Moreton NEWS

Moreton Bay Region Property Supply Forum – Matusik

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Podcast Transcript

Michael: I was being filmed. I wear black. Black hides a multitude of sins and part of my brand is to wear the hat. Now if I do that, it might get a bit shiny, but I will take it off.
Michael: What I’m going to do today is do a presentation, not the usual thing I do ’cause sometimes, it’s blue sky and how good the region is and the region’s good, but I’m going to do a more balancing act. This came about because I’ve written series of things over the years, particularly in recent times about the challenges and what I call ground truthing through something called the Matusik Missive. If you don’t know what that is, I’ve got a business card on that corner there. Go to my website. It’s free to join, and I write something each week. In this case, I wrote about the challenges facing Southeast Queensland and particularly, in terms of its next growth phase and whether or not the land and so forth that’s needed to do that is really there.
Michael: Today, I’m going to talk about a range of things. I’m going to start with the helicopter and I’m going to talk about the market and the cycle and all the things you read about in the paper and see on TV and how we’re all going to have prices fall 30, 40%. Poppycock, it’s not going to happen, unless we have a major economic collapse and we wouldn’t be parking our cars outside if we’d be doing that. We’d all be eating four servings of breakfast. I’m going to talk about that and where things are happening and aren’t happening.
Michael: I’m going to then step back and take a look at who lives in what and who buys what. I’m going to talk about the house market, the townhouse market and the apartment market ’cause a lot of people don’t understand who buys that stock, who lives in it. I’m funnelling then down into five trends, I like to number things, five trends that are happening in the property market in the Moreton Bay area and then five development trends that are happening in this area, too.
Michael: Then there is a mismatch and a mismatch coming between what the market wants and how product’s delivered here and what’s available, and there’s constraints to that. Some of it’s physical. Some of it is just the process. We get that right, this area is going to have the future as it has in the past. We don’t and then, this area is likely to slow down and see growth take place elsewhere. Some might not like the growth as it’s happened, traffic so forth, but with that comes a lot of jobs, with that comes affordability, with that also comes employment. We’ll talk about those things. Happy with that?
Michael: Now we have to be … I’m getting old so occasionally, I have this nasal drip. I know it sounds really bad. I’ll just go like a few times today [inaudible 00:02:42]. We also have to get out of here by 8:30 so, I’m going to try and get this within an hour, maybe a little less and some questions afterwards. I’ll be over behind us outside for more questions if need be ’cause Bingo’s important and when the ladies come in here, we don’t want to be in here. We’re going to … I’m not happy to go. It’s important to them so we’re going to be out of here by then. Happy with that?
Michael: Sydney and Melbourne are overcooked. They oversupplied themselves. They did. They built too much stock, and they had overseas buying that generated prices beyond the local market’s capacity. That’s largely what drove Sydney and Melbourne’s house markets up to a peak to 2016 and it’s now coming back. We didn’t do that. We had a slow burn increase. The reason it didn’t happen here is we didn’t have particularly … This is not a xenophobic comment. This is what’s happened. We didn’t have people, particularly from China, not only, but particularly from, outbidding each other at auction. We didn’t have capital flight. We didn’t have people trying to buy their future passport. Some of it legal, much of it illegal. We didn’t have that here.
Michael: Then part of that, what happened in Sydney and Melbourne, and I witnessed it firsthand many times in 2014, ’15, ’16 when I was there doing presentations that there was FOMO, fear of missing out. Local investors were paying a million dollars for things that really should’ve paid 600 or 650. They’re going through a correction. Other places in Australia aren’t.
Michael: Now there is a cycle and it does repeat and there’s usually what I call factor Xs that affect the cycle. This year is a year of two haves. We have a federal election. It will be close. We may see a change and that’s stopped a lot of things. We have APRA putting their foot on the neck too hard, and they’re going to release that. I do believe that interest rates will fall, cash rate will fall to keep things where they are. The second half this year could be a lot better than the beginning of this year, even if there’s a change of government. There’s always factors there. Some of the stuff I’m going to talk about next are longterm trends. I just don’t want to focus on the … “The last six months have been very hard, Michael and they’re going worse than the previous six months.” Yes, okay, that happens in the cycle, but we want to talk broad trends and wider potential. Happy with that?
Michael: Now one of the things that’s facing Southeast Queensland is an increase in demand, that increases by population growth. Some of it’s from interstate, some of them are from overseas and some of it’s just people having children, and we’re all living a little longer. Many of us would like to live a little longer, and a lot of us are. One thing that’s counterbalancing that is there is a real limit to supply. Yes, there’s been oversupplies in Brisbane in terms of the apartment market. There was. There isn’t now ’cause that market’s contracted and stopped. The economics of delivering a townhouse project and especially an apartment project is very hard. In fact, they don’t stack up a lot of times.
Michael: Most of my day to day work is consulting work, advising on individual projects. Most of that work in the last year or two and in fact many of the jobs that we’re quoting on at the moment is to fix apartment and townhouse projects. Some of them can’t be fixed. I can’t change a product. I can’t change the price points. They’ve paid too much for the sites and so forth. Some don’t want to go back to council. In some councils, that’s understandable and so they sit there and that’s dried up the market. Why it’s dried it up is the sale’s not there, the investors aren’t there. With negative gearing goes, that will affect particularly those apartment and some degree townhouse markets for some time. That’s a challenge for Southeast Queensland and it’s a big challenge for this region. Is the land available in the right configurations by the right ownerships with the right infrastructure with the right densities with the right planning outcomes to provide for the demand? Big question mark. The work I’ve done, and it’s a lot of work suggests, that it isn’t and strongly suggests that it isn’t?
Michael: Let’s just position where the markets are ’cause people like to do this. The market, the property cycle runs for about seven, eight years from peak to peak or trough to trough. It takes about seven or so years, seven, eight years to run that cycle. Might move my little table. In that phase of the seven years, there’s a recovery, an upturn, a downturn and stagnation, and that’s a peak and a trough. The media like to call that a boom and a bust. Let’s make this really easy because it’s Wednesday. It’s going to rain. Yes, we need it to rain today, a bit slow. I’m a bit slow. This is spring. This is summer. This is autumn and this is winter. Very easy, warm, hot, cooling, cold. Not equidistant. We won’t get into that.
Michael: Certain markets or certain places. If I use the red pen to show where the detached house markets are, and I’m only going to mention a couple big ones this morning, Melbourne and Sydney are there. They’re going through a downturn, and they’re going to enter a stagnation. They may fall a little bit more in value, but don’t believe that people are losing 15, 20% of value of their properties in Melbourne or Sydney. That’s often talked about, “Oh, they could lose another 10, 15%,” that’s if they bought in the peak in 2016 and paid top dollar, they might see that go back 20 to 30%, but most people, even people who bought in 2016 weren’t foolish enough to pay those top dollars, and people who bought a decade ago or two decades ago, they’ve probably made two or three times their money on their property.
Michael: This is what the media does. Sydney and Melbourne are going through that correct. I think they’re nearly there and then they’ll sit there. They’ll wait a cycle as has happened in Gladstone, the Gold Coast and other places in the past. Brisbane’s here. Why for houses? Because demand exceeds supply. Right now, yes, there’s a new housing stock sitting around that may not be moving as fast as it once was, but I believe that post the election and into next year and the year after that, they will start to sell again and quite quickly. Moreton Bay is here in terms of housing market.
Michael: Now if I was to draw where the townhouse unit markets are in a blue pen, Sydney and Melbourne are in about the same spot. Inner Brisbane is here ’cause people want to know that, 5K radius from GPO. That’s going through its correction. It’s going to sit there for quite a period of time. In Moreton Bay is around this area so it’s starting to go for a downturn. The reason being is the demand for that product, particularly apartments and to some degree townhouses is nowhere near as strong as the demand for detached housing, and that’s going to actually continue to be the case in the next five to 10 years, and we’ll get to why.
Michael: Unless we provide the right amount of stock to cater for the growth, what’s going to happen is this area’s going to suffer from a couple of things. It’s going to suffer from jobs. Why? Twelve percent of all jobs here are directly related to construction, that’s 1 in 8 and 1 in 4, 25% are directly and indirectly ’cause somebody built something. The local jobs here are largely that. Yes, a lot of people drive early in the morning down to Brisbane and so forth. Some do construction jobs there, but a lot of people are involved there, and that’s just maybe a stat that I understand and clean up each time. So jobs are important.
Michael: Housing affordability’s important. You better need to afford the housing. The other thing as a result of that is economic growth. Now those couple of things, if we don’t get it right, the growth will go elsewhere, and the land is more readily available, whilst only in a couple of providers on the Sunshine Coast, Logan, Ipswich, even in Gold Coast. Not so much in Brisbane and you could say “I’d rather live in Moreton than I live in Ipswich.” [Inaudible 00:10:54] nearly said yes, because I might have to go to Ipswich and deliver a presentation. That’s up to the beholder, but people will move, particularly from interstate where the opportunities are for work and where the price is right, where the jobs are. That’s what happens. These are challenges for us. Happy with that? Can I keep it going?
Michael: Now, I’ve prepared one previously as they say in the cooking shows, so I’ll just turn this over. This is normally when it all stuffs up and I can’t turn the damn thing over. Got this on camera? You ready? I don’t use PowerPoint ’cause I think most people go to sleep. I go to sleep so bear with me. This is the next section, so it’s part two of my talk today is about who lives in what, who buys what, to understand that, and I’m going to build on this when we talk about the Moreton region next.
Michael: If I was to houses, townhouses and apartments, three simple products, so a detached product, these two are attached, but typical townhouse and typical apartment. If I was to say how many of those people are owner-occupys who live in this product? Seventy-five percent are actually owner occupies for houses. Twenty-five percent are investors. In townhouses, it’s usually 50-50 so 50% are owner-occupys and 50% are investors. This is an investor when I’m writing in blue. Then an apartment, only 25% are owner occupys and 75% are investors.
Michael: When the investment market slows down for a range of reasons, interest rates rise. It’s hard to get finance. They don’t see there’s growth. There’s an oversupply. There’s a myriad of things that actually slows down and less for apartment sales. Most buyers for our houses are local. They come from the local area, often only a couple of suburbs removed, if not the same suburb. Twenty percent are from far away, far away. About 60% are locals in townhouses and 40% from far away. For apartments, only 20% are locals and about 80% are actually from far away, often from interstate. Nothing wrong with interstate investment, but that’s what happens.
Michael: Now the driver behind a lot of those investors are negative gearing, but it’s only 20% for houses generally. It’s 50% for townhouses, and it’s 85% plus for apartments. One of the things that is likely to happen if negative gearing is removed from established properties, as the apartment markets, when they come to resell will take a kick in price downwards, and you will see more I believe builds, new builds because negative gearing will be allowed for new builds, but you’ll see it mainly in houses, some degree, townhouses and that’ll be where you can have dual occupancies. That’s increasing in demand or dual plus occupancies, that’s what investor will look for. Owner-occupys want that as well, but that’s a different event. Maybe in question time, we can talk about that.
Michael: Now on average, there’s 3.5 people per house, 2.2 people per townhouse and 1.4 persons in apartment. The yield range when I look at it properly, per hectare, when I actually cut out the roads and the parks and do it over a series of developments over time, you find that it’s 15 to 20, 25 to 30 for townhouses and 55 to 60 for apartments. Yes, there’s examples where there’s 100 apartments on a site like that, but there’s examples when there’s 25. The average is that. When I combine those two, the density, the number of people per hectare is 55 to 70, 55 to 65 and 75 to 85.
Michael: One of the first points I want to make is that in the planning sphere, and I’m a qualified town planner with first class honours with a string of awards, so I can say some things about planning whilst I might not practise per se, I know about planning, working a lot with planners. A lot of the conversation is about dwellings per hectare. Wrong conversation in my opinion. It should be people per hectare. We’re accommodating people. This result is very good. There’s more people per house. There’s less people per property, you get less. If the market’s there for that, yes, but if the market’s [inaudible 00:15:24] wanting this, the outcome’s pretty good.
Michael: The prices, this is the typical range from this area, for new property, 450 to 500, 400 to 425, 375 to 425. That’s for new stock. There’s property outside of those borders, but let’s just for today, get it on one board. Average size, 225, 135, 100 square metres. A lot of people don’t downsize for argument’s sake from a house to an apartment. They can’t put their stuff in it. Who’s going to get rid of their car? Who’s going to get rid of that lounge? Who’s going to throw their golf clubs out or at least put them somewhere where they trip over them every day. Those type of things are real life things.
Michael: There’s a couple of observations here. One has to do with the density. Second is to do with the price. The third is that this type of stock, particularly houses, some degree townhouses, cater for local demand. Happy with that? Shall we move forward? Let’s talk about this region. Any debates? Anybody want to throw anything at me? You can’t debate it yet, but you can throw something at me.
Michael: I need to switch this over. No, I don’t. I can clean it here. Bear with me. One good thing about the way I do these type of things is you get to see my best side, my best feature, which is my back. That’s funny. Come on, laugh. Don’t just fall asleep. Not all serious. I know it’s morning and everything else, but come on. Now if I took my shirt off, that would be really scary ’cause I’ve got more hair on my back than my head, and it’s grey as well. It’s okay, the music usually starts normally when I finish, but … Is that something in here or is that outside or …
Speaker 2: [Inaudible 00:17:15].
Michael: I’ll talk louder. Is that better?
Michael: Now let me talk about five things. I’ll use this pen, five things that are happening in the real estate market here. If you’re going to play music, play Springsteen or something. At least, we can understand the words. Let’s about population growth. I’ve got to look at some notes because I’d been guilty recently of doing a presentation on the Gold Coast and we’re using Sunshine Coast figures ’cause they’re in my head. I’ve got to look little bit at some notes.
Michael: At the moment, your area’s growing by 11,000 new people per annum. That does means a lot of cars, but that also is opportunity in terms of people in the room supplying that market. There’s a need, therefore, to build 4,000 new dwellings per year based just on the number of people on average per house. One of the things that’s forecasted in the next 10 years … This was the last 10 years. This is the next 10 years. That’s expected to drop to about 9.6 thousand per annum and that would be about 3.5 new homes that need to be built each year. The reason that’s expected to drop, it’s not only just the demographic makeup of the area, but the fact that the land supply is potentially not there to accommodate the growth.
Michael: Most other areas in this location, so the surrounding [inaudible 00:18:47] of Brisbane and even the outlying suburbs of Brisbane are expected to see a lift in their population growth and dwelling demand, not a decline. Maybe you want a decline, maybe you want breathing space, but it’s … Generally in business, that’s not a good thing. First observation.
Michael: The second is if we look at the demographics of the market, and I break them down and here I like to do this by simple things. People do things in groups. First-time buyers do things in groups. People who are upgrading, buying a bigger property and so forth, have teenage children in their house, and they’ve got to get them over there so they buy a bigger property and so forth. They could just send them off to boarding school, but they don’t. Then downsizers do certain things, certain way, young renters, so forth.
Michael: The major growth markets in this area for the next years 10 years, so 10 years plus are first time buyers, upgraders, downsizers and I’ll put young renters here. Just make sure I got the right figures. Twenty five percent, 30% … What is it? Yes, 20% and I’ll leave this one off for the minute. Of the growth from where it is today to what it’s supposed to be in 10 years’ time, the growth is largely going to be in first time buyers, people upgrading. Normally, people who upgrade want to sell the house that’s on a smaller lot and buy a bigger lot or a smaller house and a bigger house. Then downsizers, if they can provide the right stock and find the right stock at the right price point, and that has to be 20, 30% less than their house, then they’ll downsize into it.
Michael: It’s not only a townhouse, small lot and particularly housing works and young renters are only going to increase by 5%. What normally drives the house market, the demand for detached houses is these two markets. They’re big markets. What drives apartments, particularly a lot of townhouse markets are young renters or blue collar workers. They’re very small in growth. When I see that and there’s a lot of apartments, they normally don’t work very well. That’s coming here. This is the driver. There is a need for houses and particularly detached houses. We’ll get to the type of houses soon.
Michael: Jobs. Let’s make a little bit of room here. Let’s talk about jobs. There’s expected to be 13,000 new jobs per annum over the next five years in this area. Per annum? Yes. That sounds great. Fantastic, but that’s 9% of SEQ’s total. This area at the moment is creating about 15% right now. Part of that is the dropping of growth. Part of that has to do with some of the demographics, but there’s an expectation there. More development, more housing being built, that would lift.
Michael: I’ve done a lot of work to see when housing starts fall, job prospects, job growth falls about a year to two years later and that’s definitely the work that I’ve done here is a very clear pattern. When housing commencements fall, not so much approvals, but actually houses being delivered, that has an impact. Jobs will likely to do that. I just said before the introduction, 12% are involved in construction, and 24 to 25% are involved in construction plus ancillary things, real estate, some solicitor’s work, town planning, so on and so forth. So a quarter of the work up here is because somebody’s building something and most of the things built are residential dwellings. So that has an impact. Keep going?
Michael: One of the things that’s happening here in real estate is that you’re seeing your house prices go up. You’re seeing attached prices fall. Houses went up about 2% last year, which isn’t bad given that some places they’re falling from the previous year. This dropped about 6%. If I look at the rental market, houses went up on average for $10 per week and attached product fell by $5 a week. That would normally tell me that this market’s in demand and the supply’s constrained, and this market’s demand is less than its supply. Simple as that.
Michael: The last thing I want to mention is the … I’ll change it up … is the land market before we get into some development trends. We look at the land market. What’s happened here, which is somewhat common across Southeast Queensland is we’ve seen the size of the blocks fall from about 650 square metres to 410 square metres. This was 10 years ago. This is now, metres squared. We’ve seen the price rise from $390 per square metre for a block of land to about $640 per square metre. We’ve seen that happen.
Michael: That is not only just a reflection of development greed. Some people say “Oh, that’s because they’re really greedy and they want to make small lots and charge per square metre.” That’s to do with demand, but it’s also, this price growth is also to do with limitations in supply, particularly in where their next projects are going to be. Now the balance are existing estates, but where they can find land and the cost to produce that and so forth. They have to wait several years between holdings and development, they’re running businesses. They actually charge what they can for the blocks of land. One of the things that … And if you looked at the average size of blocks, 350 to 600 square metres, makes up about 70% of dwellings, new lot registrations in this area for the last three years on average.
Michael: Now, one of the things that Moreton Bay isn’t is relatively competitive to other areas. I think it needs to be. The more supply, this would be lower. Some of the developers in the room don’t want me to say that, but from the market buying, they would because on the Sunshine Coast, the average price per square metre is $650 per square metre. Moreton Bay as we’ve said is 640. Logan is 530. Ipswich is 450. Now you could argue that they’re low because they’re in Ipswich and Logan, but the market again is looking for affordability and solutions, and the Gold Coast is even 655.
Michael: One of the challenges that some people tell me when they’re actually looking at buying property, particularly first time buyers say … They use the word it’s not cheap. You don’t want to be cheap, but you want to offer value for money. It’s one of the challenges as well is that in growth markets, you’re not top of the pops. Maybe you shouldn’t be, but that’s an issue I think moving forward.
Michael: Let me talk about development trends now that are taking place. Now this took a lot of forensic work. What I’ve just talked about is generally available if you know where you’re going. It’s publicly produced. It’s not necessarily in the same format I’ve delivered, but you can find that out. For this section of this talk, I’ve actually gone into some pretty deep analysis. I’ve read previous studies. I’ve searched a lot of applications and so forth, and some of these trends will surprise you when I actually did this work.
Michael: I’m going to call this, this is what I call real action. What’s really happening, part 1? Seventy five percent of the applications into Moreton Bay’s City Council are for small developments. The activity that the council sees are small projects, usually under 10, sometimes under 20 dwellings in one development. They see a lot of that activity, but the reality is that 80% of the dwellings are actually provided in major projects so that’s a big thing.
Michael: Over the last three years, out of the 12,500 dwellings that have actually been put in application in the council, 10,000 of those and in terms of delivery of allotment registrations and action, 70% have been in big projects so big subdivision, master plan communities and the like. The facts of the matter is that the big things deliver most of the housing in this area and so forth. You could argue that’s going to change. I’m going to argue that I don’t think it is. The market will go somewhere else because the development opportunities will be there.
Michael: The second reality is that 70 plus percent of all the things that are registered are actually taking place that’s different from an approval. ‘Cause if you get an approval, in my experience, the 50, 60% don’t happen anytime soon, particularly if it’s apartments or townhouses, but if you look at the things that are actually being commenced and built, 70% of them plus are detached homes. A lot of activity in the small end of the market, but it doesn’t add up much to much dwellings at actually only 20% and the major supply of dwellings and new housing is in major projects.
Michael: If I review then the potential sites in the area, and that’s everything that the current plan in the council says is right, open for development. It’s not just major parcels. It’s everything in that area. It finds that 45% … This is number three, issue four, is that 45% of that land is suited to attached and only 55% are detached. Maybe that’s not poles apart from this, but it is different. You could say over a period of time, people will live in more detached homes. Not if those demographics are the shapes that I forecasted I believe are happening and when you ground truth, you can see it, first time buyers, upgraders, the major drivers of markets. There’s some downsizing and so forth, but there’s not enough to drive that supply. This is out of balance.
Michael: Number four, if this figure’s right … Sorry. Pardon me. It’s early for me. Forty five percent and 55%, just how we keep this on the board, that’s detached, that’s attached. Then if I look at the unlikely projects …
Michael: Let me explain this for a second. What I do when I analyse supply, and a lot of people don’t do this. They just say, “There’s X number of dwellings approved.” Now, it’s often said there’s 5,000 dwellings approved in say Moreton Bay area and there’s a lot of supply. I review all of those supply, and I look at ones that are likely to happen, i.e., are going to happen, they’re under construction, likely to happen. They got a DA and they’re making moves to do something. They got a development application, that’s possible. They’re under design concept, that’s possible. Then there’s a range of things that actually stop projects and this is the unlikely project lump. They’re going to appeal. The site’s for sale. They say the project’s abandoned. They haven’t paid any of their consultants. In other words, they haven’t got any money. ‘Cause developers in my experience largely pay their bills unless when they can’t or it’s I think I said abandoned. There’s a range of things.
Michael: When I’ve reviewed the last three years of all applications for new development in this area, including right down the block splits to major developments, I found that only 3% of the detached house market, in terms of dwellings, this is in terms of dwellings, not applications, but total dwellings are detached, and I think it’s 27% are attached so townhouses and units. A quarter of the things that are infill, downtown, small blocks next to railway stations, blah, blah, blah, or next to new townhouse developments, new parks and so forth, a quarter of those are now unlikely to proceed as my count was about a month ago, but only 3% of the detached house supply is constrained.
Michael: The last point here before we do a bit of wrap-up, take some questions, is that when we look at the small projects versus big projects, make sure I get the right figures, the large project’s only 7% of the stock is stopped or unlikely to proceed and this is 35%, so a third of the small projects are unlikely to proceed. So here, we’ve got a market that most of the supply is in big things, master plan communities, major subdivisions and the like. Where is the land to provide that moving forward?
Michael: Most of the market wants and has been delivered detached housing and that is still in demand, and I believe will, probably in contrast to say Brisbane city council where it has a different demographic shape will increase in demand in the future. Things are stalling already because of economics of development. Most of those are in detached market, and they’re actually in smaller projects.
Michael: Let me wrap up, then we’ll take some questions. I’ll just wipe this off. One of the things that’s happening in this market, you’re not alone here in this region, but the other areas have an advantage in that they have supply in larger arrangements than is currently available here. The mindset, unfortunately, is at odds with the demographics and the delivery of actual projects and that is small infill, multiple little projects, apartments, townhouses, and even then when it comes to detached housing space, higher yields than actually the market will bear, and the developer can actually supply it in terms of making money.
Michael: There’s a site price involved in that as well where reality is that the market’s delivery is large projects. It’s very price sensitive. It needs to have certain things in place. Then if I take a deeper look where the land is available in this area, a lot of it is in fragmented ownership. It’s in …
Michael: Like the tables here and that table wants to sell and that person wants to sell and that person wants to sell, and [Trask 00:35:00] at the back wants to buy them, but they really need those four tables at the back to make that economically work, but that table there, which is a smart table ’cause it’s got the councils on it and so forth, they actually ask for $5 million rather than the million dollars that they want, and that’s a vital piece of land because that’s where the trunk main sewer’s going to go. They know that’s project now doesn’t start ’til they can actually be realistic or they can buy the rest of the tables. If that trunk sewerage isn’t combined with the other developments in the area, who’s going to go first? Then that becomes a waiting game so no development takes place.
Michael: Then on top of that, there’s an overlay from planning. I’m not [inaudible 00:35:40] at planning, this is what happens though. There’s an overlay of planning, and I like to kick wild things, and I live in the bush, and I’ll have a place in Tasmania and I like all those things, but it’s not only just wild life. It’s a range of other things that are very restrictive to development. I’m not saying you develop everything to the maximum, but that’s what happens.
Michael: Then there’s a yield expectation. We’d like to see a hundred dwellings in that area so that’s 40, 50 per hectare. That’s not going to work, guys. The market won’t be there. They won’t pay the price for that. They want this lot size and so forth. Then, of course, there is the process that is often missing when developers particularly from overseas or interstate employ me, and they look in places in Southeast Queensland, they’re a little perplexed at the process of getting an application. They don’t want being told no or they have to do things, but they like to be told that early and clear without the rules changing and so forth.
Michael: There’s some challenges facing the market supply here mainly because of where the land is. It’s lack of coordinated infrastructure, and it’s price that might be associated with it so there are physical things, but there’s also an overlay of planning and regulation that needs some thinking. You don’t have to do it. I don’t care, to be honest, but if you don’t do it, I know … I don’t know anything, but I suspect, in fact, I will tell myself in the mirror this will happen is that you’ll have less development. Your job growth won’t be as strong and people will start to go where those development opportunities are or those jobs are, and where housing as a result of the supply … ‘Cause all real estate is demand and supply, where that supply meets that demand and that the prices stay reasonable for those people to purchase.
Michael: Thank you for listening. Thank you for not walking out. If you got any questions …
Speaker 3: Michael, have you got any study on what actual land supplies [inaudible 00:37:49]?
Michael: Yes, I have.
Speaker 3: And the supply is?
Michael: What do you mean by that?
Speaker 3: There’s a attitude in council at the moment that they have sufficient land supply in their prior infrastructure area to cater for the next 15 years and there’s a few trains of thought as to whether they have or not. Their own figures suggest that they don’t and I’m just interested to know if-
Michael: Part of this work and part of what I got invited by [Rob and Peter 00:38:28] to do this was I reviewed what’s available the way I normally do it so I count things. There’s a range of databases. Some state government [inaudible 00:38:38], some personal, some by BCI and so forth so I interrogated that. I also did read and studied studies that have been commissioned by the council. I read all of this, which was a bit of a struggle and I found in my-
Speaker 3: [Inaudible 00:38:55].
Michael: March 2017 final by somebody. I’m not going to mention names.
Speaker 3: [Inaudible 00:39:04].
Michael: I don’t know them. I don’t know if they did a good job or not. I’m at odds with some of the things found there simply because of the things I talked about. It’s very difficult to supply big developments when you’ve got amalgamate land where the infrastructure’s not there, where the yield’s expected to be high. That’s hard to do. So I have counted, looked at the land supply. I look how the market operates. I look how you guys operate. I’m not doing it just for major developers. I’m doing it as market works.
Michael: If I was to review projects, and I’ve done many reviews in this area for developers and the like, always trying to cut their yields back. What I do in my business day to day is reduce sales risk. That’s what I do. When I review a project, I say, “Your sales risk is too high. You got to get 20% market share. You won’t get that. I can’t understand why somebody would buy that product at that price point in that location where I could buy this competitive set. Can we change it to suit the market so it makes economic sense from an owner occupy and an investor to purchase?”
Michael: When I do those type of things, some things work very well here and other things don’t. There’s often those infill things that I just shake my head and say, “I don’t understand why somebody would buy a townhouse or an apartment or that small villa lot in that location with no amenity.” ‘Cause one of the things that has to happen if you’re going to achieve development in the current development areas and the current restrictions on those in terms of land supply, ownership, yield expectations, infrastructure costs and so forth is that to deliver that, the amenity in those locations aren’t high enough for people to actually live in a denser space ’cause all density must be offset.
Michael: An apartment can work if you could see the river and the CBD or an ocean or you’ve got a big park in front of you or you’re next to a university. They don’t really work in Woolloongabba because there’s nothing there, roads and in this case, a townhouse has to be offset in the right amenity, more so an apartment. If you live in a 450- to 600-square metre lot, which is the normal size type lot these days, you can live down the road. You don’t have to be right next to the park. I see all those challenges. Yes, I have reviewed it. It’s part of that conversation is that that I believe will not deliver the amount of housing needed at the right price points in coming years as it has done in the last five to 10, 15 years.
Speaker 4: Any other questions? Raise your hand. [Inaudible 00:42:01].
Speaker 3: I’ll go again. What are your thoughts on a local authority counting land areas that are available for development that a public utility such as school grounds, hospitals, TAFEs, old retirement villages? Because one of the things that’s plainly apparent in the Moreton Bay region at the moment with their town planning instruments the way that they sit is that in their land supply assessment, they include those large paddocks as major land supply for the coming 15 years.
Michael: I think that my first comment is I actually think that that’s a good thing, but I think there should be two counts. There should be that, which is likely to be supplied in the normal rate of conduct of business and those things you’ve described are usually hard to wrestle out of those authorities. They have leases. They have uses. If they have uses, they’re going to be shared uses. I would be separating those out to say, “In a perfect world,” we don’t live in a perfect world, “but in a perfect world, this land’s available. We could possibly use it, but in reality, it’s this supply, private ownership, right sizes, flow of land and topography of land where water supply and sewerage is reasonably affordable and can be done in a piecemeal process,” I’d be putting that in certain categories.
Michael: I’d be putting in lumps like I do when I assess supply and once you got a figure of X, you might find out when you do that that the real supply for the next three, five, 10 years, however you want to do it, is a lot less than you think. The reason I think it’s good is because we are going to enter a space somewhere in Australia, somewhere in coming soon where we’re going to have to maximise what we’ve got. Use of schools, even not getting rid of the school, but the dual use of the school, the use of shopping centres above the strip shopping centre ’cause they don’t largely work, how do they use, all those type of things are important, but I don’t think you can count it as readily available supply. I’d be breaking them up.
Speaker 4: Next question.
Michael: Come on. Somebody else. Somebody in this side of the room.
Speaker 3: One last question. How would you suggest to our councillors in the room that they fix this?
Michael: What I would do is I would have … With all due respect who did this work, I noticed that it wasn’t a local firm, which might be it’s just a normal tender process, I have no idea, but I would be getting somebody who’s … I want to get a range of people who are impartial to count this again and then, to do some from of open process with the development community about what works and doesn’t work. They don’t have to take it all on board because you’ve got vested interests and they’re looking after [inaudible 00:44:59] commerce, the public, but there must be a meeting of minds, and I would count that again by a process of a couple of local firms. I could be one of them. I don’t have to be, who works in this region. Then I would have some conversations with the development community, either focus groups or a series of one-on-one interviews to actually one, share that as part of a draught, working draught that we’re trying to work towards to resolve this.
Michael: I don’t think it needs to be, and I suspect it is for let’s say history reason ’cause I understand things are progressing towards the better end than regressing, that there seems to be this bull at the gate type or butting of heads, sorry, type approach between developed community and local authority. That is happening in other places in Queensland, Southeast Queensland in Australia. In some areas where I’ve been engaged and a few others have engaged to provide this type of service, but more detailed, they’re starting to say we understand that we need development. Some of those are those competitors that I’ve mentioned. I’ve worked for several of them, Logan City, Ipswich, Sunshine Coast, Lockyer Valley. They’re quite keen to see things happen and court … Not court the industry, that’s wrong. Talk to the industry to say, “We think this is available. What do you think?” Then some form of meeting of that process. That’s my answer to that question. Don’t ask me another one. You can pay me to ask me the next one.
Speaker 5: My turn, Michael. Michael, what do you see is the future for say three quarter acre developments in the town over the years? Obviously, we’ve had two five acres prolific around the town and as a spread of this area coming from Sydney many years ago, Campbelltown used to be chicken farms and everything and now, there’s houses everywhere obviously. The demographics that we have here, we’re still selling a lot of three-quarter acre acreage properties as you say for lifestyle. How long do you think it’ll be before our demographic area is going out the same when you’re in Woodford where there’s still a lot of area there for development?
Michael: I grew up in Sydney, the west of Sydney so when I grew up in Winston Hills, Country Practise … Who remembers Country Practise? Come on, put up your hand, don’t be shy. Some of you are too young to remember Country Practise. Come on. They used to be filmed across the road so there used to be lights and now it’s middle ring. In fact, my parents’ block that they bought was a quarter acre block. It’s got now units on it.
Michael: I suspect what’s going to happen is that those development areas or those areas with that type of housing, not all of it would be developed ’cause some people won’t want to sell it, but in pockets, it will start to get development pressure, but that will only happen when it’s economic to do so. That’s the key thing. If you’re selling it for the price you want, $5 million in your case, the price that you want for the land, it has to be economic for the developer to do that and then for the sewerage and so forth. I think that probably is some way off, but I think that pressure will grow. But when that happens, it’s only going to cater for this much of the demand ’cause it’s piece meal. It’s higgledy-piggledy. The yields can’t be … If you do your thing, you might be able to get X amount of products, say five things on there that make sense. If you do 20 together or 30 together, if you could amalgamate it and you could do seven or eight or 10 per area or maybe seven or eight because of the way the road work, but if you do it yourself. Until there’s a big movement to that, it gets kind of stalled, but it only will cater for this demand.
Michael: The demand here, as usually happens in an area like this, that 20 to 40K radius from the GPO, areas that, take this the right way, have yet to have the economies of scale, you’re getting there, but you don’t … once you hit half a million people and you’ve got X amount of tourists, you start feeding on yourself and you start pushing yourself in those areas, doesn’t matter where I am in Australia or New Zealand or some of the work I’ve done in the States, you find that it’s actually the major developments that drive most of the housing demand. Now major just is 50 plus lots. It doesn’t have to all be North Lakes, but they have to be pretty serious things to drive that. They have to go through a cycle. They have to have several stages. They have to have several builders involved. They have to have choice in that product. It’s coming and maybe not soon enough for yourself, but it’s coming.
Speaker 6: Good morning, Michael. You mentioned that APRA has put significant pressure on the banks. My question is how long do you think it will be before the banks start relaxing their lending criteria and to what extent?
Michael: This is my opinion, not advice. I think in the latter part of this year, the Reserve Bank will … I believe there’s a Chinese war between the Reserve Bank and the government, always is. We’ve got an election coming up. It’s so obvious. Let’s just try and get through it. Regardless of who’s in power, the latter part of this year, it’ll become obvious that the employment figures in Australia are a crock, that the ABS figures don’t really mean what they do. Unemployment’s 10%. Underemployment’s close to 10% if measured correctly. You can’t work one hour a week per week over the last three months. That’s how they’ve changed things. They changed things a couple, year and a half ago. We come back from holidays in 2017 and “100,000 jobs are created in Australia over that period. Isn’t that great?” No, they just changed the way it’s measured.
Michael: You go to the shopping centre and just have a look how many people are there at 10:00 or 11:00 who aren’t pushing a tram or don’t look like they work in some mine. There’s a lot. I do that for work. I sometimes do that when I look at new developments say, “Who’s in the area,” and so I add to that number no doubt, but many of us are underemployed. We don’t realise that, they’ll realise that GDP figures aren’t great. The Reserve Bank I think would drop interest rates and in that process, in that cover, APRA will go like this and I think the Westpacs are already starting to say that they’ve over done it.
Michael: I’m not saying that the previous .. I think the previous process was too lax. I do think that borrowing 10, 12 times income and … I run a small biz, my wife runs a small business. We’ve got a line of credit that we really shouldn’t have got, but we got it because we just went to a loan broker who said, “I’ll get that. No problems at all.” “Really? Done.” My wife wanted to give it back recently ’cause we’re not using it and I said “There’s no way we’re giving that line of credit back ’cause we won’t get that again.”
Michael: I think that was a little loose but now it’s gone, it’s overreacted. I do think latter half of this year under a economy’s not as strong as we thought, it may be overseas things. We’re going to see US economy slipping. It may be the resignation of Trump. Now I’m talking conspiracies. I think he’ll resign before he finds himself in jail when he’s not the President, he’ll do a deal. That’s my two bobs’ worth. Again, opinion, not advice. The latter part of this year, I think they’ll lift … It won’t be like go back to what it was, but I think it will become a little easier and particularly for …
Michael: I also believe that first time buyers grant will, through the negative gearing thing, I think that will be extended or changed and even maybe a federal component. I’m hearing whispers that that one will smooth away a little bit, and if there was one thing that inflated demand and, therefore, price very quickly was the introduction of the grant.