Charter Keck Cramer, and Precisely Property Podcast respectfully acknowledge the traditional custodians of country throughout Australia. We pay our respects to their elders past, present and emerging.
Richard: Hello, and welcome to another episode of Precisely Property. I’m your host, Richard Temlett, and I’m excited to have you with us today. If you’re here for the first time, thank you for joining us.
I encourage you to listen to our previous podcast where we discuss all things property with a focus on dynamic discussions with industry leaders. In this episode, we’re diving into the Greenfield House and landmarks across Australia. So, sit back, relax, and let’s get started.
In this episode, we’ll be speaking with Michael Staedler of RPM Real Estate. Michael is a highly respected and experienced economist with a passion for delivering in-depth, timely and highly valuable research that underpins RPM’s expertise and strategic advice.
He heads RPM’s research, data and insights division, comprising an expert team of economists, property experts, analysts and GIS analysts who provide key data and analysis on the dynamic property market. This rich intelligence underpins RPM’s groups’ and its clients’ success. Welcome, Michael.
Michael: Thanks, Richard, for having me.
Richard: Michael, before we get into today’s podcast, and I can’t wait to get into it, there’s just a little bit of a background that I want to talk to the audience about and also set the scene. And, I’ve had a couple of requests from some of our listeners, and I’m certainly always keen to take on the feedback of our listeners. So please reach out if you do have feedback. They were keen to get some more scene setting, which really frames the conversation of the various podcasts, so I’m going to do that. But before we get into that, I was on the train this morning. I was just reflecting on when we met each other, and I think it was around about 2018. I was working at Development Victoria, the state government, and you were obviously working at RPM, and you were the sales agents on some of the projects at RPM. I must admit when you and it was Luke Kelly, and I’d certainly do a big shout out to Luke because I’m a big fan of him, and I think he’s very, very commercial and very good at what he does. You and him came into the room one day, and immediately, I gravitated towards you because I absolutely love my data and my evidence. And you had a whole bunch of data and insights from the Greenfield market and the townhouse markets, and we saw prices and sizes and, who the buyers and so forth were. And, since then I’ve certainly kept in contact with you, and I’d catch up with you, it’s typically every month or every two months just to share information as to what’s going on the ground. And I just wanted to say I really value our relationship and particularly yourself and Luke, and I know RPM very well. But yourself and Luke I think are excellent at what you do. And I just wanted to thank you very much for coming on the podcast.
Michael: Not a problem.
Richard: In terms of today’s agenda, I’m keen to talk to you about what data you collect. I know over the last one to two years, you’ve been very active and very busy collecting a very valuable dataset, and we both love our data. We love our evidence and insights and like providing forward-looking views. So, I’m keen to just understand, in a little bit more detail, what data you’re collecting, and I think it’s particularly important for the audience to understand, because this is a very, very rich and very valuable data set.
And then finally, we’re going to talk about the Greenfield House and land markets. I’ve certainly done quite a lot of work in this space, and I speak with my colleagues across the (Australian) eastern seaboard as well as in Perth and Adelaide, and we’re keen to just unpack a little bit about what’s happening on the ground and what our views are for the future. So that’s basically the agenda.
Before I get into that, as we’ve discussed offline and some of the listeners who’ve heard me or heard some of our previous podcasts, I do like to set the scene for everyone, and it is an education piece. And so, a couple of points that I just made on the train to work this morning. The Greenfield House and Land and Market certainly is one of the most understood, residential markets when you compare it to apartments and townhouses.
Finance understands it. Buyers understand it. The government understands it. That being said there’s still more, obviously, that could actually be learned in terms of whether it’s the concept of supply versus production, which we’ll talk about, I’m sure, and some of the intricacies involved. But that’s important to just keep in mind because some of the earlier podcasts we’ve been speaking about, things like Build to Rent, they are not very well understood yet.
They’re still emerging asset classes. This is a very well or much better understood and much more mature asset class. That being said there’s still risks and opportunities that we need to talk about. What’s also very important for everyone to keep in mind is that, across the capital cities and the states of Australia, there are actually very different markets, Greenfield house and land markets. And the easiest ways to, distinguish or to draw comparisons, if you look at New South Wales and metropolitan Sydney, it has a very small Greenfield house and land markets.
And at the other end of the spectrum, you’ve got Victoria and Metro Melbourne, which has the largest Greenfield house and land and market across Australia, and Southeast Queensland also has an enormous house and land market. So, it’s important to really understand that there is no single market. There’s markets within submarkets, and they all vary in size and importance. Finally, they’re also at different points in the cycle. It’s very interesting to see right now that Perth is going bonkers, and I’m keen to talk to yourself, Michael, about what’s happening there.
On the other end of the spectrum is Melbourne. Melbourne is really struggling right now. That being said, it was the beneficiary of low interest rates as well as the home builder grant, which pulled forward a lot of latent demand. And so, again, I just encourage the listeners as you’re hearing what Michael and I discuss, just keep in mind that not only are the markets quite different in size, they’re also at different points in the cycle. Why I say that and why I set the scene is that as all our listeners know and certainly as Michael and I talk about all the time, there is a huge housing crisis right now, and house and land markets have a critical role to play.
I’m always surprised when I see reports coming out that say everyone’s going to live in apartments or everyone’s going to live in house and land. I don’t actually agree with either of those. I think that we need to have diverse forms of dwellings in different locations and just allow people and buyers choice where they want to live and the types of dwellings they want to live in. But I do think that the government in particular, both at federal and state level and then also at the council level, as well as the industry more generally needs to analyse the housing market, looking at apartments, townhouses, and house and land. They all have significant roles to play.
They all have different risks, and opportunities presented to them, and I’m keen to talk a little bit more about that today. So that’s the scene set. It was quite a long scene setting, but, again, we’ll probably end up having more than one of these episodes because there’s so much to talk about in this space. Michael, I’ll hand over to you. Over the last 2 years, you’ve collected some amazing data. I’m interested to know a little bit more about what that data is, how frequently it’s collected.
Michael: Yeah. Well, thank you for the kind introduction. I’ll take a step back first. So, RPM Group was established in 1994, celebrating 30 years in November.
Richard: Congratulations.
Michael: And we really started in the englobo space. Eric Dick, the founder, wanted to, I guess disrupt the market, and he did that in a sense of data is the missing piece. If you think back in the ’90s, it would have been experience and gut feel would make decisions. He felt data would be the missing link.
Our database really stretches back then. I’ve been with RPM almost 10 years, so I’ve expanded it since. But really, our developers know RPM from our rich data, and that’s been really important particularly in the recent cycles. So, RPM, you know, 30 years, we’re about 35,000 lots in our pipeline, across 50 odd projects, and that’s just not Greenfield. It’s now, as you mentioned, townhomes and apartments. We follow our developers, and developers ask us to move into new markets with them. So initially, we were Melbourne, before my time, Geelong was added to our database. And then, in recent years, the Echuca, Shepperton, Warrnambool, regions that wouldn’t be classified as an interest from a Greenfield perspective have become extremely important to developers, and that’s now stretched us through to New South Wales and Queensland. We have an office in Queensland. We do a fair bit of work in New South Wales.
So, we’re 120 odd people now at RPM. So, yeah, I think the data that we’ve collected stood the test of time and has allowed us to go through the cycles. It’s an industry that’s, at times, extremely difficult as we’ve seen companies fall over and RPM sort of gone from strength to strength, which is really important. But in terms of our data collection, we collect on a monthly basis. In Melbourne, there’s 350 odd projects we collect.
Richard: Well, first of all, that’s fantastic. I wasn’t aware there was a monthly basis. I have seen stuff prepared at a quarterly basis, so monthly, and I can understand, I’m assuming you do it on a monthly basis based on your clients’ request because the markets are moving so quickly to get faster feedback. So, basically, it’s a monthly basis.
Michael: Yeah. So, we do a quarterly summary that’s up on our website. Anyone that wants to look at it from a regional level, but we collect it at the estate level on a monthly basis all through Victoria. There’s 350 odd projects, we understand lots that have come onto the market, the movement of those lots through the month, stock overhang, and the price adjustments that take place through the month along with your gross and net sales.
Richard: Right.
Michael: So, we carry that through now to New South Wales and Queensland, and we’re building out those databases. We’ve got about 650 projects that we track on a monthly basis. And, you know, we’ve got developers now looking WA and SA. We are now following them and providing them with the guidance that they’ve relied on RPM in terms of data to allow them to make the decisions.
Richard: Fantastic. So, it’s the Greenfield and also townhouse and, to an extent, the apartment data collected on a monthly basis. What specifically are you collecting? Is it land sales? Is it prices? Is it buyer types? Could you just elaborate a little more?
Michael: From a pure land perspective, we do collect the individual lots, the movement of those lots within projects. Part of that are your house and land, and also townhomes that are within the Greenfield estates along with standalone townhome products and developments. And now we’re starting to see those 10-20 subdivisions that are getting built within, to the sides of each estate, so we collect them as well.
Richard: Great. Well, that’s an incredibly rich data series, and I must admit I knew the answer to those questions because you’ve been very kind, you’ve let me have a bit of a play with them. But what I’ve been really impressed about is, you also often have the product that’s going on the lots, and you’ve got pretty good line of sight on both the build costs of those products, the number of levels, who the buyers are, whether they’re first home buyers.
So, I’d encourage our government clients that are interested in what’s happening in the first home buying market, what their price points are, the household types. I think that there’s some fascinating and fantastic data, and I think it’s a very valuable, very important data set to help developers, builders, financiers and government with their investment and their development decisions and also their policy decisions moving forward.
Michael: So, yeah, aside from the fact that we collect the data across all the projects, we manage close to 50 projects. On those 50 projects, we work with all builders, big and small, and packaging up product for the buyers. Both local and overseas. Along with that, we also conduct buyer surveys of all our buyers. We tend to have around 20% of the market in Victoria. We talk about it being our little mini census. It’s 60 odd questions that we ask each buyer.
So in between your census periods, we know where the average cost is in terms of what they’re looking to spend on a build, how much they obviously are spending on the land, but we also know about the household. I mean, kids are in there. Are they in primary school, secondary school, we know where they work. We know the form of transport. We know what they want and don’t want in the states. That’s really rich data that we collect monthly from our buyers.
Richard: That’s fantastic. And thank you very much for updating everyone. I’d encourage everyone, please reach out to Michael and RPM, if you’re interested in purchasing or subscribing to that data. Just to close off, both Charter and RPM actually are collaborating in this space.
As you know, Charter is independent, and what I’m so excited about is we have been working with Michael and with Luke (Kelly) and RPM, and there are products now available that can come out under Charter’s branding, which can provide evidence and independent research and forward-looking data, and we can also blend that with a lot of what our Valuers are seeing on the ground. That being said, I have seen some of the GIS mapping and the dashboards that RPM already have readily available. I’d encourage our listeners reach out to them, Mike. We’d love to have a chat with you. And I think the data will speak for itself in terms of how good and valuable it is.
Michael let’s talk now about house and land markets. I’m keen to understand and hear what you’re seeing on the ground. There’s been a lot of negative headlines in the apartment space about building costs and revenues. I know during the pandemic, there were certainly also issues with building costs in the Greenfield house and land market. But when I spoke with you, it seemed that revenues and prices were able to increase at a higher rate than the build cost. So as a result, the Greenfield markets could still be activated. Talking with you offline, that sounds like it has changed dramatically, and also, there’s a shortage of builders. But I’m keen to understand, what are you seeing on the ground across the various capital cities, as at July 2024?
Michael: Yeah. So, I guess you look at it from a land value perspective, and you mentioned HomeBuilder bringing forward a lot of, buyers through the market, and we absorbed virtually across the nation.
Pretty much all excess stock was absorbed through HomeBuilder. We’re now going through that phase of settlements and land valuations.
Richard: So it’s settlement of the land?
Michael: Yep, it’s settlement of the land. We obviously saw some significant price growth through the Greenfield market through HomeBuilder, particularly in regions where they were already lacking supply. They will bring on additional supply. There was pretty significant price growth that we saw. And now move forward 18 months, we’ve had 12 interest rate rises. Household costs are where they’re at. So, there’s valuation issues, not in all states and territories. Particularly Queensland’s no issue. South Australia and Queensland, WA are settling fine. Cancellation rates are low. Victoria’s a slightly different beast at the moment. We do have excess levels of supply from a valuation standpoint. As I said, we track 350 projects across the region. And, you know, cancellation rates are higher than what they would normally be.
Richard: Can you please just explain to the listeners? I appreciate there’s a bunch of them that are very close, but when you say cancellation rates, what does that mean, and what happens with that, once the sale’s cancelled?
Michael: Yeah. So, on a monthly basis, we go through stock on market, and then we clarify whether or not that stock’s been sold or not. So, when we move it through to the sales component of our process, in 6 months’ time, 12 months’ time, a lot of that stock wasn’t titled and they’re coming up to titled. So that stock then comes back onto the market. The buyer hasn’t been able to settle. Their financial circumstances, particularly in the last 12 months, have changed significantly. And they’ve gone to the bank. They’re not able to either settle the land or they could settle the land, but then they’ve realised that they’ve got very little funds to do a build.
So their view is, “well, we might as well just walk away from it and not have to settle the land and then try to resell the land and may become worse off.” So that lot comes back onto market, so it becomes a cancelled lot from a sale. And a lot of that stock is coming back into sales that were made in, say, ‘22, start of ‘23 that are now coming to title. They’re 3 months out, 6 months out.
Yeah. We would talk to, or developers and agents would talk to buyers and say, “hey, Richard. Your lot number 101 is coming up for settlement in September. How are you going with your finances? Are you all on track?” And that’s where the buyer will say, “we’re actually really struggling. Your income’s not meeting what we need. Spoke to the bank, and we’re in a bit of strife. We might not be able to settle.” So if that then comes back onto the market as we’ve seen in Victoria, traditionally, about 15% of stock comes back on the market at any one point.
Richard: Is that a more balanced market? Is that what you’re saying?
Michael: Yeah. But particularly in Victoria we, you know, Queensland tend not to release land and have title time frames that are 12-18 months out. That’ll be more sort of 3 months out or 6 months out. So, there’s less circumstantial changes that can take place for a household in 3 months as opposed to 18 months. So, the longer the total time frame expands out, the more risk profile applies. We’re sort of around a 30% mark at the moment.
Richard: Wow.
Michael: In any given month.
Richard: And that that’s Victoria?
Michael: That’s Victoria. And then other markets, settlements and then settlements really aren’t a major issue at the moment, across other markets. What we’re seeing is when we speak to the lawyers, there’s a need for an extension on some, and that’s we need an extra week because the bank needs another piece of documentation. Or it’s just another thing to dot the i, cross the t. So, they’re able to settle. They’re just stretched out another week or two. So settlements are still keeping in track of a long term trend. But in terms of Victoria, it is a bit more of an issue, and you would see it rebates and incentives in the market. A lot of publicity, particularly heading towards the end of the financial year last month. You know, you would have seen settle by this $20-$40,000 rebates. We’re seeing that through the metro area. Geelong more so. So, pushing around the $50-60,000 mark.
Richard: Wow.
Michael: Because if you think back to when HomeBuilder was, Geelong was the darling of the market, because it was regional, you could get out. There were different rules through COVID, and you’re only sort of an hour from work. So, Geelong absolutely pumped out the sales.
Richard: Sure.
Michael: And that was great. Home builders very much needed, but now we’re sort of suffering the consequences of that level of stimulus and the pull forward of buyers overlaid with interest rates and overall housing costs.
Richard: I must admit two points there. The first one is with respect to incentives or rebates. It always worries me, and it’s a reflection of where we are in the cycle across whether it’s houses, townhouses or apartments.
If there are rebates being offered or free cars or free landscaping packages, that does concern me. And it really happens at a, we’d call it a more soft point in the market cycle. I have been keeping my eyes and ears on the ground as to what’s happening there, and that is a concern, but it’s not a surprise. And I say it’s not a surprise because, Michael and I have done a lot of research looking at historical trends together, and a similar sort of thing happened in 2008, 2009 with the first homeowner grants that were brought in by the Rudd government back then. A lot of first home buyers, their demand was pulled forward because they could take advantage of those incentives.
Greenfield land sales, especially in Melbourne, went through the roof. There was very strong price growth. When those incentives were basically turned off or removed, there was a downturn in the market. Some of it was always going to occur, but some of it was because those incentives were removed and that latent demand had been pulled forward. When we were at the height of sales, especially in, I think it was 2020 and 2021, I was chatting with you where those states were going through the roof in terms of selling.
We always knew that the market was going to come back and have a soft period. But it’s just interesting to hear now where we are, particularly with settlements holding up. And I suppose my question to you then is, are those land lots that are settling, are they holding their value, or are they still actually at quite a market increase from a couple of years ago when they were actually sold?
Michael: Yeah. Look, there’s a shortfall. It’s around that sort of $20,000-$30,000 mark through Metro Melbourne, a little bit more in regional areas, which saw greater price growth through HomeBuilder. So valuations, particularly in Victoria, aren’t stacking right now. Through Queensland, we’re okay. New South Wales is an issue. WA started to just feel the pinch a bit.
Richard: Is it really?
Michael: They’ve seen some pretty significant price growth.
Richard: They definitely have. I’ve seen huge releases in WA, so I was just wondering what was going to happen. So strong price growth, and where do you think WA is at the point in the cycle? Is it past its peak, or is it starting to moderate?
Michael: If they haven’t peaked, they’re close to it. They had 10,000 odd sales settled through last quarter last year, which is a market that can’t really have that level of capacity. We talked about in Melbourne and Geelong through HomeBuilder, you know, the market has a capacity of around 18-19,000.
Richard: Can you explain when you say the market has a capacity? What does it mean for others?
Michael: Yeah. So, across the board from being able to actually have the civils and the contractors out in place, government being able to process the paperwork. We saw in the regional areas where they were really restricted in terms of workforce, getting labor out there. There’s a process, you need the water guys, you need electricians. There’s a process that needs to take place. So, a lot of it comes back to the skill sets and the migration numbers and having the correct number of people out on-site to allow a seamless process to take place. That certainly isn’t happening at the moment.
There’s a skill shortage, and that’s pretty clear and being opened and talked about. And there’s always that push and pull around government projects and the big projects. And there’s more certainty for labourers and sparkies and all the rest to be working on big government funded jobs as opposed to working for a builder or a developer in a down cycle. There’s always that issue around skilled migration.
But, you know, Victoria, topped that 26,000 sales through HomeBuilder. So, yeah, we’re never going to be able to keep up that level. And we’re sort of going through that now. We’re getting our title time frames back in check.
Richard: Okay.
Michael: That’s sort of within the 12-month mark. But what we’re seeing is there’s an increased level of stock coming back on the market, particularly through the secondary market.
Richard: Ok, let’s change gear and talk a little bit about builders and build costs. Now I’ve had a number of discussions in the medium and high-density space with builders and how building costs have increased by 30-40% to even 60% in certain projects or certain states. It also certainly sounds like there’s a dramatic shortage of labour and skilled labour, as you’ve said. When I speak with our Valuers on the ground in southeast Queensland, and you seem to have confirmed that the land sales are not the issue, but it’s the actual buildability and the project’s now actually commencing construction. And that seems to be a risk for Southeast Queensland in terms of getting the builders on board, building out the projects.
What are you seeing on the ground with respect to builders and build costs across the states? Is this going to be as big an issue as it is right now in the higher density apartment market space?
Michael: Look, I think the higher density is a different beast to the Greenfield. Greenfield, particularly the builders, cop significant increase through the back end of HomeBuilder. So, they signed up contracts at a price, the level was fixed pricing, to be able to lock in buyers. And the feasibilities were stacking. The reality is you couldn’t capture the price increases in steel and timber and all the rest of it. You just don’t have feasibility on that in your feasibilities. Yeah, you saw 11% increase in ‘22, 7% in ‘23. We’re stabilising now in this financial year just gone. But we’ll be back on trend, which is really with CPI. So, you’re looking at still 4% increase.
That allows at least some certainty in terms of feasibilities, but the big problem for builders through the back end of HomeBuilder, a lot of those contracts that they were fulfilling were done at a loss or at best, at breakeven. So, it’s really just now new contracts that they’re filling in now, at their usual profit margins.
Richard: Sure.
Michael: The problem with that is, particularly in Victoria, the sales numbers are so low. Their bins, as they call it, forward contracts that they’re signing, and they’ll be able to build in December quarter, March quarter next year are pretty light on. Different in WA, which we talked about there at record sales numbers. Adelaide’s pumping along, for Adelaide. And Queensland has more of a supply issue as opposed to delivery. So that’s starting to play out a little bit now as well.
Richard: So just to give a little bit more clarity for our listeners, if we’ve got land values that have increased and we’ve got build costs that are continuing to increase, what are your views then on overall prices? And before you answer that, certainly, I suppose both you and I have done a number of studies on the market, and we certainly feel a number of submarkets are extremely undervalued. And new stock is going to come in, across all housing segments at 15-20% to even 30% higher than pre pandemic. What are you seeing on the ground now? Is there a repricing of new house and land packages compared to a couple of years ago even before the pandemic?
Michael: Yeah. Look, from a turnkey house and land perspective, the industry, the builders are understanding that what they’re delivering or what they have delivered isn’t acceptable now in terms of pure price points.
What they can deliver to what a buyer can actually purchase, there’s a massive gap between them. As I said, we survey all our buyers. So, you know, a significant number of buyers particularly through HomeBuilder and then prior to that. So, if you have a look at that 2019, 2020 period across our buyers, the market has shifted dramatically in terms of who the buyer is. So, generally, in a stable traditional market, you also have 75% owner occupiers, 25% investors, That’s obviously vastly different in the apartment market. But from a Greenfield perspective, that is historically how it has played out on an annual basis. Pre HomeBuilder, it was sort of at that 73% owner occupier. And if you have a look at the financial year just gone, that dropped to 68%, so there’s been an increase in investors. We talked about Melbourne being in a bit of a lull as opposed to other states.
A savvy investor looks at that as a great opportunity. They see Sydney’s probably priced out. Queensland’s seen significant growth. Melbourne’s been the one that’s really been underpriced in terms of a national profile. We’ve seen savvy investors that have high wealth. They’re downsized. They said they’ve shifted down. They’ve got some excess capital, and they’ve actually picked up a lot that’s got rebates on it and incentives. And they’re able to get in the market. We’ve seen a shift in who is buying, but then we’ve also seen a shift in the median incomes. So that’s an important one for the Greenfield market because, traditionally, it’s been an affordable product.
You know, everyone wants to live right near amenities, middle ring, 5-10km from the city. It’s easy. You want a detached home. If you don’t want a detached home, you can have a townhome. But the reality is you’re sort of sitting at $1-1.5 million for something decent. If you have a couple kids, you are looking through the Greenfield market. And that’s why it served the market and the industry so well over the last decade or two that you’ve had affordable product out in the Greenfield market with decent infrastructure.
What we’ve seen pre HomeBuilder, the median size, 370 square meters, average income was $100,000. Fast forward four years to financial year just gone. You got a smaller lot at $350,000. And your household incomes increased to $135,000.
Richard: Wow.
Michael: So, you’re being priced out of the middle ring, so you got the ripple effect of yes, I really want to live in the middle western part of Melbourne. I Can’t. I’ll move out to Melton or Wyndham where I can get a block for 350 Square. I can put a 3-bedroom, 4-bedroom home on it, and I’ve got a house for my family.
That’s obviously a sharp change over those four years where the income’s 34%. So, I always look at that and say, “okay. That’s good. The household income, $135,000. We’ve got higher income earners in the Greenfield market.” What happens to the income earners that aren’t $80-90,000, which were traditionally the ones that we’re able to buy at sub $500,000, and they were able to get a 3-bedroom home. Nothing extraordinarily over the top in terms of house, but you get a 3 bed, 2 bath, garage, and all the rest of it. So that’s where those buyers are more concerned about. Are they putting added pressure to the rental market, which is massively under pressure at the moment? Or are they getting pushed out even further regional? Or where do they end up? So that’s sort of where my head moves pretty quickly.
Richard: Well, look, those stats are fantastic, and I hope that listeners can get insight into some of the stats that you’re tracking. I suppose to jump on that, what I found is those buyers that are getting priced out of the Greenfield House and land market, I do work with a lot of the developers and they tell me, and I’ve done the analysis as I’m sure you’ve done too, the market is getting denser, and they’re just doing a house and land package as a sum of money that is more affordable.
And, typically, that is in the form of a townhouse or a terrace house in a lot of these estates. And what we’re finding in a lot of the master planned communities right now is that medium density product is making up between 20-30% of the actual overall dwelling stock in those estates. And when we study those sales, they actually have the highest sales velocities. Those buyers often are the first home buyers. They are very price point sensitive.
I suppose the advice to some of the developers is to consider who your buyers are. I’m sure you’re doing that already, but speak with myself or speak with Michael. Consider who your buyers are, what their incomes are, and what they can afford because they are price point sensitive. And consider either going to an extent, going more dense, both with the actual land size and then going upwards with the build that is meeting a lot of those price points. But Michael makes a very good point. Some of them are still priced out. They’re going back into the rental market, which is chronically starved of supply. So, it’s going to be interesting to see how that continues to play out.
The final point I’ll make before we get on to the final topic for this, because I know we’re slightly over time, but, I speak with a lot of people in apartments, townhouses, house and land. I’m convinced that across all markets, the market is going to recalibrate upwards in price.
And the more people that I speak with, and the next guest on the show, I won’t tell you who he is, but, certainly, people will know who he is. He’s got stats on all the pricing around Australia and Australia’s capital cities. I’m convinced Melbourne is undervalued and underpriced, and there’s going to be very strong growth across all segments. And why that’s relevant for the medium and the higher density listeners is because there is a link between the prices, in the house and land market and what buyers are prepared to pay in the form of a trade-off and a compromise going into a townhouse or an apartment. So, it’s interesting to hear, just listening to Michael, what’s happening on the ground with land values and build costs and overall revenues. Whilst the market will go dense, are they still going to increase?
Michael, I just had a quick question for you. In the Greenfield house and land space, what advice do you have for the government in terms of what you think can be done? We have a major, major housing crisis. We’ve got aspirations to build 1,200,000 dwellings in New South Wales, 75,000 Victoria, 80,000 per annum. The Greenfield house and land market has a huge role to play. What are you seeing on the ground when you speak with some of your clients? What are some of the things that government needs to be made aware of? Or what are the tools and levers they can pull to actually start to rectify this issue?
Michael: Oh, that’s a big question. Look, the reality is there needs to be greater cooperation and collaboration between both industry and government. I think we’re starting to see it. I always take hope when I see something being called a national crisis. If it’s a state issue, it tends to drag on. A national crisis tends to get more eyes on it, and you tend to see a little bit more action quicker.
I think the one overarching thing that industry needs is certainty. Having understanding about taxes and all the rest of it it’s one thing, but actually having certainty from a developer standpoint, being able to understand where the PSPs are at. Developers aren’t moving in this market if there’s significant risk associated. If there’s a PSP that’s been taken off a work plan, there’s a very small chance that a developer’s going to look at it because they won’t be able to make it stack internally if they don’t know where the finishing line is. So having certainty around PSPs and windfall gains tax and all the rest of it is really important from a Greenfield perspective.
But you mentioned earlier on, this is not Greenfield has to do all the heavy lifting or Build to Rent has to do it all, or affordable housing has to do it all. It’s a collaboration between all, and everyone needs to pull their weight, and a lot of it comes back to government and their direction. So, if you look at Victoria, there’s what, 79 councils. A lot of the desire for housing is in your inner middle ring, which I understand that because there’s amenity there. They’re able to look after the budget by not having to spend more on infrastructure in the Greenfield market. And you’re able to move things through if they’ve got re-zoning and all the rest of it in some well-placed sites within the middle ring. That’s good. But what you’re relying on is, and I guess there’s positive in it where there’s a bit of the whole carrot and stick situation. There’s incentives for you to meet your quota, which is important, but you’ve also councils that really don’t need the carrot. They don’t need extra funding. They’re happy with how their neighborhood is. And that’s where, ultimately, every council needs to pull their weight. Everyone’s got different thresholds. Everyone’s slightly different, but you need every council to meet their quota to be able to get anywhere close to the housing accord that’s in place.
And that’s where that might be, the stick has to come out and you actually remove the housing program from the council, and you take it away from them and actually deliver. And I’m not talking high rise in the middle ring at 10-12 stories. You’re talking 4 or 5 level boutique, well-built developments that help with density, but also it fits within the location as well, and that can actually add to the community and the overall feel. So, it’s a part that all governments at all levels need to play by. And the industry’s got a role to play in that as well when it comes to the development of homes.
You mentioned earlier about townhouses and medium density and small lock code product. We’re seeing that through the master plans, and they’re adjusting away from a traditional 400 square meter down to 350. I would suggest in 18 months’ time, there’ll be about 325. And that’s an adjustment that we’re seeing on master plans where townhomes make up anywhere up to 20% of the market, and your small lock code, another 20-25%. So, you’re looking at close to 50% under 300 square metres.
Richard: Wow.
Michael: But what we’re seeing is some really good completions of finishes from builders. You got following builders with great designs along with niche builders as well. But what we’re seeing is the adjustment around costs from a build away from your double storey terraced homes to a single storey reloaded where you’re able to save a lot under construction. So, you are able to meet the price points.
So Greenfield, I believe, are adjusting to the market and the needs to deliver. You need government to support that through the Greenfield by providing certainty with PSVs. And we talked about, there’s excess lots in the market at the moment in Victoria. The market, as you said, will turn. And when it turns, it turns quick.
You need a pipeline in place. You can talk to the apartment side from a Greenfield perspective. A PSP can take anywhere up to 10 years. If there’s any issues around that, at best, it’s still going to take you 5-7 years. They need to be worked through now and on the work plan now to be able to have their required supply.
So, the VPA talks about 15 years’ worth of supply. Southeast have 7 years. And they’ve got excess supply right now. But in terms of future supply, there’s very little, i.e. Clyde South was taken off the work plan, which is massively important to the client development. So, there’s certainty that developers need. And if they have certainty, they will replenish their stock, and they’ll be in a position to keep adding to the market and be meeting demand.
Richard: Well, Michael, I know we’re a bit overtime. You’re certainly a wealth of knowledge. I’ve known that for a number of years, and I love our chats, and I hope the listeners can hear, or you can get some insight into some of the things that we do discuss. If you would like to discuss any of these issues further or have them apply to your project, please reach out, to either myself, or Michael. I’m happy to talk further and in more detail, confidentially to yourselves.
Just to close out the session, I always like to finish it off with a couple of key learnings and things for people to remember. The first one, and I’ve said this a number of times, definitely data and evidence is key. It’s all well and good for people to say that their gut, and don’t discount gut feel, but a lot of people have views that maybe is based on anecdotal evidence rather than actually looking at the data and the evidence. I can’t emphasise enough how important it is to use data and evidence as one of the decision-making tools.
The second point that, I think Michael, I’ve heard him speak and he speaks exceptionally well, at a number of conferences both in Melbourne, Sydney and in Brisbane, we have a national housing crisis. National, by, I suppose, definition means that it covers all states, all territories, and it requires states, federal and local governments’ cooperation as well as the development industry. I can’t emphasise that enough. We’re not going to get out of this unless we all come together, and play our different roles.
And then finally, I thought a really interesting learning, and it’s actually quite different to what’s happening in the higher density spaces. It sounds like the Greenfield market, it’s adapting. It’s getting denser. It’s changing price points. It seems to be responding to buyer capacity, which is very interesting to hear. Perhaps it’s a more mature asset class, or there’s just more room for the industry to innovate. I haven’t quite landed on what that might be. And, please, if there’s listeners out there that know or have more ideas about this, please reach out to me and let me know. But it’s fascinating to just see that even though across the industry there are issues with build costs, it seems that the industry innovating and evolving a little bit more in the Greenfield house and land market.
Michael, we’ll call it a day here. I’d love to have you back on the episode. We probably could do another one on townhouses and certainly another one on what ideas we have for the government in terms of the tools and levers that could be pulled. I’ll most likely chase you up on that given we have these chats off record anyway. It’s been an absolute pleasure having you on today. Thank you very much for your time.
Michael: Thanks, Richard.
Richard: I hope that you enjoy the episode with Michael and myself. I’ve just reflected on us, and there are a couple of deeper reflections I’d like you all just to consider on your journey in education in this segment of the markets.
The first one is the concept of supply versus production. We didn’t really touch on it yesterday, but when I reflected on it last night, that is an issue that I would like the industry, particularly local, state, and federal government to consider.
The industry idea or metrics or targets that are being used in the Greenfields house and land market normally refer to notional years of supply that are available for development. And you often hear policy or politicians or the government talking about, there’s 15 years’ worth of supply of Greenfield land available for development. And from a planning policy perspective, that is correct. There often are in these corridors that notional quantum of supply available. However, there’s a big distinction that needs to be drawn between supply and the production of dwellings, which is titled land and then land that’s getting built on having houses delivered.
And I think that right now there’s a big gap because you’ve got on the one side of the spectrum, the government talking about the notional supply of Greenfield house and land and you’ve got the industry on the other spectrum going, we need more titled land that we can build on and actually deliver product on. And I think that’s very important to just keep in mind. I think that with the housing targets that everyone is talking about, we really need to be focusing on the production of dwellings and the delivery of dwellings so that people that are moving into these states and territories or in the cities are actually able to live in. I encourage everyone to just think about it. It’s very different to have supply versus production. And production really needs to be the term, the definition used in the dwelling targets that are being prepared across the different capital cities.
The second point I’d just like to close out on is the concept of pricing. When I reflect on our discussion, there may have been different points in the talk where we spoke about whether pricing was increasing or decreasing. When I reflect on that, when I look at the work that we’ve done, there are submarkets where pricing is softening or going backwards a little bit. There are other markets, however, where it’s still rapidly increasing or other corridors where it’s rapidly increasing. Again, that goes back to my points about having data and evidence to support your decisions because there are corridors that are performing very differently. Why that’s relevant is because you’ve got increasing build costs, you’ve got increasing land costs, and prices are also having to respond. When I compare the Greenfield house and land market to the apartment market, it’s very interesting. Definitely, there’s more room for the industry to innovate and still respond to the price and affordability pressures that a lot of buyers, particularly first home buyers, are encountering. The tools and levers that you can play with as a Greenfield house and land developer are the size of the land lots as well as the actual size of the build.
I encourage the industry to keep innovating in the sense that you can either build upwards or make dwellings more compact and, as a sum of money, just get a lower price point that could still meet buyers’ thresholds. And this is typically what I’m seeing when Michael and I spoke about the small lot housing code and dwellings, coming in at a very small size compared to historical standards, but they’re still much larger than in, say, an apartment. And I feel that this is the course of action that a lot of the Greenfield estates are going to have to take just as the market continues to recalibrate upwards, continues to reset. It’s very interesting because the apartment market is not going to be able to do this with pricing. They’ve got fewer tools and levers to pull to get prices at a at a certain level.
But I’d encourage the industry to consider that with house and land, you can tinker a bit more with the sizes and, ultimately impact the prices. And I think that as the markets, the whole market across Australia, continues to recalibrate, continues to refine or find this new equilibrium, this is one of the ways to mitigate risk in the house and land market. I certainly hope that did make a little bit more sense. And, again, please reach out to either myself or Michael if you’d like to discuss how your projects are performing in the relevant corridors in a little bit more detail. Thanks very much. Bye.
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