Housing affordability and the empty homes scandal

Housing affordability in world capitals. Photo of Melbourne’s Southbank by Ashley Rambukwella flickr CC https://flic.kr/p/KfdUMR

The inspiration to start writing (again) about housing affordability came from left field. I was sitting back enjoying an American roots band, The Brothers Comatose, at the Blue Mountains Music Festival in Katoomba. Lead singer and front man Ben Morrison introduced the band, saying they were from San Francisco but maybe not for long. “The price of houses is crazy there (man) and most of the musicians I know are moving out because they can’t afford to live in the area.”

“Maybe we could move here,” he suggested, and the audience groaned, knowing that housing affordability is just as big a problem in Sydney and surrounds as in San Francisco, Vancouver, New York or Paris.

“Can we sleep on your couch?’’ he jested, before doing what musicians do to avoid thinking about the cost of living. Great band, by the way (check out this bluegrass old-style tune around one microphone).

Morrison’s complaint rang true – I did a modicum of housing affordability research which quickly showed that the median price of a house in San Francisco’s Bay area clipped $US1.5 million in the fourth quarter of 2017. The California Association of Realtors Housing Affordability Index shows that it would cost $US7, 580 a month to service the mortgage. The average monthly rent for a two-bedroom apartment is $US3, 441.

Housing affordability is a myth in Vancouver, Canada’s biggest West coast city. The 14th annual Demographia affordability study ranked Vancouver the least affordable among 50 American and Canadian cities. Internationally, it is ranked the third least affordable city among 293 locations around the world (Sydney was 2nd). The British Columbia Provincial Government has made several attempts to rein in the city’s galloping real estate prices, including a 15% tax on foreign nationals purchasing metropolitan real estate. Another new measure attempts to tackle a problem that plagues Sydney and Melbourne, Australia’s housing affordability problem cities.

The BC government conducted a survey which found that 8,481 houses in Vancouver were unoccupied during a six-month period. That’s 4.6% of the housing stock. Now the government is going to levy a tax on people who own houses and don’t occupy or rent them. The tax will be calculated at 1% of the assessed value. So the owner of a two-bedroom condo in Vancouver valued at $900,000 and deemed to be unoccupied will pay the BC government $9,000 a year.

Meanwhile, the housing boom in Vancouver is on the downturn, according to the Vancouver Courier, and they should know. Still, with a median house price around $3 million (Dec 2017) and condos going at $1 million apiece, it’s maybe time for that bubble to lose some air.

Meanwhile Down Under, house prices keep rising

Melbourne and Sydney made into Demographia’s top 10 list of the least affordable cities in the world. Sydney’s median house price of $1.11 million assured it of that invidious claim. Demographia ranks middle income affordability using a price-to-income ratio. Anything over 3 is rated unaffordable. On this basis, some of the world’s most affordable towns included Youngston, Ohio (1.9), Moncton, New Brunswick (2.1) and Limerick, Ireland (2.2). There are no affordable Australian cities on Demographia’s watch.

The least affordable city is Hong Kong (19.4) then a gap to Sydney (12.9) and Vancouver (12.6). Melbourne (9.9) is slightly more unaffordable than the aforementioned San Francisco (9.1).

Studies have shown that Melbourne is one of the big culprits in hiding empty houses among its residential property stock.

Australia’s 2016 Census showed that 11.2% of Australia’s housing stock was described as unoccupied on Census night. Empty property numbers were up 19% in Melbourne and 15% in Sydney compared with the 2011 Census. This growing anomaly is a global trend in the world’s biggest cities which have allowed rapid apartment developments.

Just why 1.089 million houses and units were unoccupied on Census night is hard to explain. But it probably suggests the owner/s were not in need of rental income and would rather keep the place in mothballs for use when the wealthy owners or friends and relatives visit (for the Australian Open, Melbourne Cup or the Grand Prix) or are relying on capital gain without the need to bother with tenants.

Hal Pawson of the University of NSW wrote in The Conversation that the spectre of unlit apartments in Melbourne’s night sky prompted the Victorian government to introduce an empty homes tax. Like Vancouver, this is levied at 1% of the property’s value. Similar taxes have been introduced in Paris and Ontario. Mr Pawson, Associate Director – City Futures – Urban Policy and Strategy, City Futures Research Centre, Housing Policy and Practice, UNSW, (try getting an acronym out of that. Ed.)  says the Melbourne tax only applies to inner city and middle suburbs and, there are ‘curious’ exemptions for foreign nationals with under-used second homes.

The flaw in the scheme is that it relies on self-reporting. Pawson says the lack of reliable data on empty homes is a major problem in Australia.

Census figures substantially overstate the true number of long-term vacant habitable properties because they include temporarily empty dwellings (including second homes).

Prosper Australia uses Victorian water records to estimate that about half of Melbourne’s census-recorded vacant properties are long-term “speculative vacancies”. That’s 82,000 homes. A similar “conversion factor” to Sydney’s census numbers would indicate around 68,000 speculative vacancies.

Labor Opposition shadow Treasurer Chris Bowen has proposed a national tax on homes left empty for six months or more.

Pawson says these “cruel and immoral revelations” come at a time when 400 people sleep rough in Sydney every night and hundreds of thousands more face overcrowded homes or unaffordable rents.

He says Australia has a bigger problem in terms of under-utilised occupied housing. Australian Bureau of Statistics survey data shows that, across Australia, more than a million homes (mainly owner-occupied) have three or more spare (read unused) bedrooms. A comparison of the latest statistics (for 2013-14) with those for 2007-2008 suggests this body of “grossly under-utilised” properties grew by more than 250,000 in the last six years.

While authorities are grappling with the issue and how to perhaps tighten foreign ownership laws, the ANZ Bank did its own survey. Foreign buyers were playing an increasing role in spurring demand for new houses and apartments, it found. The ANZ analysed Reserve Bank data to conclude that in 2015-2016, foreign investors bought between 30,000 and 60,000 dwellings in Australia. This equates to 15% to 25% of all new dwellings, 80% of which were apartments, which can be bought ‘off-the-plan’.

There is good reason to suspect that the new apartment markets in Hong Kong, Vancouver, London, Paris and other desirable world capitals are underwritten to some extent by foreign nationals (including Australians).

The problem which could arise, say in the case of a global recession, is what happens in cities like Melbourne and Brisbane where foreign investors have bought up to 35% of new stock, if these owners are forced to sell.

Not to worry, most big box discount stores will give you a large cardboard box in which to live. The dumpster bins behind shopping centres have perfectly good food that’s just been chucked out because it has passed the use-by date.

Trust me.

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Travel safe this weekend, people

Not good with crowds

Photo by Laurel Wilson: Chilling out in Kowloon Park, Hong Kong.

It was the sight of the  crowds – 83,625 screaming footie fans at Sydney’s ANZ stadium that set me thinking, looking at that roaring sea of blue – it’s the last place on earth I’d want to be. Players interviewed after the Cronulla Sharks beat the Melbourne Storm 14-12 said they could not hear the referee’s calls, could not hear players calling to them and had tinnitus for hours afterwards.

I’m not good with crowds or noise. So I should have known better than to pick a four-day stopover in Hong Kong last time we travelled overseas. On the third day I went in search of a quiet place with as few people as possible around me. Luckily, our hotel was close to Kowloon Park, a 13 hectare green space with public gardens and aviaries, surrounded by some of Hong Kong’s most striking 19th century British buildings.

I found a spot under a tree, its leaves dripping with humidity and lay down for a spell. On a lawn near me 30 or so older Asian people spread themselves out for a spot of Tai-Chi. You could still hear and feel the city hum and strum, but the impact was muted by the tranquillity of this well-tended spot; well-tended because there is almost full employment in this island nation, now governed by mainland China. People have all kinds of jobs and walking around with a pole spiking trash and wind-blown leaves and putting them in a garbage bag is just one of them.

Those who have visited the former British protectorate (returned to Chinese rule in 1997), will know what it is like for an Aussie to visit Hong Kong, where 6,400 people share every square kilometre.

Some of the land has been reclaimed from the ocean; to build a new airport, but also to build yet more apartments in this vertical city.

Hong Kong apartments on average comprise 14.86sqm of living space. Compare that with your standard Aussie ‘McMansion’ with its five or six bedrooms, three or four bathrooms and two or three-car garage (around 241.54sqm).

So if being one of over 83,000 people doing the Mexican Wave in a tiered stadium gives you the jim-jams, don’t have a holiday in Hong Kong, Singapore, London or Manhattan.

One thing world travel does to a man brought up in the sparsely populated and wide open spaces of Australasia is to appreciate how quiet things are when you come back from New York, London or Tokyo. As my pal Ed said, on returning from a three-month stay in Mexico City: “The air here is so sweet and fresh – hey, do you know a place that does good burritos?”

So where do you go if the weight of people is getting to you?

The least populated country on earth is Greenland, though that may change as arctic ice keeps melting and exposing more living space. Greenland’s ice-free population density is 0.03 persons per square kilometre, which is about one person to every 3,350 hectares, if you really needed to know.

As it happens, Australia also ranks among the least densely populated places on earth, but as in many such examples, this is misleading. As we know, the majority of Australia’s population live in a narrow coastal belt between Cairns and Melbourne. Some also live in Tasmania.

All sorts of anomalies and oddities arise when you start looking at the world’s most densely populated countries in terms of people per square kilometre of land area. The World Bank’s list (as of 2015) ranges from Greenland 0.03, Australia 3, New Zealand 17, China 146 and Japan 348, to Bangladesh 1,247 and Hong Kong 6,958.

Small island nations like Malta (1,348) and the Maldives (1,264) suffer from a lack of physical space rather than too many people. The most crowded of all is China’s 25.9sq/km gambling mecca, Macau, with 19,393 people to the square kilometre.

Those who have spent a splendid week or two roaming around the sparsely populated South Island can attest to the southern half of New Zealand’s population density of 7 (not counting sheep). Stewart Island (0.4 persons per sq. /km) is also nice at this time of year.

Seriously, though, the world’s population distribution is seriously out of whack. The herd mentality takes over when humans move about.

The Chinese government spent billions creating vast new urban cities in the interior where they planned to resettle people, taking the pressure off Beijing, Shanghai and Shenzhen.

Officials created the “Dubai of northern China” in Ordos, northern Mongolia in 2010 (Ordos is 700 kms from Beijing). The city has a capacity to house 300,000 people yet only 20,000 to 30,000 people have moved there, hardly a satisfactory return on a $161 billion investment. The answer according to this blog is that the government has failed to persuade people to move there.

Amid many such examples, China’s population remains concentrated in three key cities the population per square kilometre being: Beijing (11,500), Shanghai (13,400) and Shenzhen (17,150). Capital city population densities in Australasia look well contained by comparison: Sydney (2,100 per square kilometre), Auckland (2,000), Melbourne (1,500), Adelaide (1,350) and Brisbane (950). The above figures are a few years old but they still paint a vivid picture.

Our most under-populated state is South Australia, with 74% of its 1.67 million people (including 8 FOMM readers), living in Adelaide. SA’s population density is just 1.62 people per square kilometre.

South Australia is dry, flat and exposed to the elements. The state is surrounded by the 100km-long Bunda Cliffs (the Great Australian Bight), the Nullarbor Plain and the Simpson Desert.

If you really want to get away from it all, becoming a Jackaroo or Jillaroo (ranch hand), on one of SA’s vast cattle stations (up to 24,000sq/km) is the way to go. The climate is unforgiving in the interior, however, so much so that many residents of outback mining town Coober Pedy live underground.

No doubt their air-conditioning packed it in when last week’s storm event (SA Energy Minister Tom Koutsantonis equated it to a category five hurricane), took out 22 electricity transmission towers. The ensuing seven-hour state-wide power outage (some lost power for up to three days), should hardly have been a surprise. Some politicians used the crisis to give renewable energy a good kicking although exactly why has not been satisfactorily explained.

Australia does not have a national electricity grid as such and much of its transmission business has been privatised so there is a user-pays mentality.

After the SA crisis, Federal Environment Minister Greg Hunt called for a “more integrated system of providing consumer and investment security”. In an Australian Financial Review column Mr Hunt said: “This means that the states will have to consider new or upgraded interconnectors between Tasmania and the mainland, and South Australia and the eastern states.”

As always, the squeakiest wheel gets the most oil. The New South Wales government has invested $30 billion in energy infrastructure to ensure its 7.54 million residents can keep their porch lights on. Meanwhile, the SA Government, knowing the Port Augusta coal-fired station had just been decommissioned, made an ironic decision in the July State Budget.

Tucked away in the $209 million provided for infrastructure was this lone item for energy: $500,000 towards a feasibility study to explore options for greater energy inter-connection with Eastern states to allow for more base load power. A necessary part of the equation, but not much help when the transmission towers (and the lines between them), are out of action. Any electricity experts out there with a theory?