purpose loans and dropped the rate for some new P&I investment lending.

CBA changed its serviceability buffers to fall in line with the other majors. For those taking out a new mortgage who already have an existing CBA home loan, line of credit or business loan, the bank will assess the ability to pay through an interest rate buffer of 7.25% p.a. or the current interest rate plus 2.25% p.a. minus any existing rate concessions (whichever is higher). For customers with an existing owner occupied/investment, line of credit or business loan with an external financial institution, CBA will apply a service loading of 30% to the current repayment amount.

Teachers Mutual Bank increased home loan variable and fixed interest rates by 10 basis points or 0.10%, for new business. It has 174,000 members and more than $5.3 billion in assets.

We are also seeing some banks tweak their mortgage origination strategy, as they power up owner occupied mortgage lending through their branch networks, whilst slowing the volume of loans written through the broker channel, and interest only loans to investors in particular. In a recent The Adviser survey, brokers who had experienced channel conflict were asked which type of loan their clients had been approached by their bank to refinance. Almost 74 per cent of brokers said clients with owner-occupier mortgages had been targeted.

The Senate Inquiry into the Bank Tax heard from industry participants this week. On one hand the Customer Owned Banking Association – COBA –  the industry association for Australia’s customer owned banking institutions – mutual banks, credit unions and building societies said they welcomed the tax as it would help to rebalance competition in the Industry. They claim that the implicit Government guarantee, which the major banks enjoy, stacks the deck in terms of pricing.

On the other hand, the majors said that whilst they accept the tax will be imposed, the costs cannot be absorbed and will be passed on the customers, shareholders and staff members. They said the levy should be temporary, and should be extended to include foreign banks operating in Australia to level the playing field.

So what started as a cash grab by the Treasurer has morphed into a significant discussion about banking competition and funding. But the bottom line is, bank customers will pay.

Research released this week suggested that far from being the ‘bad guys’, property investors actually keep the Australian economy afloat. They found that federal, state and local governments collect about $50 billion in property taxes every year – with property investors paying substantially higher rates than owner occupiers. Every year property investors pay $8 billion in stamp duty, $7 billion in land tax, $130 million in council taxes, as well as tax on $7.5 billion of net rental gains. Property investors also declared gross profits of $50 billion on property sales in 2015, according to estimates, which would have attracted billions more in taxation revenue.

Our latest survey data indicates that forward demand for property is easing, driven by concerns about future interest rate rises, tighter bank lending rules and rising costs of living. This is confirmed by lower clearance rates at auction over the long weekend, and further indications are emerging that home prices are easing.

The net effect of these changes will be to apply a drag anchor to economic growth. Just how severe this braking effect will be remains to be seen, but I think we can safely say we are on a falling trajectory. What property investors choose to do suddenly becomes very important.

That’s the Property Imperative for this week. Check back next time for the latest update. Thanks for watching.



Australian economy is ‘stuffed’ without investors

From The Real Estate Conversation.

Far from being the ‘bad guys’, property investors actually keep the Australian economy afloat, according to Propertyology managing director Simon Pressley.

Propertyology research found that federal, state and local governments collect about $50 billion in property taxes every year – with property investors paying substantially higher rates than owner occupiers.

Pressley says he’s sick and tired of investors being blamed for every perceived issue in the property market when they are significant financial contributors to the economy.

“Let me be frank – without property investors, the Australian economy is stuffed,” he says.

“Homeowners and investors fork out a staggering $50 billion in taxes every year and for what? The privilege of investing for their future and providing homes for millions of Aussies?

“Take away that tax revenue and our economy won’t survive – plain and simple.”

Given more than 50 per cent of state and local government revenue comes from property taxes such as stamp duty, land tax and council rates, Pressley says he struggles to understand why investment is currently being politically discouraged.

“Australia needs to encourage investment, not penalise those who are trying to responsibly plan their future to avoid becoming a liability on Australia’s financial system by way of reliance on a taxpayer-funded pension,” he says.

“What’s the alternative to investing? For those who are critical of investors does that mean that they are advocates of spending everything that they earn? Is that a good thing? Is that what they advocate to teach their children to do also?”

According to Propertyology research, every year property investors pay $8 billion in stamp duty, $7 billion in land tax, $130 million in council taxes, as well as tax on $7.5 billion of net rental gains.

Property investors also declared gross profits of $50 billion on property sales in 2015, according to estimates, which would have attracted billions more in taxation revenue.

Pressley says without the multi-billions of tax dollars that property investors pay annually, vital services and infrastructure could not be funded.

“The $8 billion paid by investors on stamp duty in 2014/15 covers the entire cost of the Badgery’s Creek airport,” he says.

“The $7 billion that governments collected from land tax would fund Brisbane’s long-awaited Cross River Rail project, while also having change leftover to build three to four new hospitals in regional cities.”

Pressley says that contrary to common misconceptions of property investors outbidding first homebuyers, causing Sydney’s housing boom, or buying property solely for negative gearing purposes, investors were ordinary Aussies just trying to get ahead.

“There are two million property investors in Australia and 90 per cent of them only own one or two properties – that’s a fact,” he says.

“Property investors are not the bad guys. They’re everyday Australians with regular jobs and incomes. They elect to invest because they make a conscious decision to be responsible and proactive with the money they earn to give themselves a chance of being financially independent in retirement.”

“Someone please tell me, what is fundamentally wrong with that?”

Auction Rates Lower This Week

From CoreLogic.

The number of auctions held this week saw a significant decrease, with 1,265 properties taken to market across the combined capital cities, down from 2,578 over the week prior. The decrease in auction activity this week is attributable to the Queen’s Birthday public holiday this Monday, which has affected activity across most states, including Australia’s two largest auction markets. The lower volume is consistent with what is historically seen over this period, with 1,100 auctions reported over the same week last year. Last week saw the final auction clearance rate revise lower to reach 69.8 per cent; an equal second lowest clearance rate for the year so far.  The final clearance rate last week was the lowest over 2017 to date in Sydney and Melbourne.  This week the preliminary auction clearance rate increased slightly to 71.8 per cent, however it is typical to see clearance rates revise lower as final results are collected.

Auction Results Long Weekend Dive

The preliminary data from Domain shows that yesterdays auction clearance volumes were down, to 413 nationally compared with 1,303 last week. However clearance rates are still sitting around 70%.

Brisbane cleared 60% of 87 scheduled, Adelaide cleared 68% of 45 scheduled, and Canberra cleared 63% of 31 listed.

Into The Unknown – The Property Imperative Weekly – 10th June 2017

The evidence is mounting that the property cycle is on the turn, and the question now is – will it be a gentle retreat or a blood bath? In this week’s edition of the Property Imperative we consider the evidence.

At the start of the week we got the latest auction clearance rates which showed the trend of lower volumes but high clearance rates continued. Momentum however is slowing. This long week, the number of auctions will be lower but Domains data shows a national clearance rate around 70%.

We released our latest Household Finance Confidence index to the end May, with a lower overall score of 100.6, down from 101.5 last month. This is firmly in the neutral zone, but households with mortgages are feeling the pinch and the index is set to go lower in the months ahead. Both property investors and owner occupiers are now more concerned about rising mortgage interest rates, and potentially falling property prices. Sentiment in the property sector is clearly a major influence on how households view their finances, but the real dampening force is falling real incomes. This is unlikely to correct any time soon, so we expect continued weakness in the index as we go through winter.

We also released our latest mortgage stress and default modelling. This analysis uses our core market model which combines information from our 52,000 household surveys, public data from the RBA, ABS and APRA; and private data from lenders and aggregators. Across the nation, more than 794,000 households are now in mortgage stress compared with 767,000 last month; with 30,000 of these in severe stress. This equates to 24.8% of households, up from 23.4% last month. We also estimate that nearly 55,000 households risk default in the next 12 months. Check out our good coverage in Reuters.

The main drivers are rising mortgage rates and living costs whilst real incomes continue to fall and underemployment is on the rise.  This is a deadly combination and is touching households across the country, not just in the mortgage belts.

ABS data showed that overall lending flows fell 0.4% in April, to $32.8 billion. This is the first month following APRA’s latest intervention. Owner occupied loans fell 0.1% to $19.9 billion and investment lending fell 1% to $12.6 billion. Refinanced loans fell significantly, and the proportion of loans for investment purposes also fell. In addition, investment in new housing fell by 4.4 per cent in the March Quarter 2017 which brings the sector down from a record high investment in December 2016 and back to levels similar to those experienced at the start of 2016.

The number of new first home buyer loans decreased by 17.5% to 6,547 in April from 7,939 in March, though we still see more going direct to the investor sector.

According to a report from UBS, first time buyers are pretty much locked out of the property market. ‘Typical’ first home buyers are facing ~11 years to save; and ~40 years in Sydney! UBS already ‘called the top’ of housing, a key reason being that affordability is stretched, as the house price to income ratios surged to a record high of 6.5x, up sharply from 4.5x in 2012 (and more than doubling from 3x in 1996). While interest rates have fallen to a record low, the mortgage repayment share of income still lifted to a near decade high, and the key issue for first home buyers is the ‘deposit gap’ even before buying.

The March quarter edition of the Adelaide Bank/Real Estate Institute of Australia Housing Affordability Report also shows that whilst affordability improved across the country, the number of first home buyers decreased in all states and territories.

Then in a housing market update, ANZ Research said it expects “prices to slow sharply this year and next” and flagged the potential oversupply of apartments – particularly in Melbourne and Brisbane – as a key concern. The bank said. “Household debt is at record levels, which increases vulnerability to future shocks.

Bendigo announced that they have made a change to the accounting treatment of their Homesafe business with cash earnings now to exclude any unrealised income or losses and associated funding costs. Given Bendigo had a 6% long run home price growth assumption; in the current environment this looks like a smart move even though cash earning will be hit as a result.

There was a raft of further hikes in mortgage rates and changes in lending policy this week. For example, ING Direct eliminated interest-only repayments on new applications for its owner occupied fixed rate loans. On the other hand, the bank lowered rates on some principal and interest fixed rate loans.  Several surveys have highlighted that households are considering moving to fixed rate mortgages to try and alleviate the pressure of ongoing lifts in variable rates.

Adelaide bank ditched their commercial low doc loans and Suncorp added 12 basis points to investor loans, but reduced some fixed rates for owner occupied loans and maintains its offer to first time buyers.

ANZ lifted variable interest-only home loan rates for investors and owner-occupiers by 30 basis points, whilst cutting five basis points off their variable interest rates for customers paying principal and interest on their home loans. This takes the bank’s standard variable rate for owner-occupiers to the lowest of major banks at 5.20%pa. So the competition for owner occupied loans is hotting up as pricing continues to be used to slow investment loan growth.

The RBA held the cash rate, and stressed the risks from high household debt once again. Also, on the economic front, the seasonally adjusted current account deficit fell $403 million (11 per cent) to $3,108 million in the March quarter 2017. This was not as good as expected.  The pace of growth of the Australian economy slowed in the March quarter to 0.3 per cent and through the year, GDP grew 1.7 per cent. There were falls in exports and dwelling investment. The long term trend also highlights a slowing, so we need new growth engines if we are to keep the growth ball in the air! Household consumption just won’t do the job, and household savings fell in the quarter as they struggle to pay the bills.

So, it is clear the momentum in home lending is declining, and more households are struggling with high debts in a rising interest rate environment. It seems certain now, despite the banks targeting first time buyers, demand will slacken, and this will drive prices lower. Whilst the consensus view appears to be there will be an orderly decline, there are more risks now apparent which suggest prices may well fall further and faster than previously anticipated. We are indeed past the peak, so now its a question of how steep the downhill gradient becomes. Prepare for a bumpy ride!