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GUEST OBSERVER
The outer Sydney land market is now in a strong growth phase, after being in a downturn for the best part of a decade. Rising land development in Outer Sydney has been driven by improved affordability, improved land availability, and improved transport infrastructure provision.
We have profiled the various indicators relating to demand, dwelling and lot supply, and prices, in the outer Sydney land market, with a focus on the north west and south west corridors, as well as the central coast. The regions are defined as follows:
North West (The Hills Shire, Blacktown and Penrith LGAs) South West (Wollondilly, Camden, Campbelltown and Liverpool LGAs)
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Central Coast (Gosford and Wyong LGAs).
STOCK DEFICIENCY
Very low new dwelling completions between 2006/07 and 2011/12 saw a sizeable dwelling deficiency emerge in the Sydney market by June 2012. The combination of dwelling deficiency and improved affordability via low interest rates has been the key driver of the upturn in Sydney residential prices and demand for new housing. Completions have grown from a low of 18,400 dwellings in 2011/12 to 35,200 dwellings in 2014/15. While significant growth has occurred in high density dwelling commencements  which rose by 123% in this time, new separate house starts have also increased by a sizeable 57% from 8,000 houses to 12,500 houses in the same period. This has been met by strong population growth, as New South Wales benefits from a strong, albeit easing, net overseas migration inflow, and a record low net interstate migration outflow, which has sustained the dwelling deficiency in Sydney despite rising supply. 
 
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DEMAND 
Population Growth 
Greater Sydney’s population growth slowed from 49,100 persons per annum over 1996–2001, to 30,700 persons per annum over 2001–2006 as a result of slowing net overseas migration and larger net interstate migration outflows. The impact was felt in Outer Sydney, with Inner and Middle Sydney population growth remaining largely unchanged. 
Population growth recovered to 70,600 persons per annum over 2007–2011 as both net overseas migration boomed and net interstate outflows moderated, with Inner and Middle Sydney accounting for the majority of this increase. 
Population growth has continued to strengthen over 2011 to 2015 to an estimated 79,200 persons per annum, with Outer Sydney now accounting for the larger share of the increase, are driving the emerging recovery in the broadhectare land market. 
Greenfield development 
Infill development of new houses can take place as knock downs, as well as new houses being built on infill or brownfield sites. The level of infill activity generally moves in line with the cycle, however it is significantly more stable than demand for greenfield houses being constrained by the more limited availability of sites. 
As a result, any upturns in new house demand are accommodated by the more plentiful greenfield land. Over the 2001 to 2015 period, greenfield land is estimated to have accommodated around 44% of Sydney’s new house demand, being as low as 22% (in 2009) and as high as 70% (in 2001). Greenfield land is estimated to be accommodating around 55% of new houses in 2014/15. 
House affordability 
Housing affordability, as measured by mortgage repayments at the prevailing variable interest rate on 75% of a median priced home in Sydney as a percentage of average household disposable income for New South Wales, has averaged 33% over the twenty two years to 2014/15 (Chart 3). 
The upturn in Sydney prices was initiated as interest rates fell and the affordability ratio moved below the long term average. However, subsequent price rises drove further demand and price growth, with mortgage repayments on a median priced home of 37.7% of household disposable income at June 2015, currently worse than the long term average and approaching some of the worst levels recorded in 2004 and 2008. Further price rises will put house prices increasingly under pressure, particularly if interest rates also rise. 
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Land affordability
The key to the upturn in the Sydney land market has been the improved affordability of new houses relative to the increasing median house price. Through the middle of the 2000s, the ratio of land prices to house prices, or alternatively the premium of buying a new house over an established house in Outer Sydney was at a worse level than in the 1990s and early 2000s.
However, the price of land relative to established housing in Outer Sydney has improved from 72% in 2005 to 52% in 2015—better than the late 1990s average. Conversely, the median new home cost is now slightly below established house median prices. 
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SUPPLY
Land Production
Lot production was extremely low in the 2006 to 2010 period, with Outer Sydney producing just 1,900 lots on average over this timeframe.
Since the upturn, lot production in Outer Sydney has surged, reaching 6,000 lots in 2013/14 and is estimated 4,500 to have risen to 8,100 lots over 2014/15, which 4,000 represents a 35% increase.
Over the long term, North West Sydney (The Hills Shire, Blacktown, and Penrith LGAs) has generally accommodated 48% of lot production in Outer Sydney. In comparison, South West Sydney (Liverpool, Camden and Campbelltown LGAs) has accommodated around 36%, and the Central Coast (Gosford and
Wyong LGAs) has accounted for 13% (Chart 5). More recently, the limited new lot supply elsewhere means that Outer Sydney lot production is now roughly evenly split between North West and South West Sydney. 
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Lot Size
The median size of new lots in Outer Sydney has been falling since 2000, from over 700 square metres to below 500 square metres for the first time in 2013/14. 
While lot sizes remain low in a long term sense, there has been a small increase in lot sizes in 2014/15 as developers increasingly serve the upgrader market as price points move beyond the realm of first home buyers. 
The strong demand for land in Sydney means that developers are producing more profitable larger lots to target the upgrader market. Meanwhile, the first home buyer market is increasingly being serviced by the established home and apartment market. In new estates, the most affordable housing is being provided in integrated developments rather than small lots.
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PRICES
There was a correction in both land and house prices (as well as new house activity), through the latter half of the 2000s. Between 2005 and 2009, the Outer Sydney median land price fell by 10.5%, or a 20% decline in real terms. 
With Outer Sydney median land prices over 2009 to 2013 remaining relatively flat (+4% increase in total), Outer Sydney house price growth returned (+25% in the same period), and land affordability improved back to 1990s levels. 
Further strong growth in Outer Sydney median house prices in 2014 and 2015 (totalling +31%) has taken the median house price to an estimated $650,000 at June 2015. Growth in land prices has also returned although still remains below that of house prices (+21%) indicating a median of $335,000 by June 2015. This lower growth in land prices has allowed the cost of new houses to become more affordable relative to established houses and enabled upgraders to more easily sell their existing dwelling to upsize to a new home. 
 
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Angie Zigomanis is senior manager, BIS Shrapnel and can be contacted <a href="mailto:azigomanis@bis.com.au" target="_blank">here</a>.
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angiezigomanis-VT64gGbExQ

Strong growth for outer Sydney land market: Angie Zigomanis

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GUEST OBSERVER
The Inner Sydney apartment market has experienced a rise in demand for off–the–plan apartments in recent years, which has resulted in new supply reaching its highest annual total in fifteen years of 3,350 apartments in 2014/15. 
In particular, development in Inner Sydney has been dominated by large scale and high rise development in the following locations: 
<ul>
<li>City Core, including Quay (1), City Centre (2) and City South (3)</li>
<li>Pyrmont/Ultimo (4),</li>
<li>East Sydney (5),</li>
<li>Surry Hills (6)</li>
<li>South Dowling (7)</li>
<li>
North Sydney (8) 
</li>
</ul>
 
APARTMENT PROFILE
Rental apartments account for 55% of total apartments in the ISA area, considerably higher than the 28% share across all Greater Sydney dwellings. This highlights the preference of investors to purchase low maintenance dwellings such as apartments, as well as properties close to good transport links and major commercial, retail and entertainment centres, such as a Central Business District, where tenant demand is likely to be greatest.
Owner occupied dwellings represented 34% of ISA area stock, with a greater share of these having a mortgage (being purchased). Conversely, an Inner Sydney apartment area significantly higher 65% of all Greater Sydney dwellings were owner occupied.
In addition, unoccupied dwellings—those that are held as second homes or kept empty as a speculative investment—comprise 11% of total apartment stock in the ISA area, compared to 8% across Greater Sydney. Despite relatively high new apartment supply in 2014/15 being forecast to continue through to 2018/19, unoccupied apartments share of total ISA area dwellings is not expected to substantially increase. Given the current deficiency of rental stock in the ISA area, the majority of investor purchased apartments are likely to be made available for rental. 
 
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 Rents, Prices and Yields
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Table 2 outlines the weighted median two bedroom (the most common type of unit) rent and weighted median unit price of the ISA area post codes, along with an indicative yield representing the rent divided by the price.
Tight vacancy rates of below 2% in Inner Sydney during the second half of the 2000s decade resulted in solid unit rental growth and the indicative yield in the ISA area improving to a high of 5.93% at June 2009.
Unit rental yields remained relative attractive over the following four years to June 2013, at above 5.5%. However, an easing trend emerged in 2012/13, as interest rate cuts from late 2011 started to lift purchaser demand, which drove solid unit price growth of 7.4% in 2012/13.
The low interest rate environment has persisted, strengthening investor demand, which has resulted in solid unit price growth of 10.2% in 2013/14 and an estimated 9.5% in 2014/15. Relatively low borrowing costs also reduced cash outflows for investors and diminished the necessity for landlords to seek a higher rental return, leading to rental growth of less than 1% in 2013/14 and a similar expected rise in 2014/15. Consequently, the indicative unit yield in the ISA area has diminished to an estimated 4.65% at June 2015, and slightly below the previous low 2003–2004 levels. 
 
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Angie Zigomanis is senior manager, BIS Shrapnel and can be contacted <a href="mailto:azigomanis@bis.com.au" target="_blank">here</a>.
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Inner Sydney's apartment constraints: BIS Shrapnel's Angie Zigomanis

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GUEST OBSERVER
The Inner Brisbane Apartment (IBA) market has experienced a surge in demand for off the plan apartments since 2013/14, which will result in record new apartment supply in 2014/15, with completions set to escalate further in 2015/16 and 2016/17.
In particular, development in Inner Brisbane has been dominated by large scale and high rise development in the following locations (shown on map):
<ul>
<li>CBD/Spring Hill </li>
<li>Inner East </li>
<li>Inner North </li>
<li>West End </li>
<li>Toowong </li>
<li>Woolloongabba </li>
<li>Hamilton </li>
</ul>
<img src="/images/2015/05/20/Screen%20Shot%202015-05-20%20at%2010.04.08%20AM.png" alt=""> 
Rental Vacancy Rates
Vacancy rates in Inner Brisbane remained below the balanced market rate of 3% from June 2004 through to June 2013, except at June 2009, when a rapid reduction in standard variable rates and the introduction of boosted incentives to first home buyers during 2008/09 encouraged existing and potential tenants to become owner occupiers.
Unlike Middle and Outer Brisbane, vacancy rates inInner Brisbane have increased since 2013/14, reaching 3.8% at December 2014. While some of thisrise may reflect the rate of new stock coming to the market and the time required to fill the stock, the steady rise in vacancy rates through 2014 nevertheless suggests that an excess of rental stock is emerging within Inner Brisbane.
<img src="/images/2015/05/20/vacancy%20rates.png" alt="">
Rents, Prices and Yields
Table 2 outlines the weighted median two bedroom (the most common type of unit) rent and weighted median unit price of the IBA area post codes, along with an indicative yield representing the rent divided by the price.
Unit rental yields increased to a peak of 5.52% at June 2012, and remained at a similar high level over the following year. Combined with the low interest rate environment, investor demand strengthened and drove solid unit price growth of 6.8% in 2013/14.
Relatively low borrowing costs also reduced cash outflows for investors and diminished the necessity for landlords to increase asking rents, in particular with subsequent attractive affordability encouraging tenant demand to shift to owner occupation. As a result, rental growth remained below 1% in 2013/14 and unit yields eased to 5.15% at June 2014.
Rising vacancy rates will limit rental growth in 2014/15 to an estimated 1.7%. Moreover, momentum in unit prices is expected to come to a halt, as the record level of apartment completions in 2014/15 creates increased competition from new apartments and has a negative impacted prices. The indicative yield for a two bedroom apartment in the IBA area will subsequently improve to 5.25% at June 2015.
<img src="/images/2015/05/20/table%202.png" alt="">
SUPPLY PIPELINE
Apartment demand within the IBA area has escalated from 2013, attributed to improving economic conditions, attractive yields and low interest rates. The subsequent boost to off–the–plan sales allowed a greater number of projects to reach sufficient pre–commitment levels to obtain finance and begin construction. As a result, the IBA area experienced relatively high completions in 2013/14, and new supply will reach a record level in 2014/15, at approximately 2,880 apartments.
Demand for Inner City apartments from investors currently shows little signs of abating despite the potential impact on rents and prices of further sizeable new additions to the rental stock across Inner Brisbane. Relatively less expensive apartment prices, and more attractive rental yields compared to their respective home markets, is likely to lead to heightened demand for Inner Brisbane apartments from Sydney and Melbourne investors.
Moreover, this should also see overseas investors increasingly favour the Inner Brisbane apartment market over Sydney and Melbourne, with demand from these investors also being underpinned by low borrowing costs, buoyant economic conditions locally in their home country, a preference to invest in a more transparent and stable political environment, and recent falls in the Australian dollar making apartment prices more attractive.
Consequently, IBA area completions are on track to surpass their record level in 2014/15, increasing to 3,610 apartments in 2015/16 and peaking at 4,040 apartments in 2016/17.
An estimated 81% of apartments expected to be completed in 2015/16 and 2016/17 are in buildings currently under construction, with the remainder currently pre-selling and likely to shortly achieve a sufficient level of pre–sales to begin construction.
Within the IBA area precincts, during the three years to 2016/17:
The Inner North precinct will be the main source of new apartments in the IBA area, accounting for 43% of total new apartment supply, followed by the West End precinct with a 26% share.
Toowong precinct is projected to account for 13% of new apartment supply in the IBA area, with a further 7% occurring in the Hamilton precinct and 6% in the Inner East precinct.
Apartment completions as a proportion of the total IBA area is expected to be minimal in the Woolloongabba (3%) and CBD/Spring Hill (2%) precincts.
<img src="/images/2015/05/20/chart%207.png" alt="">
 
 Angie Zigomanis is Senior Manager of Residential Property for BIS Shrapnel. You can contact Angie <a href="https://www.bis.com.au/bis_shrapnel_blog" target="_blank">here</a>.
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Inner Brisbane apartment market ripe for investors: Angie Zigomanis

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GUEST OBSERVATION
A key objective of Plan Melbourne is to create a city of 20 minute neighbourhoods, suggesting that 20 minute neighbourhoods are healthy communities, where “housing is within walking, cycling or public transport distance of employment, education, social, cultural, recreational and health facilities, and where people have access to open space and places where they can gather.”
The idea is that the provision of these services will encourage a 'walkable neighbourhood', from which in turn flow the health benefits of a more active lifestyle.
We are all about using hard data to support business decisions, so we have decided to test out whether proximity to transport and services does indeed encourage walking.
The Victorian government undertakes the Victorian Integrated Survey of Travel and Activity (VISTA). The most recent survey was undertaken in 2009/10 and classifies a household as being located within 1 kilometres of a train station (approx 10 mins walk), within 3 kilometres of a train station (approx 30 mins walk), and greater than 3 kilometres of a train station.
As retail and services, as well as other public transport options, are often based around train stations, we have taken the train station as a proxy for the likely centre of a 20 minute neighbourhood.
Chart 1 (below) shows the average number of walking movements per person per day across total Metropolitan Melbourne and for Outer Melbourne regions only. In this instance we refer to a “movement” as a journey from one destination to another, or a component of a journey with more than one mode of travel.
<img src="https://www.bis.com.au/verve/_resources/Walkable_Melbourne_Chart_1.png" alt="">
For total metropolitan Melbourne, those within 1 kilometres of a train station had a much greater propensity to choose to walk, with an average 1.3 walking movements a day undertaken across the whole population. The average dropped to 0.9 movements per day for those living 1 to 3 kilometres from a train station, or around 10 minutes to half an hour walk, and 0.57 movements per day for those living further than 3 kilometres from a train station.
In contrast, the propensity to be walking for those living in outer Melbourne was stable, and lower, at around 0.4 to 0.5 walking movements per day regardless of distance from a rail station.  
Similarly, the amount of walking is greater for those closer to a train station (and consequently the services surrounding most train stations). Across total Metropolitan Melbourne, walking movements of those within 1 kilometres of a train station averaged 1.2 kilometres per day, with the average distance walked steadily decreasing as the distance from a train station increased—thereby increasing the need for other forms of transport such as motor vehicles.
The average daily distance walked by those within 1 kilometres of a train station across total Melbourne is six times larger than for those within 1 kilometres of a train station (at 0.2 kilometres per day) in outer Melbourne, which in turn was also approximately the average distance walked across the all of outer Melbourne regardless of distance from a train station. This suggests that proximity to a train station played little part in encouraging walking in outer Melbourne. 
 <img src="https://www.bis.com.au/verve/_resources/Walkable_Melbourne_Chart_2.png" alt="">
Given most activity centres around a train station in outer Melbourne contain a similar array of services as much of the rest of Melbourne, other factors must be at play that make a neighbourhood conducive to walking. In this regard, outer suburban train stations are more likely to be surrounded by a large amount of car parking and lower density housing, while many activity centres in outer Melbourne also contain freestanding shopping centres that are inwardly focussed and are surrounded by significant parking.
In contrast, train stations in inner and middle Melbourne suburbs typically have a greater level of housing density close by. Retail and services also face the street and passing walking traffic. This encourages interaction between transport modes, services and housing when travelling between each. The increased density in these locations also provides a catchment of sufficient size to support these services at the local level.
This suggests that a neighbourhood not only needs the services required by the surrounding community, but also good design and density that encourages walkability. The challenge for planners in creating new neighbourhoods is to ensure the design will be conducive to walking and avoid the design mistakes of previous town centre developments that discourage walkability.
But why would you want a walkable neighbourhood?
The National Physical Activity Guidelines recommend 30 minutes of moderate-intensity physical activity on most days of the week as the minimum requirement for good health. Walkable neighbourhoods go a long way to more of the population achieving this target. With a study commissioned by Medibank Private putting the cost to the economy of the population not meeting this threshold at $13.8 billion per year in 2008, everybody benefits from the improved health outcomes.
<a href="https://www.bis.com.au/key_people/name/angie_zigomanis" target="_blank">Angie Zigomanis</a> is senior manager of <a href="https://www.bis.com.au/" target="_blank" title="BIS Shrapnel" rel="nofollow">BIS Shrapnel.</a>
This article first appeared on BIS Shrapnel's blog.
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Encouraging walkable neighbourhoods is about more than proximity: Angie Zigomanis

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GUEST OBSERVATION
Using an objective measure of location, the <a href="https://www.walkscore.com/" target="_blank">Walk Score</a> rates a location (out of 100) in terms of how walkable it is to services such as shops, recreation, public transport. This measure of walkability provides an objective measure of location, which can then be used to measure the value of Sydney suburbs. In theory, people will pay a premium for having a higher level of amenity close by. The Walk Score web site offers an overall Walk Score for total suburbs as well as individual locations. 
The chart below plots the Walk Score for each of Sydney’s suburbs against its median house price in the six months to September 2014. As would be expected, the median house price tends to increase with a higher Walk Score and the trend is upwards. The median Walk Score of Sydney’s 544 suburbs is 59. 
Most of the data is bunched around the trend line. However, the outliers show those suburbs where the price is high relative to its Walk Score (overpriced) or where the price is low relative to its Walk Score (underpriced). It should be noted many smaller inner suburbs have a low population of houses and the median may be distorted by the very low number of sales that take place. Indeed, many inner suburbs reported no sales over the period, and we have excluded those suburbs that recorded less than 10 sales in the period.
<img src="https://www.bis.com.au/verve/_resources/Best_Value_Suburbs_Sydney_Image_1.png" alt="">
So which suburbs in Sydney offer the most (and least) “bangs per buck” on this basis? 
The chart suggests that the most expensive suburb (that recorded more than 10 house sales in the six months to September 2014) of Vaucluse (median of $3.7 million) is overpriced relative to the amenity it offers, based on its Walk Score of 69. Not shown in the chart due to a low number of sales, Point Piper rates as even less affordable, recording a Walk Score below Sydney’s median of 58 and a median house price (based on five sales) of $9.4 million. 
In comparison, suburbs such as Ellis Lane and Grasmere appear overpriced considering they both have a Walk Score below 10. However, these locations offer acreages and the high price reflects the larger lot sizes (which in turn also diminish walkability). Outside of the acreages, the most expensive of the suburbs with a Walk Score below the median of Sydney suburbs is Church Point in the Pittwater Council Area, which has a median house price of $1.28 million and a Walk Score of 23. 
The best value suburbs are those that have the highest <a href="https://www.walkscore.com/">Walk Scores</a> for the lowest prices. In terms of the “walkers paradise” suburbs, Sydney has three suburbs with a Walk Score over 90 that have a median value of less than $1 million. These are Erskineville (Walk Score 92, median $975,000), Newtown (Walk Score 95, median $990,000) and Darlington (Walk Score 94, median $986,000), closely followed by Enmore (Walk Score 89, median $935,000). Parramatta represents the best value suburb with a Walk Score above 80 (at 81), and a median house price of $775,000. 
Amongst the suburbs that offer a good level of walkability (above 60), the best value suburbs are Liverpool (Walk Score of 77 and median house price of $575,000 in 2013), Mount Druitt (70 and $575,000), Warwick Farm (69 and $495,000), Lalor Park (66 and $498,000) and Penrith (64 and $473,000). All of these suburbs have a Walk Score well above the median Walk Score of Sydney’s suburbs of 59. 
Rating Sydney’s suburbs on a “dollar per Walk Score basis”, the top 10 Sydney suburbs can be seen below. All are established suburbs which are located just inside outer Sydney growth corridors in Sydney’s west.
Emerton is the most affordable in terms of the value offered per Walk Score point, and its low median house price is a reflection of its relatively low Walk Score below 60. The most walkable of the top 10 is Liverpool which has a Walk Score of 77 (classified as “very walkable”), while still having a relatively affordable median house price of $575,000—well below the Sydney median.
<img src="https://www.bis.com.au/verve/_resources/Best_Value_Suburbs_Sydney_Image_2.png" alt="">
<a href="https://www.bis.com.au/key_people/name/angie_zigomanis">Angie Zigomanis</a> is senior manager of <a href="https://www.bis.com.au/" target="_blank" title="BIS Shrapnel" rel="nofollow">BIS Shrapnel.</a>
This article first appeared on BIS Shrapnel's blog.
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Which Sydney suburbs provide the most (and least) bang per buck?

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Owner occupiers represent a small but important component of the inner Brisbane apartment market. At the youngest end, they represent occupiers who could potentially be occupying greenfield development in the outer suburbs and thus helping to reduce the requirement for new infrastructure. Similarly, at those at the older end are likely to have freed up an existing established home for the next generation to move into.
As part of the preliminary work for our upcoming Inner Brisbane Apartments 2013 to 2020 report, we have taken a closer look at the actions of owner occupier purchasers by undertaking an analysis of two buildings that were built targeting different markets. Both buildings were marketed and completed in the early to mid 1990s, which allows us to identify long term trends.
<ul>
<li>
Admiralty Towers in Howard Street faces the Brisbane River and contains 152 apartments that were pitched at the investor end of the market.
</li>
<li>
The Moreton in the Dockside development is located in Kangaroo Point and also faces the Brisbane River, with 106 apartments and was pitched at higher price points, and presumably being more attractive to owner occupiers.
</li>
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Reflecting the market positioning of each building, a higher average pre-sale price was achieved at The Moreton, at $425,000 per apartment versus $377,000 per apartment at Admiralty Towers—although this could also reflect the mix of apartments and location as well as the size/quality of apartments.
An analysis of sales shows that despite the different price points, pre-sales were dominated by investors (which include second home purchasers) in both projects, who accounted for 75% of off the plan sales in The Moreton and as much as 84% of apartments in Admiralty Towers (see chart below).
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Source: PriceFinder
Subsequent sales show that both buildings attracted a higher level of owner occupier purchasers after completion, although they favoured the higher priced The Moreton project at Kangaroo Point. The majority (52%) of apartments in The Moreton are now owner occupiers, and while investors are still the majority in Admiralty Towers, owner occupiers now fill out 40% of apartments.
This reflects two things:
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Investors are attracted at pre-sale, most likely due to the negative gearing benefits of depreciation, etc, being at their greatest. There may also be stamp duty benefits in purchasing off-the-plan.
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<li>
Owner occupiers prefer to come in after the building is completed. As the negative gearing benefits are not relevant to an owner occupier, there is less incentive to purchase off-the-plan, while they can also “touch and feel” the dwelling that they will be living in. Moreover, the timing of their requirement for an apartment may not necessarily coincide with the timing of the construction of a new apartment project. For example, a first home buyer could wait up to three years or more between signing the contract and when their apartment is completed, while upgraders and downsizers face a more uncertain market in the future to sell their existing dwelling before moving in.
</li>
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Interestingly, there was a greater turnover of apartments in The Moreton—88% of apartments have recorded a re-sale compared to 74% in Admiralty Towers—despite the perception of owner occupiers having more stable occupancy. Perhaps for many owner occupiers of apartments, this represents a stepping stone into another dwelling.
Nevertheless, despite the higher turnover, apartments in The Moreton achieved higher price growth on average than Admiralty Towers, with sales on average achieving a rate of growth of 3.9% per annum, compared to 3.6% per annum. The margin may not be substantial, but it builds up in aggregate over an extended holding period.
What does this mean?
While a development can be developed and marketed as attractive to owner occupiers, developers are nevertheless reliant on investor purchasers to achieve the pre-sales for development finance to proceed. This poses a problem for policy makers, who would like a greater level of owner occupiers living in apartments.
The limited owner occupier demand at pre-sale means that developers are likely to build stock at a price point to be more attractive to investor purchasers in order to achieve the required pre-sales in a timely manner. Owner occupiers instead then prefer to purchase the finished product, where the look and quality of the apartment is a known quantity. However, a development developed and priced to maximise investor sales may not necessarily be attractive to owner occupiers in the future.
Even in conducive locations where a developer may develop and seek to target a higher share of owner occupiers for off-the-plan sales, investors are a necessary—and indeed compulsory—part of the marketing equation. Only smaller or unique buildings can get away with being purchased in majority by future owner occupiers, as they could potentially face a more limited opportunity to buy in at re-sale. Nevertheless, the prospect of greater future price growth and potential onsale to either another investor or an owner occupier can play a part in marketing to investors. Such a project would also attract a larger, although probably still a minority, share of owner occupiers provided the project is developed as being attractive to this market upon completion.
 
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 Angie Zigomanis is senior manager of <a rel="nofollow" title="BIS Shrapnel" href="https://www.bis.com.au/" target="_blank">BIS Shrapnel.</a>
 
 
 
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How important are owner occupiers in the inner Brisbane apartment market?

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"Not many of Sydney's design professionals seem at ease with the current prognosis for Pyrmont. It would seem that this may become an urban opportunity sacrificed to developers' profits, perhaps destined to become the slum of the next century.” 
Those in the property industry in the early 1990s would be familiar with the above sentiment outlined in “Tale of Two Cities: Planning a Great or Wasted Sydney” by Rollin Schlicht.
The article appeared in the Sydney Morning Herald in 1994 just as the inner Sydney apartment boom was taking off, and highlighted concerns about the depth of the market at the time.  It’s been around 20 years since the apartment boom first took off—enough time to see how closely this early prognosis for the Pyrmont market has eventuated.
BIS Shrapnel have been tracking the inner Sydney apartment market since its first study in 1997, when the start of the apartment construction market boom was well underway. Our most recent study, 'Inner Sydney Apartments 2013 to 2020', uses the latest 2011 Census data to profile the area. 
While the Pyrmont apartment market has gone through typical cycles in this time, Pyrmont (and the inner Sydney apartment market overall) has on average experienced solid overall demand in the last twenty years. Indeed, demand for apartments has broadened in this time.
The 1996 Census revealed that only 20% of apartments in Pyrmont were owner occupied (with the remainder largely investor owned), compared to 36% of apartments being owner occupied at the 2011 Census.
Nevertheless, the population profile of apartment residents in Pyrmont remains fairly narrow, and is concentrated among the young adult, typically professional, population.
In 1996, just over half (51.5%) of the population was aged 20 to 34 years old, and this was unchanged in 2011 (52.3%) – the major difference being that more are likely to remain in the inner city, given the rising percentage of owner occupiers. 
Median household incomes in Pyrmont have risen by 5.8% per annum between 1996 and 2011; similar to total Metropolitan Sydney – far from what you would expect from a “slum of the next century”. 
Meanwhile, the Pyrmont residential market itself has moved more or less in line with the Metropolitan Sydney market, with rents and prices showing solid long term rises. 
 Apartment rents in Pyrmont have averaged above inflation growth of 4.5% per annum between 1996 and the end of 2012, a little below the 5.2% per annum growth for total Sydney. 
Pyrmont’s median unit price has risen from $221,200 in 1995/96 to a preliminary $664,000 in 2012/13, a rise of 6.8% per annum, and just above growth in the Sydney median unit price of 6.6% per annum in the same period. 
 
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Contrary to perceptions at the start of the apartment construction boom in the mid 1990s, the positive performance of the Pyrmont and inner Sydney apartment market has been driven by various factors that were not immediately apparent at the time:
The rise in overseas student enrolments at Australian universities; globalisation of employment that has resulted in growth in overseas professionals employed in our cities; and changing lifestyle and dwelling preferences  that have seen the younger adult population more willing to live in smaller dwellings closer to employment and entertainment options. 
The result has been a growing population that has a preference for living in inner Sydney apartments, which has been able to sustain apartment occupancy despite the sizeable increase in the apartment stock.
Pyrmont has experienced a fourfold increase in its apartment stock from 2,300 apartments in 1996, to 9,500 apartments by 2013, while still maintaining solid occupancy and positive rent and price growth through this period. 
Although there will continue to be cycles, these drivers are expected to continue to underpin long term demand for inner Sydney apartments in the future.
In the short term the underbuilding of apartments in inner Sydney since the middle of the last decade has resulted in an underlying deficiency of apartments that is not expected to be fully eroded in the near future, despite the solid upturn we are now seeing in new apartment construction. 
The resulting rental growth will continue to attract more investors to the market.
This in turn should drive further solid price growth over the next two to three years, which in turn will drive greater off-the-plan purchases and additional supply. 
After averaging 2,500 apartment completions per annum over 1996/97 to 2005/06, apartment supply has fallen to around 1,600 new apartments per annum over 2006/07 to 2012/13.
While completions have picked up in 2012/13 and we expect them to average 2,800 per annum over the four years to 2016/17, there is still expected to be a small underlying deficiency by the end of this current round of construction.
Angie Zigomanis is senior manager of <a href="https://www.bis.com.au/" title="BIS Shrapnel" target="_blank" rel="nofollow">BIS Shrapnel.</a>
 
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Rental and price growth to drive more investors to Sydney inner city apartment market: BIS Shrapnel's Angie Zigomanis

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Without knowing exactly the type of land <a href="https://www.prosper.org.au/2012/12/06/englobo-2/" target="_blank">Prosper</a> is referring to, I would say that the total land banks of the major developers (248,607 lots) does not reflect land that can be turned into vacant lots tomorrow.
Many are likely to be awaiting rezoning, planning approval, trunk infrastructure and services, etc, that have to be in place first before they can subdivide. As a result, the amount that can be brought to the market at any one time is likely to be much lower.
However, having said that, there is probably an argument, particularly in some corridors that a lack of competition and control of land releases is keeping prices up.
A land tax for zoned land may also encourage developers to turn over their land quicker if they are holding zoned land. If more land is forced onto the market in a corridor, then it could also result in price competition.
However, there could also be some unintended consequences.
For example, developers could delay seeking to rezone former cow paddocks to residential as late as possible to minimise the extra land tax. However, any additional delays in the planning process could mean that the land may not be zoned and ready when the market catches up, placing supply pressures in the local region and driving up prices anyway.
Additionally, if developers start building to a price and for speed rather than quality, then there may be lesser investment in product, environmental features, community infrastructure, etc.
The <a href="https://www.prosper.org.au/2012/12/06/englobo-2/" target="_blank">Prosper </a>article includes a link to an article from The Age with a reference from the chief operating officer of Delfin. He talks about the days when the number of competitors were too numerous to count, but the estates back in those days did not have the level of community investment of the larger estates you see nowadays.
Also, you would need to keep on top of other factors to prevent prices rising too far. At the end of the day, prices are governed by demand and supply, and the rate of supply needs to be able to meet the surges in demand.
This was part of the problem occuring during the boom in Perth in the middle of last decade. Initially, the rate of subdivision was able to keep up without large pressures on prices. However, as demand continued to increase and skills shortages emerged in planning, construction, etc, substantial delays began occurring that drove up prices despite the large level of zoned land that was available.
This also happened to some extent in late 2010 in Melbourne.
Therefore, at the administrative and construction end, you would need to guarantee a smooth process to ensure that land can be zoned and taken through the whole process quickly enough to meet the surges in demand.
There is also the issue of state and local government levies and infrastructure charges. These are charged to the developers who in turn pass them onto the purchasers and have also contributed to the increase in price of land over the past decade.
So the short answer is the concept of taxing zoned land to speed up development is likely to increase price competition and encourage further development of land.
On their argument, this would best work in areas where there are plenty of land holders to create competition, although it doesn't solve the problem where there is not enough competition in the corridor which would allow developers to just factor the land tax into their prices - i.e. a developer would balance their rate of sale to the market with the price they can achieve and the additional cost of the land tax in such a way as to maximise profits.
Even where there is competition, you would also need to ensure that the process of the delivery of the subdivided land is as smooth as possible so that the rate of development can be scaled up quickly enough to meet demand in an upturn without placing pressures on prices. In addition, in circumstances where developers are competing on price, it could impact on the type and quality of the product being offered.
Angie Zigomanis is senior manager of <a rel="nofollow" target="_blank" href="https://www.bis.com.au/" title="BIS Shrapnel">BIS Shrapnel.</a>
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Land tax would encourage developers to turn over land quicker but with unintended consequences: Angie Zigomanis

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BIS Shrapnel is currently working through its Inner Brisbane Apartments 2012 to 2019 study, a look at the demand and supply prospects for the inner-Brisbane apartment market. A detailed picture of demand is required to determine whether the current supply pipeline can be met. Following are highlights of the inner-Brisbane apartment population using the newly released 2011 census data.
Occupants in inner-Brisbane apartments are heavily skewed into the young adult age groups, being dominated by those aged 20 to 39 years old. At the youngest end, many are likely to be students at tertiary institutions, while those who are older are typically employed in Brisbane CBD or CBD fringe locations.
The age profile of the apartment population has changed little between the 2006 and 2011 census, although the most prevalent age cohort increased from 20- to 24-year-olds to 25- to 29-year-olds. This suggests that some of the younger apartment occupants are remaining living in the inner city.
Age profile of apartment occupants, Inner Brisbane, 2006 and 2011
Click to enlarge
<img src="/images/stories/2012/10/bisnov5thumb.gif">
The inner-Brisbane apartment market is dominated by investors. At the 2011 census, 58% of apartments were owned by investors and were rented out. Some 11% were reported as unoccupied. While some of these unoccupied dwellings are vacant and available for rent or sale, or by occupants who were away on census night, the majority are likely to be “lock-up and leave” – apartments owned as a second home by an owner living elsewhere, or as a long-term speculative purchase.
Just under a third of apartments are owner-occupied (32%). The majority of these are apartments with a mortgage (being purchased) rather than fully owned.
Click to enlarge
<a href="/images/stories/2012/10/bisnov51.jpg" rel="shadowbox" title="Click to enlarge"><img src="/images/stories/2012/10/bisnov51thumb.jpg"></a>
The age profile differs according to tenure. Renters are likely to be younger, dominated by those aged 20 to 29 years old. Those aged 25 to 29 have the greatest prevalence in being purchased (with a mortgage) apartments, while there is also a higher prevalence of all age cohorts 30 to 64 years old in being purchased apartments than occupants in inner Brisbane overall. This would suggest that there is some element of renters moving through to owner occupation. Occupiers of fully owned apartments are dominated by those aged 55 years old and over, indicating empty-nester and retiree households.
Click to enlarge
<a href="/images/stories/2012/10/bisnov52.jpg" rel="shadowbox" title="Click to enlarge"><img src="/images/stories/2012/10/bisnov52thumb.jpg"></a>
Younger couple without children households, younger single-person households and group households comprise well over half of households in inner-Brisbane apartments. There has not been a major change in household structure between the 2006 and 2011 censuses, although only two household types have recorded an increase in their share of total households – younger couples without children and family households with children. Given the apparent propensity for the young adult population to remain in inner Brisbane, some component of the growth in share of family households with children could be coming from those forming families while living in inner-Brisbane apartments.
<a href="/images/stories/2012/10/bisnov53.gif" rel="shadowbox" title="Click to enlarge"><img src="/images/stories/2012/10/bisnov53thumb.gif"></a>
An analysis of the 2011 census data indicates that full-time tertiary students comprise 17% of the inner-Brisbane apartment population. Most of the media focus on students living in inner-city apartments has been on overseas students.
While overseas students comprise the majority of tertiary students living in inner-Brisbane apartments, local, Australian-born students still make up a significant 38% of the full-time student population.
<a href="/images/stories/2012/10/bisnov54.jpg" rel="shadowbox" title="Click to enlarge"><img src="/images/stories/2012/10/bisnov54thumb.jpg"></a>
While the above provides a broad “top level” analysis of occupiers of inner-Brisbane apartments, the profile of demand varies across inner-Brisbane locations. The occupier profile of the CBD, Southbank/West End, Fortitude Valley, Bowen Hills, etc, regions differs widely and product has to be tailored to that demand. The identification of this localised demand, as well as it outlook for rents, prices and new dwelling activity, is one of the aims the upcoming BIS Shrapnel Inner Brisbane Apartments 2012 to 2019 study.
Angie Zigomanis is senior manager of <a target="_blank" href="https://www.bis.com.au/" title="BIS Shrapnel">BIS Shrapnel.</a>
 
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Inner-Brisbane apartment market dominated by investors with 20-something tenants

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Angie Zigomanis, senior manager of BIS Shrapnel: 
There have been several reports on the number of households as reported by the Australian Bureau of Statistics 2011 census in relation to estimating the number of households nationwide. The most commonly reported number of households reported is 7.8 million.
Researchers and analysts have been using this number as a justification or otherwise of claims that the housing market is in undersuply are legitimate. However, a pure count of households or occupied dwellings in itself doesn't say much at all. A count of households and occupied dwellings just tells you that one equals the other. Therefore it doesn’t measure whether there is any underlying undersupply. However, an oversupply can be measured if there are a rising number of unoccupied dwellings.
Some analysts compare their count of the number of households with the National Housing Supply Council estimate of the underlying level of households to provide evidence that the market is in oversupply. The 7.8 million households at the census normally bandied about by commentators compares with the National Housing Supply Council underlying figure of 8.8 million households to imply the NHSC overstated households at 2011 by 1 million, and therefore its estimate of undersupply was actually an excess.
However, a closer look at the 7.8 million households quoted by most industry commentators shows that this figure is just plain wrong. This is the result of these commentators plucking a headline figure from the census data without taking a closer look at the numbers behind the numbers.
When looking at household numbers to determine demand, the number of households will equate to the number of occupied dwellings – i.e. when a household is created it needs to occupy a dwelling. However, the figure that most commentators refer to for the number of households falls well short of the number of occupied dwellings on census night. To find this figure, we need to examine the census data based on place of enumeration.
The place of enumeration count is the physical count of all households in the dwellings where they were counted on census night. This shows that there were 7.8 million households nationally. However, this actually only refers to the households for which they have obtained household structure information. There are two other categories of households occupying dwellings that have not been accounted for. These are "not stated" households and "visitor only" households.
“Not stated” households are dwellings where the census collector has confirmed that someone was present, but was not able to get a completed census form to confirm the household structure. This happens across all dwelling types but is most prevalent in high-rise apartment buildings, where it is difficult to access the dwellings to drop off and pick up the forms (which is why the internet was introduced as a means of filling out the forms). While the type of household has not been confirmed, there is nevertheless a household in the dwelling. There were 279,000 “not stated” households on census night across Australia.
“Visitor only” households are households where all the occupants are not at their usual place of dwelling. This could be overseas visitor households (but not necessarily short- term holiday households), dwellings where the occupant might be away for work, households that were at their holiday house on census night, etc. While not permanently living at the dwelling, they nevertheless reflect demand for dwellings as there will always be a component of the population occupying and requiring a dwelling on this basis. There were 143,000 “visitor only” households on census night.
When comparing households over time, a further adjustment can be made in 2011 for persons who were overseas on holidays. The high Australian dollar has meant that a greater proportion of Australians were overseas on census night. At the 2001 and 2006 census, around 1.7% of Australians were recorded as being temporarily overseas on census night. However, on the 2011 census night, around 2.1% of residents were temporarily overseas. Based on the 2011 population, this reflects an extra 100,000 or so persons, or around 40,000 additional households that weren't counted. Remember that the household count reflects the physical count of occupied dwellings on census night, so the dwelling would have been recorded as empty. Conversely, subtracting these households from the unoccupied dwelling count reduces the unoccupied dwellings from equivalent to 11.4% of households to 10.8% of households, which is below the 11% of households at the 2006 census – another indicator of a tightening market over the last five years.
Adding all of these components – 7.76 million households counted, 279,000 “not stated” households, 143,000 “visitor only” households, and an allowance for an extra 40,000 households being on an overseas holiday on census night than there would normally be – provides a total houshold count, and therefore occupied dwelling count, of 8.22 million occupied dwellings.
This is still well below the NHSC underlying household count of 8.8 million households in its most recent State of Supply report (although closer to BIS Shrapnel’s pre-census figure of 8.3 million that was used to calculate the underlying stock deficiency in the June 2012 editions of our Residential Property Prospects and Building in Australia reports). However, it should be remembered that the NHSC figure (and BIS Shrapnel’s) is not an estimate of actual households, but an estimate of the underlying requirement for households, which is the number of households that would normally be expected in an unconstrained environment – i.e. under normal dwelling supply and affordability circumstances.
BIS Shrapnel’s forecasts of households used in calculating underlying demand are based on trends over time in household formation rates across different age groups, which accounts for changes in demographic trends as well as the likely impact of housing affordability constraints on household formation. In many states it is assumed that the reduction in household formation between 2006 and 2011 due to a deterioration of affordability (both owning and renting) has now become permanent and is unlikely to recover in the foreseeable future. This then places most of the states at, or close to balance, in most states.
Based on the 2011 census data, BIS Shrapnel’s estimate of the deficiency at June 2011 is 37,000 dwellings, concentrated in New South Wales, where the number of households appears lower than it otherwise would be (than explained by prevailing trends in household formation rates) due to people being forced to squeeze into the existing dwelling stock.
A national deficiency of 37,000 dwellings at 2011 was insufficient to drive any upturn in dwelling construction in 2011-12. However, declining new dwelling completions, even at the lower level of new household formation rates derived from the 2011 census, have fallen below underlying demand in 2011-12, and a rising deficiency is now emerging. As the deficiency continues to rise, it will first be seen in vacancy rates (already evident in Brisbane and Perth), before flowing through to rental growth, construction, and some level of price growth.
Angie Zigomanis is senior manager of <a title="BIS Shrapnel" href="https://www.bis.com.au/" target="_blank">BIS Shrapnel.</a>
 
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Michael Matusik, founder of Matusik Property Insights:
So, does Australia have too few, too many, or is the situation just about right?
I am talking about new dwellings.
I have been arguing for some time that one of the biggest real estate myths in this country is that the new housing market is undersupplied; and often this situation is described with words such as “massive”, “chronic” or “enormous”.
But is it true?  As followers of the Matusik Missive know, I have tried to prove that it is false and with, for mine, with quite a degree of finesse.  Yeah, like a bull in a china shop.
Anyway, each year I like to go back and check the numbers.  And last week’s annual check-up has found that Australia continues to build more dwellings than we need.  A few years back – in 2008-09 – not enough new homes were being built, but in recent years, and despite the constant calls from the building industry for stimulus to help create even more new dwellings, we have been building too many.
In the 2009 financial year, Australia needed to build 167,000 new dwellings, yet only 131,000 or thereabouts were commenced.  However, in 2010 (all years in this post are financial ones), the supply-demand balance reversed, with just 121,000 new homes needed, yet 167,000 actually commenced construction.  During 2011 the industry continued to build far more homes than what was actually needed, to the tune of about 47,650 too many.
The good news is that the rate of overbuilding has slowed down over the last 12 months, with 137,000 new dwellings needed during 2011-12 and with 139,000 actually supplied.
However, dwelling supply (we are talking about actual commencements here and not approvals) is cumulative and since the GFC, Australia has built about 60,000 more new dwellings than it really needed.
Nationwide, we are currently oversupplied with new digs to the tune of about five months, based on current underlying demand.  In short, we could, as a nation, stop building for several months and still have enough new homes to fulfil our needs.
But of course, there are always swings and roundabouts.
Several states and territories are undersupplied, some are chronically oversupplied – I just had to get that in – while others have way too much stock.
Major oversupplies now exist in Victoria; South Australia, Tasmania and the ACT.
Since 2009, Victoria has created 69,000 (yes 69,000 – that’s five digits with a six at the front!) too many new dwellings.  This represents about a two-year oversupply based on the current annual underlying demand for 34,000 new dwellings across the state.
South Australia has built 18,000 too many new homes, but with a need to just build about 6,000 new dwellings per year, South Australia really shouldn’t need to build a new home for years, well close to three, in fact.
There are 6,000 too many dwellings built or being built in Canberra.  This equates to 30 months of supply.  And poor Tassie has also overbuilt, and also in the high 4,000 range.  But Tasmania’s situation is further exacerbated by its declining population growth.  Based on a continuation of last year’s paltry population increase of 1,000 people, Tassie’s 4,800 overbuild represents close to nine years of demand.  Now might be a good time to steal a new property on the Apple Isle.
The Northern Territory is now also oversupplied, with 350 too many dwellings created in recent years.  The demand for new homes in the territory is limited (at about 800 per annum), so this paltry 350 over-hang represents six month’s demand.
In stark contrast, New South Wales hasn’t been building enough new stock – no surprise there – but the undersupply is to the tune of 13,000 or about five months of current demand.
Western Australia is also undersupplied by about 23,000 dwellings at present, which equates to about a nine-month demand.
Finally, Queensland has a new dwelling short-fall of 2,800 or two weeks of undersupply.
Last year’s statistics, however, suggest that Queensland is now heading towards a massive undersupply, with 33,000 new dwellings needed during 2012, yet just 26,000 supplied – an undersupply in the tune of about 20%.
Let’s hope the Newman government’s recent $15,000 first-home buyers' grant for new construction kicks some arse.  But for mine, it will not deliver the spanking it was intended to.
Michael Matusik is the founder of <a href="https://www.matusik.com.au/" target="_blank">Matusik Property Insights</a>, which has helped over 550 new residential projects come to fruition.  Read <a title="blocked::https://www.matusikmissive.wordpress.com /" href="https://www.matusikmissive.com.au/" target="_blank">Michael's blog</a> or follow him on <a href="https://www.twitter.com/michaelmatusik" target="_blank">Twitter</a> or connect via <a href="https://www.linkedin.com/in/michaelmatusik">LinkedIn</a>.
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Angie Zigomanis

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