The truth behind the housing supply nonsense
Cameron Murray, Henry Halloran Trust, University of Sydney | 16 July 2020
It is widely believed that Australian housing supply is constrained by planning regulations. In a out last month, I show that this belief is wrong. How can I be so confident about my assessment?
威廉希尔赔率分析First, I crawled through the annual reports of Australia’s top eight listed housing developers, who represent about 9 per cent of new supply each year, to find the evidence.
I tallied up their landbanks and their new dwelling sales and noted their strategic plans for housing releases. In contrast to the expectation of limited land available for housing, developers hold on their books a stock of supply that takes over twelve years to sell on average—an implausibly large inventory by any stretch of the imagination.
You might think that the long lead times and planning delays are part of the reason for this enormous inventory. To eliminate this explanation, I looked at just subdivisions that were approved, commenced, and already had at least one sale.
The situation here is actually worse. The typical rate of sales out of a subdivision once it commences is just 6 per cent of the total lots each year, or rate that takes 16 years to sell out on average.
威廉希尔赔率分析So why the delay?
Annual reports also help to answer that, as developers are obliged to be honest with shareholders in these documents, unlike in their claims to the media.
Lendlease provides an interesting example. The company explains its sales rate approach as follows:
The Communities pipeline consists of an estimated 52,333 lots. With an annual target of 3000 to 4000 completions, more than a decade of supply has already been secured. The development pipeline provides long term earnings visibility and the flexibility to be both disciplined and patient with the pursuit of future opportunities. (Lendlease Annual Report 2018, p.76)
威廉希尔赔率分析It makes economic sense not to flood the market but to be patient. In fact, when I looked at state-wide approvals data it was clear that during boom times developers were more likely to let approvals lapse, delay projects, and later seek new approvals at higher densities.
The other evidence I found to show that planning does not constrain the total rate of supply is that the state-wide approvals data shows that the available zoned land does not correlate with the rate at which that land is converted into housing.
In South East Queensland the estimated potential stock of housing able to be built on zoned land fell from 400,000 to 340,000 between 2013 and 2019, yet the rate at which that land was converted to housing grew from 14,000 to 20,000 per year.
威廉希尔赔率分析Finally, the array of delaying behaviour that private landowners and developers exhibit also demonstrates why planning does not constrain housing supply, but that it’s constrained by the economic incentives of landowners.
In addition to renegotiating planning approvals, other examples of delay include:
- staging developments when instead later stages could be sold to other developers to build in tandem
- reducing sales volumes rather than prices when higher volumes could easily be achieved by reducing prices, just as occurs with other products when the discount prices to clear stock.
Oh, and then there is the fact that private landowners and developers choose when to make planning applications, and whether to seek approvals that are likely, and hence fast, or unlikely, and hence slow.
威廉希尔赔率分析No one forces a landowner to seek approval for a development that conflicts with planning schemes. Regardless, only a maximum of 100 per cent planning applications can be approved. Planning cannot force landowners to develop in a timely manner.
All of this behaviour is logical for developers. They seek relaxed planning controls not because it results in faster supply and lower prices — which, it true, would undermine their own profitability — but because it increases the value of their land.
威廉希尔赔率分析They reduce sales in a soft market because it increases the total return to their land over time by not further depressing prices in a slump. If it is logical for developers to reduce sales when prices fall, then it is impossible to get supply-led price reductions from private housing markets.
Planners and housing policymakers need to be aware of this reality and not buy into the myth about planning, housing supply and prices. The evidence it all there. Developers tell their shareholder exactly how they behave. We just need to pay attention.
Cameron Murray is a post-doctoral researcher at Henry Halloran Trust, The University of Sydney and author of , how favours bleed the nation