Home buyers' necessary premium price to cut down on commuting time
One of the first generalisations you learn when it comes to assessing real estate is the closer you are to the city, the higher the price will be. While it may be a sweeping statement with data proving the rule has many exceptions, it simply outlines what inspires one buyer to value a location over another in terms of monetary value – and that’s time.
The time it takes to travel from A to B is the most important consideration for today’s property buyers rather than the exact kilometre distance from the CBD. If a buyer is able to travel to work, the footy and any other “lifestyle” amenity on the priority list within a 30- to 40-minute period, the desirability factor increases greatly and when it comes down to it, you can value a building any which way you like, but in the end it’s only worth what a purchaser will pay. Unless you get the time factor right, demand is always going to be marginal.
When buying residential real estate, the real commodity a home buyer will purchase is the lifestyle on offer. Dwellers don’t live in houses so much as they live in communities. Therefore, building ever more houses on the outskirts of our cities is not the be all and end all for Australia’s population growth – although it’s a vitally important component if we’re to ease inflation in the already stretched and strained established inner- and middle-ring suburbs. Regardless of this, unless planning includes the other considerations I’ve outlined above, the new housing market risks long periods of stagnation in between the various government incentives on offer.
We’re all aware Australia faces an affordable housing shortage. Prices have risen past the reasonable level when judged against the average wage, and first-home buyers are all but an endangered species. I’ve written regarding the reasons for this numerous times. Quite simply, we’re a country that has centralised itself on an urban lifestyle and overwhelmingly so in the major capital cities dotted around the coast line.
As a result, no one wants to live “out of town” (or at least the vast majority of Australia’s population don’t – some 75% of them) and we’re all trying to cope with a level of unprecedented population growth from in coming immigrants – all of whom seem to have a desire to live in the inner city. When it comes down to it, it’s impossible to cope with this growth unless density increases substantially – which is precisely what the capitals’ 2030 city plans have in mind.
Thus far urban planners and profit-chasing developers just can’t seem to develop a standard of housing that will attract the average home buyer (or, for that matter, renter). Just take a look at this eyesore (pictured above) proposed in the Asian-dominated middle-ring Melbourne suburb of Box Hill. The developer’s website states” “The proposed development is significantly higher than the immediate surrounds and its striking form will be a landmark for Box Hill”. A landmark for Box Hill or not, I can’t conceive anyone thinking it’s something property buyers would fight over. As I’ve pointed out on numerous occasions, the disadvantages of living in high-rise accommodation are the major factor in the lack of genuine home buyer demand they inspire.
It’s usually only considered a desirable option when the buyer is in the higher price bracket able to choose an apartment offering attractive views – and considering the abundance of high-rise development proposed across our major capitals, this is anything but a guarantee for the life of the property. Parking – if you’re lucky enough to get it – commonly requires a long trip up multiple levels of a multi-storey basement car park and then in peak hour, a queue to get out as cars ahead filter onto the busy main road (most high-rise development is located on busy main roads).
In addition to this, residing in the same building with so many others makes resolving owners’ corporation issues a relative nightmare. To get anything approved obviously requires a majority vote. If you’re fortunate enough to have a good showing at the annual meeting there may be a chance of getting a repair or dispute resolved. However, owners’ corporation meetings are sparsely attended at most low-rise developments with fewer than 20 units – therefore a majority showing at a meeting for a high-rise development, within which most units are rented along with a high proportion of foreign ownership, is unlikely.
Waiting for the lift and as it stops on its way up and down. Paying extortionate owners’ corporation fees to cover the size and various components of design (which often include a gym, swimming pool and high level security features) – all add up to buyers choosing to sit on the rental ladder rather than buying into a development that they’ll move out of as soon as they’re able. All in all, high rise is not currently offering the home buyer market what they want. It’s principally servicing rental needs.
Having said this, there are high-density developments that are extremely successful and as a consequence, tightly held. Furthermore, it’s possible to develop models that are relatively “low rise” yet still take up a similar footprint, housing the same number of residents. Unlike high rise, where the outdoor communal areas are limited to rooftop gardens with space around the building (the required setbacks), which is generally unused, a low-rise design built around a central communal courtyard is a proven success. I can cite a few examples in Melbourne’s Southbank that attract consistent buyer demand and consequently when assessing the historical data, prove stable capital growth. Furthermore, the level of “perceived” density of a relatively low-rise yet high-density development, in comparison with residential tower blocks, is predictably much lower. There’s less overall impact on the street aspect for neighbouring homes and they are generally better received. However, regardless of the need to increase inner urban density, it’s also necessary to continue building a steady supply of new accommodation further away from our capitals if we accept population growth is inevitable.
Thus far, most first-home buyer schemes have focused on sweeping incentives that cover established real estate as well as new homes. Property advocates have long argued how essential it is to scrap incentives for established dwellings and if grants are needed at all – use them to fuel new growth. The “noisy” housing data when a grant is introduced and then withdrawn does no one any favors aside from the investor who manages to capture the wave when selling. We don’t need incentives to encourage the purchase of established real estate. The desirability factor is there already.
In the recent NSW budget, it was a welcome change to see all incentives pushed into new homes. The shortage of property in NSW is greater than that of some other states, so encouraging additional supply has been broadly welcomed by all. However, you’ve got to have some sympathy for the first-home buyers who do venture out buoyed on by the incentives because planning in the outer-suburban estates has been woefully unsuccessful principally for the reason I stated at the beginning of this article: time!
Despite all the rhetoric broadcasting the contrary, when new suburbs are zoned you can guarantee promised facilities to encourage commuters who need to get back and forth from the major commercial centres within the hour will never eventuate. Without them, you can forget any hope of attracting consistent demand to the outer suburban estates. Grants and incentives may produce a wave of growth in the newer suburbs, but as soon as the lifestyle – or lack of such – bites and grants are once again withdrawn, the market will stagnate and we’ll be back to square one.
If there’s no money set aside to build the needed amenities alongside the residential dwellings at the start of the project, you’ll always need to introduce incentives to encourage home buyers to make the move. It’s not the distance from the CBD – it’s the time. Buyers could accept outer-suburban living a lot more readily if they were able to commute within a reasonable time frame and demand would go up naturally without the need for a “sweetener”.
It’s really unforgivable to encourage erosion of city fringes, eating into arable farmland and areas of natural beauty unless the compensation is a genuine answer to population growth. We all understand that if you purchase in the inner city land sizes are smaller and to keep around the city median, choices are going to be limited to apartment living. However, for most people there is no choice but to stick to established areas. If they do dare to venture out into “never never land”, they face endless hours sitting in peak-time traffic and a vague dream of the government-proposed promise of a train service.
We’re currently going through this yet again in Victoria. Aside from the abundance of poorly designed high-rise apartments popping up in the CBD, fringe growth is back on the agenda. The state government has released plans for six new suburbs and 12 new train stations. If you’re a first-home buyer reading that as a headline it sounds fantastic. However of the “12 new train stations”, only two have had funding approved. The rest – so says the government – will be part funded by developers along with additional infrastructure, all compensated with tax rebates. However, guess who’s going to end up paying if the developers agree to the above proposal (which I doubt will happen)? The home buyer, of course – it will all be added on to the already inflated prices!
Anyone familiar with Melbourne’s planning history will be able to prove how “airy fairy” the above proposals sound. For example: what happened to the Doncaster and Rowville train stations initially promised in 1890? Plans commenced in 1969, and yet residents are still waiting – not so patiently! Furthermore, once any proposed train stations are finally built and functioning, the level of demand has already outgrown the facility. For example, Lynbrook train station, which opened in April this year, has already “outgrown” the number of people wanting to commute. Two weeks after opening, and the 900 space car park is not only packed to capacity, the surrounding neighborhood has taken on the overflow, regardless of restrictions. Forget getting the peak hour train – it’s already over brimming.
Existing train lines were promised upgrades years ago – Mornington and Melton, for example, have plans pending to be “electrified”, however once again, some 20 years later, residents have long lost faith it will happen. It’s not just Melbourne that such outlandish examples can be found. Despite the level of investment in NSW’s infrastructure doubling over the past five years, Sydney is a capital locked down by peak-hour traffic. As with Melbourne, promises of train lines – such as the 23-kilometre north-west link first proposed in 1998 (to be completed in 2010) – are still in the planning stages. Yet residents move into newer suburbs with the promises tinkling in their minds. “Buy in” now – and once the train line has been established, the schools built, the leisure facilities created – land value will rise and investment potential increase. Promises made by successive governments should come with a small printed disclaimer stating *unless notified otherwise, this promise will expire within 24 hours.
Rather than building ever more roof space in outer-suburban localities, we need a national plan for population growth and it should be firmly focused on increasing supply in already flourishing and established satellite cities along with a strong rural agenda. Geelong, Ballarat and Bendigo in Victoria, for example, all of which have infrastructure and existing train lines (which can be upgraded at a lower cost than building new stations) offer “affordable” options for first-home buyers and upgraders. Rural regions are crying out for growth – and agriculture is a growing industry. Yet we ignore it at our peril, with policies that favour “big farmers” over their smaller counterparts and an unforgiveable lack of funding for universities to encourage young Australians to involve themselves in the industry.
Fly in, fly out mining towns – why is this formula even allowed to be promoted by the mining companies? It may be a needed option for a proportion of the workforce, however policies should be placed to force large companies to train local residents. A targeted goal established, where the majority of employees are locals and the workers are “walk in, walk out” residents, should have started a generation ago. Instead, mining companies have systematically destroyed once flourishing rural neighborhoods – and they’ve been allowed to do so.
Like it or not there’s little we can do to stop population growth. As it stands, the real market has become a game of shuffling cards – as increasing numbers trade and compete over established dwellings, which arguably are the only feasible option for most of today’s property buyers. Planning ministers and state governments shoot themselves in the foot when they make vague promises with outcomes that never eventuate. Before new suburbs are built, the infrastructure should have already been planned, funded and projects started, with the final ingredient being community involvement. There’s none better to understand what a community needs to flourish and grow than the residents who’ve been living in the general locality. If any minister cares to understand why consumer confidence is at a GFC lows, despite Australia’s attractive prospectus – perhaps they should start listening.
Catherine Cashmore is a market analyst with extensive experience in all aspects relating to property acquisition. She is Channel Ten’s property expert onThe Circle and a senior consultant for National Property Buyers servicing the needs of property owners Australia wide.