ANZ blames metro Sydney and Melbourne price rises on supply mismatch
The ANZ submission to the House of Representatives Inquiry into Home Ownership suggests that achieving balance between government and private sector "can assist with managing demand uncertainty and responding to changes in consumer needs".
"State governments and local councils have been slow to release land in response to the surge in migration from 2004. Natural geographic constraints to expanding the city fringe complicate this process in cities such as Sydney.
"Adding to this bottleneck, the process for converting rural land to new dwellings can take six or more years in some cities.
"For suburban and inner-urban redevelopments, planning approvals from State government and local council are frequently subject to lengthy delays and policy changes are commonplace. This makes developing inner city properties more expensive and drives apartment prices up."
In the financial institution's view, in order to achieve higher funding availability, lower funding costs and earlier funding of projects, consumers should carry more of the risk.
"At present, buyers in all States except Queensland can pay a 10% deposit for an off-the- plan purchase with the remaining 90% paid on practical completion. ANZ’s experience is that this deposit has proven to be an inadequate pre-estimate of the loss that a developer suffers if a buyer does not complete a contract.
"When a buyer fails to complete the purchase, a seller is exposed to:
- Loss on sale price if the market has fallen;
- Additional legal expenses associated with the resale;
- Holding costs (including interest on debt, greater levels of land tax and local council rates, and higher insurance premiums);
- Marketing and agent commissions; and
- Costs of enforcement against a defaulting buyer or in claiming a disputed deposit.
"Housing demand has been driven over the last decade by rapid population growth, largely resulting from immigration. The acceleration in population growth was most concentrated in Sydney and Melbourne and was not matched by increasing construction of new residential dwellings. Demand is also affected by general economic conditions, including interest rates and labor market conditions.
"ANZ expects subdued economic conditions in coming years and a higher unemployment rate will impact consumer confidence and the financial capacity of households (ie household income growth), despite an extended period of low interest rates.
"In recent years, investors have been increasingly attracted to residential property as an asset class due to solid long-term risk-adjusted returns (including low downside volatility), the low cost of borrowing, and solid underlying market fundamentals. Investor's lending now accounts for 50% of total housing finance, slightly higher than peak in 2003-04.
"We estimate that ‘realised’ foreign investment added around AUD12-18 billion to dwelling investment in 2013-14, and contributed to the increased supply of housing available for rent.
The top 40% income earners accounts for four-fifths of investor housing debt. The increase in years to save for a deposit contributes to the decline in home deposit affordability.
"An ageing population will depend less on income and more on financial wealth to support home ownership choices. Figure 1 shows the most recent data on households by dwelling type, from 2011. It reveals a strong bias towards detached housing, particularly amongst age groups over 35 years. Higher-density housing is more common among under 35s (37%) and over 65s (23%).
"ANZ supports the supervision and measures now in place to monitor risks to financial stability posed by housing.
"In net terms and absent the policy changes and other recommendations made here, we expect increasing home prices, weak household income growth, stable interest rates and increasing underlying pressure on the existing housing stock will continue to reduce housing affordability across all measures in coming years."