Pressure on prices and house and land supply in APRA greenfields fallout

Pressure on prices and house and land supply in APRA greenfields fallout
Pressure on prices and house and land supply in APRA greenfields fallout

The soon-to-come restrictions on lending on house and land packages for owner occupiers and investors is going to trigger unfortunate pain in Sydney's greenfield housing estates.

It will, ironically, put further pressure on prices by limiting the supply of new homes. 

The Commonwealth Bank of Australia has advised mortgage brokers that finance approvals for individual buyers of land lots would be delayed until all preliminary work on the project had been completed. 

That sounds okay, but currently many smaller developers actually have to pre-sell many of their lots before a bank will lend the money needed to start the earthworks and install water, sewerage and electricity services.

The Housing Industry Association understandably worries that the CBA decision restricting pre-sales - with undoubtedly other banks to follow - will have an adverse impact on the new housing sector across the outer suburbs of all Australia’s capital cities. 

"There is no justification for cutting off the credit tap for new residential development," Harley Dale, the HIA's chief economist argues.

"It would be very concerning at this point in time if it became more difficult for people to get into a new home, which is the end issue here."

Under the old policy the bank would commit to a loan with an assessment based on the development plan, as early as 12 months before a lot was accessible. 

Under the new policy it will need a valuation after an external valuer is physically able to identify the lot.

Banks turning down the financing tap is a yet another consequence of the recent APRA crackdown intended to stop any property bubble.

No one wants a bubble, but aren't we told the answer lies in doing everything possible to increase the supply of Sydney housing?

While safeguarding Australia’s financial system is obviously of paramount importance, the recent lending policy outcomes derived from APRA's intervention now risk obstructing not only new home building but damaging the economy’s rebound capacity. 

New detached home sales rose last financial year to 73,000, which was a four-year high for Australia. 

But just two states, NSW and SA are actually currently showing continued new home construction strength, warns the Housing Industry Association.

Compared with just 12 months ago, the number of owner occupier loans for the construction or purchase of new dwellings increased in New South Wales (+12.9 per cent), South Australia (+9.0 per cent) and the ACT (+0.5 per cent). Those in decline were Western Australia (-21.4 per cent), Tasmania (-20.8 per cent), the Northern Territory (-20.8 per cent), Queensland (-7.8 per cent) and Victoria (-4.8 per cent).

The HIA blame much of the decline on the lending outcomes that followed the initial December 2014 APRA crackdown.

Ofcourse these lending restrictions are against the backdrop of the unresolved, longstanding issue of local governments having increasingly onerous requirements and costings for infrastructure provisions in greenfields sites.

Economist Saul Eslake rightly says, there are two sides to this story, and he and I have a lot of sympathy with the desire of exisiting residents to prevent developments which detract materially from their quality of life.

But whatever perspective one might take on that debate, there is no doubt that planning laws and upfront costs have contributed to the mis­-match between our housing demand and housing supply.

Eslake argues it is time for revisit current models for financing the provision of infrastructure and services in greenfields housing estates by reducing upfront charges, replacing them instead with changes he suggests to the land tax regime.

But that idea is way too forward thinking in this knee-jerk world of now. 

This article was first published in The Saturday Daily Telegraph

Jonathan Chancellor

Jonathan Chancellor

Jonathan Chancellor is one of Australia's most respected property journalists, having been at the top of the game since the early 1980s. Jonathan co-founded the property industry website Property Observer and has written for national and international publications.

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