Australian Financial Review Residential Property Conference, Sydney
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I acknowledge the traditional owners of the land on which we meet today, the Gadigal people of the Eora nation, and pay my respects to their elders, both past and present.
Thank you for the introduction and for asking me to speak with you today.
When I spoke to an event similar to this in February 2008 – not long after we came to Government – I said that the core issue for housing affordability was housing supply.
For almost a decade, Australia has not been building enough houses.
The National Housing Supply Council confirmed that housing supply is the real problem when it released its 2010 State of Supply report a few weeks ago.
The Council found that:
- Underlying demand for housing began to exceed housing starts in around 2000 and has continued every year since.
- The cumulative impact of the gap between demand and supply means that Australia is now 178,400 homes short of where we should be.
- This impacts on affordability right across the market, with the greatest impact on low and moderate income renters.
That’s why since coming to Government our housing policy has been targeted at housing supply – whether in our response to the Global Financial Crisis or in the issues we have made a priority on the Council of Australian Governments agenda.
We all know that the global downturn made conditions in the housing market worse and saw Australia heading for an unacceptably low number of housing starts.
The Government responded initially with the First Home Owners Boost and then with a new investment in new social housing construction at a rate not seen since the Second World War.
Our approach was to support jobs and keep housing activity higher than otherwise would have been the case.
Australian Bureau of Statistics data covering the year to March showed that dwelling approvals rose by over 50 per cent compared to the same period a year earlier.
This comprised building approvals for:
- Private sector houses rising 29.7 per cent;
- Private sector other dwellings rising 56.0 per cent; and
- Public sector dwellings rising by a massive 496.5 per cent.
These numbers reflect the combined impact of our stimulus programs.
We know that the First Home Owners Boost saw an immediate increase in traffic through display villages and new developments.
Many more established households made a decision to upgrade while interest rates were at record lows and there was a strong market for their existing home.
More than 2,000 individual social housing projects across the country have given local builders an alternative business line, while the economy recovers.
The social housing program is delivering great value for money. We budgeted $300,000 per unit and achieved a unit cost of approximately $270,000 allowing us to build more houses.
Crucially – the construction program supported at least 15,000 jobs through the global recession.
Currently more than 14,200 homes are being built – with over 1,400 now complete.
This means we are well on track to meet our mid year and end of year targets.
Since the start of the program I have visited a lot of building sites – and the range of housing being rolled out is amazing.
I have been particularly impressed at the quality of the housing being built. Often these homes are the best in the street and will stand the test of time as quality homes within mixed communities
The common story has been the impact on jobs – people are putting people on when they expected to be putting people off.
Passey Homes in Nambour on the Sunshine Coast, who are building five apartments using Stimulus funds, reported this outcome:
“We have been able to employ two local young men as apprentices for over half of this project … some of our subcontractors have also put on apprentices due to the consistent flow of work that we can now guarantee.
“Thirteen of our subcontract specialists are local trades from within the Sunshine Coast region. This project has further benefitted over ten local area suppliers of product required as all material has been sourced and purchased within the Sunshine Coast.”
In the City of Monash, in Victoria, Holden Peel Builders, a family-run, local business is building a total of 48 units using Stimulus funds.
Director Mick Holden says that:
“Because of this project, instead of laying blokes off we’re putting on two new apprentices.”
I am hearing that story again and again.
The Stimulus Plan is also having another important effect – it is unlocking new housing supply.
In total the States and Territories estimate that 3,000 extra private homes are being built on top of the 19,300 being delivered through the Stimulus Plan.
This is because developments that stalled due to finance drying up have been able to proceed because State and Territory Governments guaranteed the purchase of a set number of homes within those developments.
A good example is at Mawson Lakes in Adelaide’s northern suburbs.
Mawson Lakes is a well planned community with good links to transport and delivering homes including many which are affordable for families that are starting out.
Fairlie Delbridge, Managing Director of Delcooke Property Group, has built 20 units at Mawson Lakes, told me:
“I had made a large investment in getting this development going. At the preliminary stage of the development I had only nine presales. Then the GFC hit and I couldn’t get funding – banks stopped lending.
“By the time the stimulus package was announced I had 12 presales but the project still wasn’t bankable. When Housing SA purchased five units it absolutely got my development over the line. With 17 presales it made the project emminently bankable; it greenlighted my whole project.”
The Delcooke project is complete now.
I saw it as a hole in the ground eleven months ago and more recently I was able to return to see beautiful new homes that will house Housing SA tenants next door to private buyers in a healthy mixed community.
We have managed to keep housing starts higher than most analysts were predicting and I hope left the building industry stronger.
We are coming out the global financial crisis with many of the same problems in the housing market, perhaps compounded by ongoing difficulties attracting finance particularly for the multi unit sector.
The Henry Review recently found that one of the major impediments to increasing housing supply lay in the planning and zoning systems used to to bring new homes to market.
The National Housing Supply Council found that it can take up to 15 years to convert land to new homes and this was equally true of greenfield developments and of infill.
Land supply and the efficiency of the development pipeline are complex policy areas where State, Territory and local governments hold many of the levers.
Nevertheless, we believe that the Australian Government can play a role.
Right now we are using our $512 million in a Housing Affordability Fund to support local projects that will increase housing supply and deliver better affordability outcomes.
Yesterday I announced three urban renewal projects in Victoria that will double the number of homes on some existing public housing sites and create mixed communities.
The Housing Affordability Fund is designed to promote reform and reduce planning and infrastructure costs in new housing developments.
Critically – the Fund is also unlocking new housing supply.
So far the Government has announced more than $210 million in funding for 56 projects across the country.
Some projects are funding immediate infrastructure needs, like sewerage, roads and community facilities, while others are buying reform that will have a long-term impact on housing supply and affordability.
A good example of what the Housing Affordability Fund can achieve is a project at Plantation Palms in Mackay.
Mackay is a just one location where the resources boom has put huge pressure on the housing market.
When I visited Mackay for a Community Cabinet meeting in June 2008 – people told me that the rental vacancy rate was 0.02 per cent.
Two weeks ago I announced that Mackay Regional Council will receive $8.5 million from the Housing Affordability Fund to build a new access road between the city of Mackay and the Plantation Palms estate.
This funding will deliver cost savings to 400 home buyers of about $20,000 and savings of about $5,000 each for another 600 homes.
Critically, it will also bring forward the development by up to four years – delivering much needed homes now.
The project will also buy reform at a local level.
Mackay Regional Council will undertake investigation and consultation into housing density options and to instigate planning reforms to speed up new housing development, as has occurred at Plantation Palms.
This is a great outcome for new home buyers in this rapidly growing region of North Queensland and a good example of governments working together to unlock housing supply.
At the same time the Australian Government has made housing supply and planning and development reform priorities at the national level.
Planning processes, along with infrastructure charges, are among the issues earmarked for reform by COAG’s housing supply and affordability working party.
COAG is examining the housing supply pipeline including land aggregation, zoning and consistency of principles for housing development and building regulations.
This is long term work but if we can bring together into one strategy investments in infrastructure, land release and a shared vision with the community about the shape of cities, then we are going straight to the heart of some of the issues that have produced the housing supply gap.
Planning is one issue, the availability of investment is another.
To build more houses not only do we need more investment, we need it in those parts of the housing market where the shortage is most acute.
That is where the National Rental Affordability Scheme comes in.
The Scheme puts an incentive on the table to encourage the housing industry to invest in affordable rental homes.
An annual incentive – currently a total of $9,140 per home – is provided each year for 10 years to build new homes and lease them at 20 per cent below market rates to low and moderate income earners.
The Government has committed more than $1 billion to the Scheme over the next four years to stimulate the supply of up to 50,000 new properties.
We hoped that new players would build up large portfolios of homes in different markets using a variety of financing strategies and partners.
I have been extremely pleased at the rate of uptake.
We wanted to be flexible about the arrangements that applicants put in place.
During our first phase we mainly sought smaller projects that would allow everyone to learn about what was possible under the Scheme.
In the first two rounds – we awarded 11,000 incentives to around 80 organisations for new homes all around Australia.
We immediately saw a wide range of business models and investment vehicles.
These include unlisted property trusts, non-entity joint ventures, joint ventures and purely debt funded projects secured against existing balance sheets.
One application was approved for 255 incentives for a joint venture vehicle involving award winning developer Hamton, who specialise in Melbourne’s residential apartment market.
The 255 National Rental Affordability Scheme homes will comprise almost half of a $200 million, 520 mixed apartment in-fill development at Coburg – eight kilometres from Melbourne’s CBD.
Institutional investment came from the Macquarie Real Estate Equity Fund, which has taken an 80 per cent equity position in the project along with a private company, SeaFirst Australia.
These homes are expected to become available for rent by June 2012 – and represent one example of an institutional investor in the National Rental Affordability Scheme.
Retail investment models targeted at so called ‘mum and dad’ investors have been used in several projects.
Affordable Housing Consulting have developed a model in South Australia in partnership with Devine Homes, where retail investors have purchased a small proportion of new Devine developments for inclusion in the National Rental Affordability Scheme.
A separate organisation is managing the properties with Affordable Housing Consulting pulling the partners together.
The model has been so successful, Affordable Housing Consulting are keen to bring forward incentives allocated to future years.
We have also seen a number of debt-funded models secured against balance sheets.
Charities such as BlueCHP, who have been awarded 306 incentives to date, and builders such as Payce, with 350 incentives, have used this approach.
The next step for the National Rental Affordability Scheme was to support projects that used the incentive at scale.
That’s why the third round of applications was restricted to bids of more than 1,000 homes.
Today I am pleased to announce that to date the Government has received eight large scale applications for a total of more than 12,000 incentives across Australia, covering homes in every State and Territory bar Tasmania.
If successful this represents billions of dollars of investment in affordable housing for Australians across the length and breadth of the nation.
I am also pleased to be able to announce the first approved application under round three.
Yaran, a wholesale company specialising in affordable housing projects, has been allocated 1,114 incentives for homes in Western Australia.
The business model is a non-entity joint venture and Yaran is currently seeking a private binding ruling from the Australian Taxation Office.
All homes in the Yaran proposal will be sold as house and land packages to investors who wish to take advantage of the National Rental Affordability Scheme benefits.
The Yaran proposal consists of 47 projects that are spread across the Perth region from Mandurah in the far south to Merriwa in the outer north.
Projects are also proposed for regional areas such as Denmark, Mount Barker and Bridgetown in the south west.
Owners will be able to choose from one of four tenancy managers identified by Yaran Residential Investments.
Yaran Residential Investment has a line of credit with a major bank that will support subdivision head work costs and is subject to pre-sales and settlement requirements.
Investors pay the builder for construction of the house using a standard milestone approach.
Yaran intend to market the house and land packages through financial planners, accountants and marketing consultants.
Yaran are looking for buyers among institutions, property funds, self managed superannuation funds or private individuals.
This is a great example of the flexibility of the National Rental Affordability Scheme.
Financiers can focus on providing the funding and looking after the balance sheet – while affordable housing providers look after the property management.
This is extremely exciting because it brings new long term investment into affordable housing under a structure that will guarantee those houses are occupied by low and moderate income earners.
Two years after it started and the National Rental Affordability Scheme is delivering on its goal of stimulating private investment in housing.
In the future – my hope is that the National Rental Affordability Scheme will be firmly established as a feature of Australia’s housing landscape.
Coupled with our efforts reform planning and development rules through COAG, this will go a long way to generating the supply we need to better meet the housing demands of a growing nation into the future.
Thanks once again for asking me to speak with you today.