Housing: Challenges and Options Robert Harding HIA Regional Executive Director, Victoria

1. Housing: Challenges and Options Robert Harding HIA Regional Executive Director, Victoria Metropolitan Seminar 2 August 19, 2008

2. Background • The starting point for Victoria to face the housing challenges of the future is a strong one. • As a ‘resource poor’ state that also endured a mid decade down-cycle in housing, Victoria has displayed a high level of economic resilience. • Housing affordability is a big problem, but in a relative sense Melbourne is a more affordable new detached house market than Sydney, Brisbane, Perth, or Canberra. • Population growth is currently running at a fast rate. • The population is ageing, which brings another dimension to the challenges ahead.

3. Population Snapshot • Net overseas migration is driving strong population growth of 1.6 per cent p.a.

4. Victorian Government in “Victoria in the future” in 2004 projected Vic population • We will reach the 2011 prediction this year.

5. We are not keeping up with demand now • In 2008/09 we will build, at minimum, 5,000 fewer homes in Victoria than required.

6. Record low housing affordability • Structural constraints mean that low first home buyer housing affordability is harder to fix now than in the late 1980’s/early 1990’s.

7. Current Challenges = Future Challenges • The population of Victoria is projected to increase by 1.421 million people by 2031. • That could well be a conservative outlook as we’re already exceeding the mark… • … hence we have the reference to 1,200 people per week moving to Victoria. • The ageing population: the 65+ age group is projected to increase by 157% over the next 40 years. • Failure to fix the current situation means we fail the future challenge, regardless of the rate Victoria’s population grows at. • We’ve been here before ...

8. Current Challenges = Future Challenges • In 1990 the then HIA National Home Builders Council released a report entitled “Housing Towards 2000”. • It identified three key supply side constraints to meeting the future demand for housing:- • Poor land release policies that would drive up the price of serviceable land to a disproportionate extent. • A concerning move toward reliance on user pays funding for new residential development. • Acute skilled labour shortages in the residential sector. • Along came the recession we had to have and all these trends were forgotten… • … but they returned in far bigger magnitude.

9. March ¼ results show lots released were down 42.1% • Approvals down 9.9% on a month by month analysis • Seeing a decline in lots released across all 4 areas eg north/west etc and inner ring. • Seeing an increase in plans lodged • What does this mean? • Also seeing real dwelling investment only up 1.6% while sector is up 10%

10. Current Challenges = Future Challenges • The biggest challenge Victoria faces in terms of housing provision is reducing the structural barriers to affordable housing • These structural barriers are the operating and capacity constraints the industry needs to overcome:- • Onerous regulatory environment that needs to be streamlined. • Planning delays that are getting worse not better. • Adequate land release programs. • Reduction in taxation on new housing (e.g. for infrastructure provision), including erasing multiple levying of stamp duty in detached house building process. • Need to ‘Skill up’ domestic residential workforce. • Get this right and we can start meeting other trends …

11. Change in Dwelling Structure Composition • As the population ages we will see a (modest) decreasing share for detached housing and …

12. Average Detached House Size • … we will see a (modest) decline in average detached house sizes.

13. Physical and Social Infrastructure • It is important to provide physical and social infrastructure to support new housing developments. • This includes reliable and affordable public transport. • Current experience is a reminder that relatively affordable house and land packages on city outskirts with good road access aren’t enough on their own if people are paying more than $1.60 per litre to fill their petrol tanks. • Infill development needs modern infrastructure support and a mix of housing type. • Good infrastructure in regional centres is important and this needs to be backed up by employment opportunities. There already exists a housing affordability advantage relative to Melbourne/Geelong.

14. Not all doom & gloom some is being done eg 28% of building health care is now in outer suburbe eg Glen Eira, Stannington, bayside,monash & kingston • But in SE 15 estates down to 5 • 30% of retail is now in the eastern corridor Boroondara to yarra ranges • 29% industrial permits in outer SE dandenong, casey and cardinia.

15. Single detached dwellings still dominate the residential scene but we are seeing changing paterns of unit development in middle ring BUT appartment building confined to city of melbourne, Port Philip & Yarra. • Evident dislocation between jobs and housing • Regionally with a few exceptions % of industrial construction to housing is much less

16. Most lots released is in Melton/wynhdam/Boorandah/moreland/cardinia • Most subdivision lodged: Wyndham,whittlsea,melton,cardinia • Population growth areas 3 out of top 10 in victoria are wyndahm/casey/melton.

17. In summary … • Victoria’s economy is at a good starting point for the challenges ahead. • So too is Victoria’s new home building sector, relative to the other large states. • Reducing the structural barriers to affordable housing is crucial. • This would be the case even if tomorrow Victoria reverted to a population growth rate of, say, 0.4 per cent p.a. (0.4 per cent is the forecast population growth for Australia in 2047.) • The composition of dwelling type will change over time. • Physical and social infrastructure support is vital and public transport has a big role to play here. • Regional development is important.