Fast-Tracking of Projects: Implications for the Residential Market

February, 2021

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Overview

There are many factors impacting supply and demand for residential property at present. With COVID-19 restrictions continuing to ease across Australia, governments remain focused on timely stimulus initiatives that will have the greatest impact on reigniting the economy. Such measures to support the residential market include the fast-tracking of shovel ready project applications and the HomeBuilder grant.

In this paper, m3property explores the probability of these fast-tracked residential projects proceeding and how this will impact residential indicators. We will focus on different supply-demand gap case scenarios, each based on forecast low population growth and higher than average unemployment.

Authors

Luana Kenny

Managing Director

View Profile > VIC

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Supply

Residential dwelling supply will depend mainly on policies, planning and market conditions within each State. One of the key factors influencing supply across the States over the forecast period (2021-2024) includes the fast-tracking of planning applications.

To date, there has been more than $9.7 billion worth of residential development applications that have been fast-tracked, which include circa 29,100 dwellings. Of this total, 85% of dwellings are in NSW, 14% in VIC and only 1% in QLD.

Whilst projects have been fast-tracked in WA, SA and ACT, they have predominantly been infrastructure-based projects (road, rail, maritime, etc.).

It is highly likely that not all residential development applications that have been fast-tracked will proceed due to some markets already experiencing an oversupply of stock, softer presales and difficulties sourcing finance.

Demand

Prior to the COVID-19 pandemic, population growth in Australia had been relatively consistent, ranging from 1.1% to 2.1% per annum since June 1999. This steady growth was a contributing factor in Australia avoiding recession during the GFC and ongoing growth in major housing markets over the years. However, following the COVID-19 pandemic, net interstate and overseas migration forecasts were significantly impacted, with estimates from Oxford Economics showing total population growth in Australia to fall to 0.4% over FY2021.

Factors also influencing demand across the States at current include:

  • The Cash Rate: The record low cost of capital, makes buying a dwelling more attractive.
  • APRA Restrictions: The relaxation of APRA’s lending restrictions make it easier for borrowers to obtain a loan, increasing dwelling finance. There is a direct link between APRA restrictions and house values; when APRA relaxes restrictions, home values go up and vice versa.

  • HomeBuilder Grant: Total applications for the HomeBuilder grant according to the Department of Treasury and Finance as at 31st December 2020 was 75,143. New builds make up the bulk of total applications (59,763), with Victoria having the highest number of applications.

 

 

 

Supply & Demand Gap Analysis

In our sensitivity analysis, we have:

  • Combined all projects that have been fast-tracked to date that have a residential component with our base supply completion forecasts.
  • Included the base supply completion forecasts and probability of 10%, 20% and 50% of all fast-tracked projects proceeding over the forecast period (2021-2024).
  • Adopted the latest quarterly Oxford Economics population data forecasts, which assumes a significant slowdown over the FY2021.
  • Our analysis only includes actual projects that have been fast-tracked and it does not include the fast-tracking of planning or land to be re-zoned. For example, in addition to the projects that have been fast-tracked in VIC, the Victoria Planning Authority is working on 18 planning and infrastructure projects to unlock land for circa 86,000 homes. For the purpose of our analysis, these dwellings have not been included.

Supply & Demand Gap by State

New South Wales

  • The NSW’s government has fast-tracked projects containing circa 24,000 dwellings. While this has the potential to increase supply significantly in the State, most unit projects located in Sydney are unlikely to proceed in the short-term due to difficulty in achieving presales.
  • While grants and stimulus continue to bring forward demand in the first half of 2021, weak population growth and high median house prices are likely to result in demand reducing in the second half of the year. That said, low interest rates, reduced lending restrictions and grants still on offer are likely to keep demand positive over the medium term.

Victoria

  • To date, the VIC government has fast-tracked projects containing circa 4,046 dwellings.
  • Demand in VIC has been outstripping supply over the past five years. Prior to the announcement of the fast-tracked projects, VIC was expected to continue to be undersupplied over the forecast period. Given the updated population forecast and fast-tracked projects, VIC is expected to have an oversupply from FY2021 to FY2023, before demand starts to outstrip supply again in FY2024.
  • The announcement of major stamp duty discounts through the state budget is likely to stimulate some demand over the short term.

Queensland

  • QLD’s $51.8 billion 2020 Capital Program Update includes several fast-tracked projects, however, only a small portion of these include residential components (circa 170 dwellings).
  • The slowdown in dwelling completions in QLD is forecast to continue through to FY2021. Despite decreasing completions, dwelling supply is still likely to exceed demand over FY2021 to FY2023 due to lower population growth and economic uncertainty over the current period.
  • Whilst stimulus measures are driving demand from first homeowners, the investor market is lacklustre, and this is expected to continue for at least the next two years.
  • Once demand returns and migration levels revert to normality, we expect QLD to return to a state of undersupply in FY2024.

South Australia

  • The SA government has announced the fast-tracking of $120 million worth of major infrastructure projects, however, these do not have residential components.
  • Whilst population growth is set to decline sharply, SA is currently benefiting from positive net interstate migration levels, as fewer people move interstate from SA for job opportunities.
  • SA’s continued relative housing affordability, low interest rates, Starter Loans and current Federal and State Government grants, are making it easier for first time owners to exit the rental market and purchase a home.
  • Demand in SA is set to outstrip supply in FY2021 due to an already understocked market. SA will then enter a minor state of oversupply during FY2022 and FY2023, before demand starts to outstrip supply again in FY2024.

Western Australia

  • No residential based projects have been fast-tracked to date.
  • After a long period of oversupply in WA brought on by reduced demand following the mining boom, WA is now in a housing recovery.
  • WA’s housing affordability, low interest rates, WA Building Bonus, Off-the-plan Duty Rebates for apartments and current Federal and State Government grants, is making a compelling case for first-time home purchasers.
  • Although population growth is forecast to be restrained over FY2021, WA is expected to be undersupplied over the whole forecast period. Demand is expected to be marginally above supply in FY2021, before demand picks up pace, with the shortage of stock set to amplify over FY2022 to FY2024.

Australian Capital Territory

  • Only small-scale infrastructure projects have been announced to be fast-tracked so far.
  • The ACT is forecast to be slightly oversupplied over FY2021, before the excess stock is more pronounced, albeit still minor, in FY2022 and FY2023. The market is then forecast to return to a state of minor undersupply in FY2024.
  • The Territory government controls most of the land supply in the ACT. Land is released according to expected population growth and so has historically been a stable market with supply and demand hovering at, or around, equilibrium.

 

 

Conclusions

  • State and Government stimulus measures, including the HomeBuilder Grant and stamp duty cuts in Victoria, combined with low interest rates, are helping to bring owner-occupier demand for housing forward, however, demand for all housing types is not equal.
  • Currently there is a two-tiered demand market nationally. Demand for houses within subdivisions and from owner occupiers is increasing, whilst demand for investment properties, particularly units remains subdued, especially for markets already oversupplied, including pockets in Sydney, Melbourne and Brisbane. This trend is expected to continue over 2021, along with the growing Regionalisation trend. Both trends aim to reduce density risk for the residents whilst also gaining lifestyle benefits when working remotely.
  • According to the analysis, all State’s and Territories (except for SA and WA) are forecast to be in oversupply in FY2022, regardless of whether fast-tracked projects proceed or not. As such, we believe the delivery of these projects to have little impact on the recovery of the markets.
  • Whilst demand from owner-occupiers has returned due to government stimulus and the faster than expected economic recovery, it is likely that not all purchasers have factored in what could potentially be supplied over the coming 12 to 24 months. However, as demand will drive future supply, particularly those heavily focused on large-scale unit developments, it is anticipated that once the vaccine is rolled out and international borders are re-opened, investor appetite will gain traction. This will further support the property market recovery.