Market comment: PLANNING FOR THE FUTUREFri, 29 Dec 2023
Politics and planning changes – a different Sydney for the future
As part of its moves to take control of the state’s housing targets and increase the supply of housing, the Minns government has decided to abolish the Greater Cities Commission and give responsibility for determining these goals to the NSW Planning Department.
When the Commission produced its draft recommendations to the government in October, the report envisaged 92,000 new homes over the next five years with the bulk of the new construction in the City of Sydney, mainly in the areas around Redfern, Pyrmont, Green Square and Waterloo.
Mosman on Sydney’s North Shore would only have been required to add another 500 new homes, and wealthy Hunters Hill would have an even smaller target of only 150 new homes in the next five years. Such an uneven distribution of pressure for new housing would have raised some political issues no government would want to face in its first term in office and the report prepared by the Greater Cities Commission appears to have been its last.
New targets set by the Planning Department will see larger numbers of new homes set as goals for Randwick, Waverley and Woollahra council areas, as well as areas in the inner west, North Sydney and near Hills Shire NorthWest Metro stations.
In early December the NSW government published a list of suburbs that reveals those targeted for more high-density housing. It contains plans to rezone land to build 45,000 new homes by 2027 and identifies the first eight Sydney suburbs to be rezoned: They are Bankstown, The Bays, Bella Vista, Crows Nest, Homebush, Hornsby, Kellyville and Macquarie Park. Land within 1.2 km of these stations would be rezoned.
The rezoning reflects the Minns government’s new signature housing policy which it calls the Transport Oriented Development Program. It aims to increase density around key Metro and heavy rail stations to combat the state’s housing crisis.
The document also lists another 30 suburbs across the state where land within 400m of train stations will be rezoned to increase the number of new homes. The Sydney suburbs are: Rockdale, Kogarah, Banksia, Marrickville, Turrella, Dulwich Hill, Canterbury, Ashfield, Croydon, Wiley Park, Berala, Lidcombe, St Marys, Roseville, Lindfield, Killara and Gordon.
Land around stations in The Central Coast, Illawarra, and Newcastle/Hunter regions will also be rezoned in the second phase of the planning changes.
It’s anticipated that between the end of 2023 and October 2024, technical studies about the program will be undertaken and a precinct master plan finalised to inform rezoning decisions. The rezoning would then be done over the coming year before development applications could be lodged with councils and the NSW Planning Department.
The plan’s timetable predicts development assessments will be conducted in 2025 before construction commences in January 2026 so that occupancies can begin from November 2027 onwards.
Ancillary projects that increase the supply of housing can be incorporated into the plan if they are seen as suitable by the government. The government has signed a memorandum of understanding with the Australian Turf Club (ATC) after being approached with the idea of turning the Rosehill Gardens Racecourse into up to 25,000 homes and a school, with an accompanying Metro West station.
“This is exactly the type of proposal my government has been talking about over the last six months,” said Premier Minns.
In separate moves, the Minns government will force councils to lift existing bans on building terraces, townhouses and two-storey apartment blocks with the aim of dramatically increasing housing density. Three- to six-storey unit blocks, terraces, townhouses, duplexes and smaller one- to two-storey apartment buildings will be allowed in areas where they are currently banned by councils.
This will include areas which councils now exempt from two-storey developments because of heritage rules that ban such structures in areas deemed to have cultural value.
Planning Minister Paul Scully said heritage “must not deliberately be used as an excuse to avoid the responsibility for delivering more housing”, and all development “will need to be assessed in the context of the government’s proposed changes”.
The state government’s overhaul of planning laws will ensure low and mid-rise homes are built near transport hubs and town centres as well creating a greater diversity of housing that will help NSW meet ambitious national targets.
The suburbs on the ‘priority’ list all surround metro stations and are on a shortlist for rezonings which would supersede local planning rules to allow for taller apartment buildings than are permitted now.
An example of what a ‘priority rezoning’ conflict could look like can be seen the Minns government’s changes to planning in Macquarie Park, currently a business hub in the Ryde council area. The changes will allow about 5000 build-to-rent apartments on land currently zoned for commercial use, and an extra 3000 units on three sites that will be zoned for mixed-use.
The proposed changes would also include allowing taller buildings up to 190 metres (60 storeys) on some sites providing certain conditions are met. Ryde Council has stated its opposition to the government’s plans for Macquarie Park but these have obviously fallen on deaf ears and Premier Chris Minns has acknowledged there will be many more forced rezonings like this across Sydney as the government looks for ways to increase housing supply.
The Minns government will shortly release its official suite of proposed housing reforms in which priority rezonings at metro stations will play a significant role. Looking ahead, the government estimates that the eight density precincts, combined with plans to snap-rezone land within 400 metres of 31 train stations across the state, and an overhaul of zoning rules to allow duplexes and terrace houses, could result in about 322,800 new homes being added over coming decades.
A different year ahead
CoreLogic’s Home Value Index (HVI) shows us that Australia’s dwelling values have now reached a record high. Prices have simply kept rising, despite a series of interest rate increases by the RBA and increases in the cost of living for the average family.
The HVI estimates the value of Australian properties on a daily basis. It last peaked in April 2022, then slipped around 7.5 per cent down, reaching a bottom earlier this year, on January 23, 2023. Since then, the national HVI has risen by 8.1 per cent. Setting a new record high on Wednesday, November 22 this year. And it’s’ still heading upwards.
CoreLogic's executive research director, Tim Lawless, said the market’s ongoing upward curve is caused by the ongoing imbalance between supply and demand: "From a supply perspective, advertised stock levels have held remarkably low through 2023.
"Although inventory levels are now rebalancing as vendor activity picks up, listings remain 16.6 per cent below the previous five-year average nationally. At the same time, demonstrated demand, based on the volume of homes sales, is trending roughly in line with the five-year average."
Mr Lawless sees a very different year coming up in 2024, saying about where we are as 2023 comes to an end: “If this isn’t the peak, then it’s probably just around the corner.
“[In 2024], we don’t expect values to rise anywhere near as much as they have this year. I wouldn’t be surprised if we see a lot more debate across politicians and policymakers around housing affordability and homeownership, maybe reigniting some of the discussions around investment incentives as well, such as negative gearing and capital gains tax concessions,” he said.
There are also signs that vendors are withholding their properties from the market, leading to the lowest auction clearance rate in 32 weeks. 10.9 per cent of listed properties across Australia have been withdrawn from sale in one recent week, making it even harder for people to buy into what is clearly a market already short on supply.
The RBA gave borrowers a bit of respite by leaving the prime interest rate at 4.35 per cent at its December meeting, although any rise in the new year may not have much of an impact on property prices. AMP chief economist Dr Shane Oliver told Domain’s Kate Burke that strong demand fuelled by population growth and a decline in the number of people per household, together with the ongoing shortage of housing has overcome any impacts of rising rates.
He also said demand from a pool of buyers who were less sensitive to interest rate rises, such as downsizers or those with family help, was showing signs of weakening: “That pool of buyers I think is likely to be dissipating now as rates go higher and higher and more buyers find themselves constrained by higher rates.”
Impact Economics and Policy lead economist Dr Angela Jackson says more incentives are needed to increase housing supply: "We have the incentives wrong and desperately need reform.
"We need measures to increase supply — both new builds through planning reform but also unlock existing stock. Clearly housing supply is not keeping up with demand [and it means there are] young Australians carrying even more debt to get a foot in the property market," she said.
Phillip Oldfield, head of the School of Built Environment at the University of NSW, says without mandating the provision of larger apartments, families will be left behind in plans for a high-density future.
"We could say 20 per cent of any apartments in a new development have to be for families with children and have to be designed in a family friendly manner," Professor Oldfield said.
He said that at present the needs of developers and investors have been put above those of families, as is shown by the scarcity of 3-bedroom units.
"Most apartments that are designed and created are one or two bedrooms, and the reason for that is developers are creating apartments for the people who buy them, and that's often owner-investors," Professor Oldfield said.
Slowing but not stopping
There are those who predict prices will fall in 2024, although nobody’s seeing signs of it happening early in the year. SQM Research Managing Director, Louis Christopher said in his annual Housing Boom and Bust Report: “The base case forecast is for average national dwelling prices to change between -1 per cent to 3 per cent.
“Distressed selling activity is expected to jump, especially in NSW where we are already starting to see a new trend upwards in that data set,” he said, adding that distressed listings in NSW have risen 78 per cent since last year.
“The interest rate rises of 2022, 2023 and possibly 2024 will finally start to bite homeowners and would-be homebuyers alike,” Mr Christopher said.
“We’re not forecasting any type of crash by any means because the severe housing shortage and still fairly strong population growth are going to create a buffer to stop any type of double double-digit housing price correction for next year.”
"Another year of anticipated strong population expansion (albeit slower than 2023) plus an ongoing shortage of new dwellings, will limit the fall in housing prices to single percentage digits. Nevertheless, with expected slowing employment growth and the corresponding rise in unemployment, tipped to be towards five per cent by the year end 2024, this negative will more than offset another year of strong migration."
The PropTrack Property Market Outlook Report leaves no doubt. It has predicted Sydney’s house prices will continue to increase by up to 5 per cent in 2024.
Stephen Koukoulas, writing on Yahoo Finance, says “the house price is running out of puff” but he’s not expecting a house price crash. In fact, he says that it’s far from likely: “It’s been clear for the past month that, in the big cities, the auction clearance rates are off their highs and are now sluggish.
Mr Koukoulas sees a weakening in the labour market and a consequent rise in unemployment reducing the demand for property: “Demand for labour, as seen through the number of job vacancies and advertisements, is on a steady downtrend, a move which will inevitably see the unemployment rate rise in the next year or two,” he writes.
“Buyers are no longer bidding extreme prices just to get into the market. The prior boost to housing demand from the reopening of the international borders in mid to late 2022, and the surge in population numbers that accompanied that, has been largely satisfied.”
Macrobusiness’ Leith Van Onselen says falling auction clearance rates point to signs that the housing market is turning in favour of buyers as 2023 is drawing to a close: “The trend decline in auction clearance rates has been matched by a slowing in dwelling value growth.
“The property market is currently engaged in a tug-of-war between the stimulative impetus of record population demand and the dampening price impact of rising mortgage rates. The latest rate hike from the RBA appears to have successfully snuffed house price momentum.”
Ray White chief economist, Nerida Conisbee, said first home buyers were seeing the benefits of loss-making sellers vacating the market: “The market is definitely favouring first homebuyers. There’s a lot of the investors now that are really struggling to pay mortgages in the higher interest rate environment.
“It’s harder for us to track but we’re definitely hearing of investors selling. That typically benefits first-time buyers but it doesn’t benefit renters because it will take stock off the market for renters”. Ms Conisbee said.
The latest Rental Affordability Index produced by National Shelter and SGS Economics found that housing affordability has fallen in every city except Canberra and Hobart over the last 12 months. Not surprisingly, Sydney experienced the sharpest decline in affordability where now 29 per cent of household income is soaked up by rental payments that have reached a median $650 per week – an 18.2 per cent increase since a year ago.
Not one coastal Sydney suburbs was found to have acceptable rental affordability, and inner-city locales are either unaffordable or extremely unaffordable. The Index concluded that the average household needs to travel at least 15 kilometres from the CBD to suburbs such as Campsie, Lakemba, Rosehill or Parramatta to find acceptable rents.
Ellen Witte from SGS Economics & Planning says this is having serious economic impacts: "It's really starting to hurt the economy - people have to live further away from jobs and businesses are struggling to find workers" she said.
“Key workers in critical industries are travelling further and further and being priced out of their city,” she told the Herald’s Rachel Clun. “We need a serious plan to provide the right housing at the right price to people who really need it.”
Data collected to compile the Index showed people on lower incomes suffered the most. A single person on Jobseeker pays at least 75 per cent of their income on a one bedroom city apartment, and single pensioners in Sydney would need to spend at least half their income on rent city areas. This data also showed that Seaforth in Sydney is the most unaffordable locality when assessed by prices per postcode, and rents there take up 65 per cent of the average household income.
New data from the Reserve Bank acknowledged that advertised rents have increased by 30 per cent since before the pandemic which is well above the rate of rental inflation: “Together with historically low vacancy rates and little sign that tight rental market conditions will ease in the near term, this is expected to keep rent inflation elevated for some time,” the RBA said in its latest statement on monetary policy.
The Bank also said that rental inflation neared 8 per cent in the year to September and was expected to increase further.
Making a bad situation even worse is the decline in rental listings found by PropTrack in their latest rental report showing a 5.7 per cent decrease since September last year. The number of inquiries for each listing increased from 24.5 to 24.8 per cent.
Converting to the long-term
As we reported in our November article, the Minns government has identified as many as 90,000 homes, including holiday houses, short-term rentals and vacant properties, that could be converted into long-term rentals. NSW Treasurer Daniel Mookhey has confirmed that a review of short-term rental accommodation will be underway by year’s end.
In addition to properties already on the government’s short-term rental register, Mr Mookhey said there are also as many as 47,000 holiday houses and 15,000 homes that remain vacant through the year which the state government believes could be induced to come into the long-term rental market.
The editorial in the Sydney Morning Herald on November 14 tackled the rental housing issue, saying: “With more than 2 million people in the NSW private rental market, policymakers must provide a robust response. Not all 90,000 properties will make it to rental markets, but the existence of such an under-utilised mother lode must affect housing supply. We need to see the details of the government’s review but the fact that it is being done is welcome.”
A new report from Macquarie University has recommended a combination of rent regulation and an effort to build more rental properties as steps needed to alleviate some of the housing crisis. The report, commissioned by Shelter NSW and the Tenants Union of NSW, also suggests either a fixed percentage cap on rents or an inflation-linked cap with a ceiling, alongside an end to no-grounds evictions. The paper also recommended that initial rents for new builds could be set freely to encourage construction of more rental properties.
Macquarie University research fellow in geography and planning and report lead author Dr Alistair Sisson said that limiting rent increases to the CPI during tenancies would safeguard tenants from excessive rent increases in the period while more rental homes are being built.
“Rent regulation is an important part of the policy mix that we need to improve housing affordability, security and quality in combination with increasing housing supply and really more importantly, building more non-market housing,” Sisson said.
NSW Rental Commissioner Trina Jones told Domain’s Tawar Razaghi that she was open to reviewing research on renting but that international evidence suggested rent controls can also have unintended consequences such as worse affordability, gentrification impacts, negative spillovers on surrounding areas and lower investment and maintenance.
‘Stunning failure’: Finance expert Alan Kohler’s dire warning about Australia’s housing market,’ Shannon Molloy, Sydney Morning Herald, 12 December 2023
‘Enormous opportunities’: Why it won’t be just eight Sydney stations getting mass housing,’ Michael McGowan, The Sydney Morning Herald, 8 December 2023
‘Sydney market forecast predicts more price increases in 2024’, Taylor Troeth, realestate.com.au, 8 December 2023
‘Sydney racecourse to make way for extra Metro West station and new ‘mini-city’, The Sydney Morning Herald, Alexandra Smith and Matt O'Sullivan, The Sydney Morning Herald, 7 December 2023
‘Rosehill racecourse could be turned into 25,000 homes in Metro West revamp,’ Tamsin Rose, Elias Visontay and Catie McLeod, The Guardian, 7 December 2023
‘NSW government’s plan to address housing crisis by rezoning land around train stations accidentally revealed,’ Tamsin Rose, The Guardian, 6 December 2023
‘High density housing coming to 25 Sydney suburbs after plans leaked,’ Eli Green, News.com.au, 6 December 2023
‘Sydney house prices headed towards a double-dip downturn,’ Nila Sweeney, Financial Review, 2 December 2023
‘Property values set to plateau but political housing stoush continues,’ Rachel Clun, Sydney Morning Herald, 1 December 2023
‘Property prices stablilising after another boom, with rents still going up, especially on apartments,’ Emilia Terzon, ABC News online, 1 December 2023
‘This is where in Australia house prices have risen the most,’ SBS news, 3 December 2023
‘Vacant property taxes, levies and caps on the table as NSW Labor reviews Airbnbs and short-term rentals,’ Tamsin Rose, The Guardian, 4 December 2023
‘The untouchables: Swaths of Sydney protected from Labor’s housing intervention,’ Michael McGowan and Michael Koziol, The Sydney Morning Herald, 30 November 2023
‘NSW government accidently publishes list of suburbs targeted for high-density housing,’ Isobel Roe, ABC News online, 5 December 2023
‘Thought it was hard enough to buy a home? It just got worse,’ Elizabeth Redman, Domain, 29 November 2023
‘Families fear they'll be left out of Sydney's high-density future unless there's a shift toward building bigger apartments,’ Sean Tarek Goodwin, ABC News online, 5 December 2023
‘Minns to lift council bans on terraces, townhouses and low-rise apartments,’ Alexandra Smith and Michael McGowan, The Sydney Morning Herald, 28 November 2023
‘House prices are poised to stall – and possibly fall,’ Stephen Koukoulas, Yahoo Finance, 28 November 2023
‘Auction downturn snuffs house price momentum,’ Leith van Onselen, Macrobusiness, 27 November 2023
‘New owners will enjoy it’: Sydney suburbs that joined the $1m and $2m clubs,’ Kate Burke, Domain, 27 November 2023
‘It’s a thriving business hub. Now it’s rezoned for housing. Can this Sydney suburb really take both?’ Michael Koziol, Sydney Morning Herald, 22 November 2023
‘Greater Cities Commission axed in push for higher housing targets,’ Michael McGowan and Max Maddison, Sydney Morning Herald, 22 November 2023
‘Suburbs in Labor's heartland left off priority shortlist for housing density rezoning along Sydney metro routes,’ Amy Greenbank, ABC News online, 26 November 2023
‘Australian house prices are ‘back in black’, Leith van Onselen, Australian Property, 23 November 2023
‘Housing prices to fall in Sydney, Melbourne in 2024, report predicts,’ Adam Vidler, 9News, 22 November 2023
‘Sydney property prices to fall in 2024 as owners struggle,’ Georgia Clelland, News.com.au, 23 November 2023
‘Housing prices back at record levels, defying Australia’s interest rate rises,’ Peter Hannam, The Guardian, 23 November 2023
‘Property values reach new heights as demand outstrips supply, vendors take homes off market,’ David Taylor, ABC News online, 23 November 2023
‘Should 50 per cent rent hikes be illegal?,’ Tawar Razaghi, Domain, 25 November 2023
‘Rental affordability goes from bad to worse, with more to come,’ Rachel Clun, The Sydney Morning Herald, 14 November 2023
‘National Shelter says tenants have been smashed with rental hikes well beyond income growth,’ AAP, 14 November 2023
‘Renting affordability reaches all time lows across Australia,’ Eli Green, news.com.au, 14 November 2023
‘Renters in every capital city worse off as affordability in the regions deteriorates, Rental Affordability Index shows,’ Nicholas McElroy, Cason Ho, and Mackenzie Colahan, ABC News online, 14 November 2023