The bigger the city, the more expensive the real estate: Terry Ryder

There’s a pattern with dwelling prices in Australian cities and in simple terms it’s this: the bigger the city, the more expensive the real estate.

Sydney is more expensive than Melbourne, which is pricier than Brisbane, which outranks Perth, which is dearer than Adelaide, which has higher prices than Hobart. The benchmark I’m using is the median house price.

But there’s one city that doesn’t adhere to the pattern and it’s Canberra. Canberra is a small and relatively insignificant place in terms of its population and economy – but it has some of the nation’s most expensive real estate.

Canberra’s median dwelling price (around $600,000, according to CoreLogic) is much higher than the medians for Brisbane, Perth and Adelaide – and not a lot behind Melbourne’s $660,000.

There are multiple reasons why this is the case. As a government town, Canberra tends to have low unemployment and high average incomes – and that has an influence on real estate values.

But the biggest single reason – and one that speaks to the core of the housing affordability debate nationwide – is the control exercised by the ACT Government.

I strongly believe that the nub of affordability issues – and the source of the most workable solutions to the issues where they exist – is the high cost of producing new dwellings in Australia. The costs are unnecessarily high because all three levels of government mercilessly milk the housing industry cash cow, thereby adding hugely to the cost of creating dwellings. The biggest villains are state and territory governments.

This is the case everywhere in Australia – notably in Sydney where the median price for residential land is double that of Melbourne – but the ACT Government takes ripping off the real estate process to a whole new level.

It controls land supply to the nth degree, drip-feeding new allotments to the market in a way that guarantees demand will always exceed supply many times over, thereby keeping prices high and maximizing government revenue. The industry complains bitterly about it, the Government denies it, and nothing ever changes.

But the ACT Government keeps finding new and interesting ways to squeeze ever more revenue out of the housing construction industry in Canberra – and with each new measure the cost of dwelling creation rises and affordability deteriorates. One of its more cynical moves was to announce it was phasing out stamp duty – and then massively increased rates to compensate.

So it was unsurprising to read that the ACT Government has just come up an innovative new method of ripping more taxes out of the dwelling creation process.

It’s a new $30,000-per-unit development tax, which developers say will make it uneconomic to turn residential blocks into townhouses and units - and will destroy infill development.

They also accuse the ACT Government of attempting to maximise revenue by making its own land in the Northbourne corridor, the Fluffy blocks and new suburbs the only land viable for redevelopment. If they’re right with this accusation, it would continue a persistent theme in the ACT.

At the moment, if builders buy a house block in a suburb such as Dickson or Turner - or any suburbs built before 1971 - to convert to units, they face a "strata tile" charge of $7500 a unit for the first three units and $5000 a unit after that.

But under a new tax lurking in the small print of the June Budget, the charge is hiked to $30,000 a unit. For a six-unit development, that pushes the total bill from $37,500 to $180,000. It’s a massive tax rise by any measure. 

There has been understandable outcry from the Master Builders Association and the Property Council. But the people who should be shouting the loudest are home-buyers because the underlying costs that affect property values in Canberra just got higher.

Unlike Brisbane, Perth, Adelaide or Hobart, Canberra doesn’t have a single suburb with a median house price below $400,000. Charnwood is the cheapest at $420,000 and the ACT Government is the primary culprit – not the scapegoats that everyone seems to prefer like foreign buyers or negatively-geared investors. It's the greedy, idiotic territory government.

The Canberra Times reported: “The development industry says the change will capture at least 95% of residential redevelopment in the older suburbs … and will benefit the government's land profits and help it sell the over-supply of Fluffy blocks by making it impossible for other landowners to compete with the government land. Government land will not attract the charge because it doesn't involve a lease variation.”

It also reported: “Independent Property group director of project planning David Shearer said it was a radical policy change that targeted home-owners, was ‘a very effective way to tax the family home’, with owners already bearing the brunt of huge rates increases, and would bring development to ‘a screaming halt’. And he accused the government of ‘an incredibly arrogant’ lack of warning or consultation.”

He’s probably right, judging by the ACT Government’s track record on these issues.

In a statement, Chief Minister Andrew Barr said lease variation charges were an "economically robust taxation mechanism which ensures the community shares in the unearned windfall gain developers receive from changes to a lease that substantially increase the value of the land".

It’s a typically cheap and nasty political tactic – slug developers on the basis that everyone sees them as greedy rich bastards and hope that no one figures out the people who will really pay are the end-users – the buyers of dwellings, such as first home buyers.

Terry Ryder is the founder of hotspotting.com.au. You can email him or follow him on Twitter.