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Speculative Vacancies 9 - Impeding the Market

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Karl Fitzgerald presents our ninth report into the empty housing phenomena. Why aren't all vacancies measured? What other 'real estate theories' are worthy of questioning, namely housing supply as the panacea to affordability. Again significant vacancies exist, demanding that we accept the way we treat housing has changed forever. \\

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Speculative Vacancies 9 - Impeding the Market

  1. 1. What is a speculative vacancy? ● Property that consumes less than 50 litres per day (LpD) ○ Averaged over 12 months ○ On a postcode basis ● An absolute vacancy = 0 litres consumed over the 12 months. ○ Averaged over 12 months
  2. 2. Key findings ● Water data indicated 60,901 residential properties were vacant in 2017 ● As a percentage of all residential property, this equated to a 3.9% “Speculative Vacancy” rate.
  3. 3. So what! ● When added to the SQM 2017 average of 3.3%, this equates to a 7.2% vacancy rate ● Just how notable is that during Australia’s record long affordability crisis?
  4. 4. Key findings ● Up to 16.2% of investor owned rental properties were potentially vacant.
  5. 5. Key findings ● Absolute vacancies using 0 LpD revealed 21,326 residential properties ○ 1.3% of total residential market ○ 4.6% of the rental market ○ 4.5% if we remove public housing, coops and the like to reveal the share of investor owned properties absolutely vacant.
  6. 6. Shortcomings in RE theory ● Mainstream vacancy rates ignore those held for capital gains ○ 3% equilibrium for vacancy
  7. 7. The accuracy of Melbourne’s vacancy rate ● REIV’s vacancy rate ● SQM vacancy rate ● The missing factor
  8. 8. Shortcomings in RE theory ● Inflation rate ignores the role of land prices
  9. 9. Shortcomings in RE theory ● Inflation rates vastly understate the role of land price inflation ○ 2017: 2.1% inflation rate vs Melb 15.7% house price increase
  10. 10. Shortcomings in RE theory ● Housing supply as the panacea to affordability ○ Build more houses doesn’t stand up to scrutiny
  11. 11. Shortcomings in RE theory ● Rezoning limitations the cause of affordability pressures ■ “Glaeser & Gyourko” model ■ Dr Cameron Murray ‘Marginal and average prices of land lots should not be equal.’
  12. 12. Top 20 Residential Vacancies
  13. 13. Melbourne Top 20 Vacancy Map
  14. 14. Vacancy cohorts ● We found three different categories of vacancy ○ Gentrification holdings ○ Cultural attractors ○ Land banking ‘in the path of development’.
  15. 15. Gentrification holdings ● Brunswick West ● Northcote ● Fairfield ● Thornbury ● Reservoir ● Macleod / Yallambie
  16. 16. Gentrification holdings ● Brunswick West ● Northcote ● Fairfield ● Thornbury ● Reservoir ● Macleod / Yallambie Buy and wait until ‘the cool crew’ turns up!
  17. 17. Gentrification holdings ● Brunswick* ● Northcote* ● Fairfield* ● Thornbury* ● Brunswick West ~ ● Reservoir ~ ● Macleod / Yallambie ~ ● Heidelberg ~
  18. 18. Cultural attractors ● Box Hill 15.4% ● Burwood 11.9% ● Doncaster 11.8% ● Nunawading 7.8% ● Glen Waverley 4.7%
  19. 19. Cultural attractors ● Box Hill 15.4% ● Burwood 11.9% ● Doncaster 11.8% ● Nunawading 7.8% ● Glen Waverley 4.7% ● 35.4% ● 22.1% ● 26.6% Residents born in the People’s Republic of China
  20. 20. Land banking in the path of development ● Craigieburn 7.4% ● Mernda 6.8% ● Broadmeadows 6.5% ● Epping 4.5%
  21. 21. Commercial Vacancies Averaged 9.1% Top 10 - 20.2% Top 20 - 13.5% Rents & lock in effect
  22. 22. Banking constraints Won’t let developers drop prices Question of social contract
  23. 23. Vacancies over time
  24. 24. Market power ● The ability to impede the market is an exercise in market power ● We estimate that over the 18 year property cycle, real estate sellers are in control of the market for 84% of the time
  25. 25. Recommendations 1. That the Australian Bureau of Statistics (ABS) takes a greater interest in measuring underutilised land. 2. A national vacancy measure to be produced by a respected authority with the mandate to include all land usage, including speculative vacancies.
  26. 26. Recommendations ● The Vacant Residential Property Tax should be reformed to include: a. All vacant land within the UGB b. Charges on Site Value for non-strata titled sites c. An escalating, sliding tax scale over time: the longer vacant, the higher the charge d. Significant fines introduced for investors who fail to self-declare
  27. 27. Recommendations Reform the State Land Tax to replace stamp duties.
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