Sydney Housing Affordability: Why Feasibility Is the Problem

Sydney more and more is in the middle of a huge housing crisis. We've got almost the most unaffordable housing. Is there a part of you that also thinks that Sydney itself has also changed a lot? There isn't a suburb in Sydney, not one, where someone on a median income in that suburb could afford to buy a median home, house or apartment. Yes, Sydney house prices are very unaffordable.

And yes, we should look at supply from it. But I also think that Sydney is a very different city in the fact that globally, Sydney, how it ranked today is different to how it ranked 20 years ago. The balance has been too much against getting development done, both in terms of outcomes and process. These responses are, hmm, let's just chuck out 5% loans and government guarantees and throw them left, right and centre and get some really quick first home buyer benefits out there. We want to win today.

5% deposit schemes really are, it's almost cruel. How realistic is that these reforms will actually translate into results on the ground? Now, when it comes to nerding out on property, on the property nerds, we speak to everyday investors who are building a successful portfolio using data. We speak to some of our team members sharing their story and how they're impacting the lives of Aussies in building equity and building wealth. And we share the mic with some of the country's leading economists, whether it's Nerida Connersby, Cam Kusher or Dr.

Joel Bauman. But the key here is, is that when we go into topics on the property nerds, it's about unpacking the real issues, figuring out how to get to the other side with data and what solutions can get people to where they want to get to, whether it's understanding the market, whether it's understanding drivers of supply, whether it's understanding the data behind people's portfolios and the decisions they made to get ahead, or just hearing from some of the other nerds on the show, like Jack and Adrian in building the right portfolio. But today's episode, we actually speak to someone very different on a different side of the equation of when it comes to the property market. And it's not necessarily about building the portfolio, but it's about understanding the dynamics of the housing market and figuring out what other things impact it. And so today we speak to Mark Speakman, part of the New South Wales Liberal Party, who'll be here to talk about key components of the housing supply crisis in Australia, in particular, New South Wales as a core focus, where we unpack things like supply dynamics, whether the 5% deposit scheme for first home buyers is a good thing or a bad thing.

So tune in to know more about that particular one. And we'll go into the deep details of supply because there's a lot more to it than just simply building more. In fact, one of the things that you'll be surprised by in this episode is how much of a home is dedicated to actually taxes and commission. You'll be surprised because the answer even shocked some of our fellow property nerds co-hosts. Tune into this episode to really understand the dynamics of the supply side of housing from Mark in the Liberal Party, who's actually also been a part of roles that understand planning and more in the government.

So let's jump in and speak to Mark about his thoughts on some of the housing supply issues in New South Wales and Sydney. Nerd alert! Property nerds, the home for data-driven property investors, where we uncover Australia's hot and cold markets, latest headlines and trends. So Mark, welcome to the show, my friend. Thanks, Arjun.

You've been very vocal on New South Wales falling behind its housing targets. And I guess what triggered your recent push to highlight just the scale of the supply issue that we've got at the moment? Sydney more and more is in the middle of a huge housing crisis. We've got almost the most unaffordable housing in the English-speaking world when you compare average incomes with average house prices. 50 years ago, to buy an average house in Sydney, it was about four times average incomes.

Now it's 13. There isn't a suburb in Sydney, not one, where someone on a median income in that suburb could afford to buy a median-priced apartment in that suburb. So it's a huge problem. It's getting worse. And unless you've got the bank of mum and dad, you're going to see Gen Zs and millennials basically priced out of being able to live in Sydney.

That's unfair. It's an intergenerational inequity. It's also an economic disaster because you're going to have police, fireys, nurses, essential service workers just can't afford to live in Sydney. They're going to go off to elsewhere. And it's really damaging to the economy.

So on a whole lot of fronts, we have to think very, very differently than we have over the recent decades to solve this crisis. Now, when it comes to the Liberal Party, you've described the Liberal Party as dimbies, right? And advocating for appropriate development is the key thing here. How do you see this philosophy guiding solutions to today's particular housing crisis? Well, eventually I adopted the language of Yimby rather than a dimbie because no one could understand it.

It created a whole lot of misleading impressions. I think people are more and more accepting of greater density in their suburbs. They realize we've got to have more density to solve the housing crisis. But people want to see appropriate development. They want to see open space, public transport, schools and hospitals.

And that's where I borrowed the phrase of dimbie. It wasn't my invention. It was the Productivity Commission of Peter Akostak's invention, appropriate development in my backyard. But some of my political rivals made fun of it against development in my backyard, anti-development in my backyard. So it was just too hard to keep that.

And I've settled for the word Yimby to make it clear that we need to be pro-housing, pro-development to solve this crisis. So Mark, if people are more open to higher density and things like that, what do you think is the single largest bottleneck when it comes to supply in New South Wales? The single largest bottleneck is financial feasibility. The Property Council in the last day or so have said, you know, we're not short of zonings or rezonings. We're not short of strategies.

We're short of feasible developments. And you can have all the upzonings and rezonings around train stations in the world and all the patent books and all the other things the government have done, which we broadly agree with. But unless it is financially feasible to build on a greenfield site or an infill site, it just won't happen. And there are vast areas of Sydney, almost 90% of Sydney, where it is just not feasible to have large-scale infill or greenfield development. That's partly because of continuing high interest rates, escalating construction costs, particularly labour costs, but also government taxes and charges.

They commonly represent now between 25% and 40% of the cost of a new home package. So often when you talk about a home and land package, it might be more accurately described as a home and tax package. Yeah, home and tax and commissions. There's about three there, right? It's the highest rate of taxation of new homes in the country, and it's the highest on record.

That is the biggest hurdle to increasing housing supply and therefore making homes more affordable. So Mark, New South Wales planning reforms have been announced to speed up approvals, right? We've seen some of the medium density and townhouses or duplexes start to become a little bit easier in key areas. But having previously served as the Assistant Minister for Planning, how realistic is it that these reforms will actually translate into results on the ground? We've talked on feasibility a bit, but will it actually make a big difference from these reforms as well?

Only time will tell. As I said before, the biggest problem is financial feasibility, but I think these planning reforms will improve financial feasibility. Time is money. Delay costs developers and builders. And if you have a planning system that is quicker, you'll have approvals more speedily.

You'll also have a more predictable planning system, and people price in the uncertainty of whether they're going to get an approval at all or whether the conditions are going to be too onerous. So I think a simpler, cheaper, fairer, less complex planning system will go some way to improve financial feasibility. And then community consultation is another part of it, right? And with community consultation, like, look at the resistance that comes up with it and balance the resistance that's there and consulting them with actually just delivering the supply. What's that right balance look like?

Well, I guess it's in the eyes of the beholder. It is important to have community consultation upfront when you're looking at the strategy or the master planning for a suburb. We don't know quite yet what the government will have in mind. We proposed amendments to make sure that the community participation plan will be subject to a veto by parliament. We've had every different council having a different community participation plan, which makes it very complex for developers and builders.

There will now be a standard plan across New South Wales. So it's important that upfront, when you're master planning, you have that consultation, that the communities have a say in what their neighborhoods look like. But once you pass that phase, you don't reinvent the wheel every time there's a development application. And that's why we've supported the government's targeted assessment pathways to have proportionate consideration of different factors, expert reports, and so on, where you've already had a master plan, you've already had a strategy. So I think I'm confident that these planning reforms will get that balance right.

We had a go in 2013 at doing this. It was knocked back by the then Labor opposition and the crossbench in the upper house. We didn't get it through, but it's worth another go 12 years later. Yeah, I find with the balance, it's one of the hardest things to achieve as well. And I know, as Hmm, let's just chuck out 5% loans and government guarantees and throw them left, right and center and get some really quick first home buyer benefits out there.

We want to win today. We want to look sexy today. I mean, what are your thoughts on all this 5% stuff? Well, the price of anything is the function of supply and demand. If there's a flood and you've lost your tomatoes, the price will go up because of a shortage of supply.

If you fuel increased demand, it's ultimately counterproductive because it just pushes up demand and pushes up prices. If you've only got, say, 10 homes, well, no, you've got eight homes and you've got 10 bidders and you decide you're going to give more money to two of those bidders because they're young or first home buyers, well, those two will have a better chance of securing some of the eight, but there will still be two people that miss out. You're really just chasing your tail. So ideas like 5% deposit or letting people raid their super scheme is ultimately counterproductive. You've got to ease demand perhaps in some other ways, but the main thing is to drive up supply and 5% deposit schemes really are, it's almost cruel.

It's almost cruel because you're potentially letting people overcommit themselves to loans that they can't service if there's a change in interest rates. Loving the show and keen to invest? Well, book your free discovery call and we'll actually walk you through how to build a high growth portfolio without all the guesswork. Just jump onto the link in the show notes or visit investorkit. com.

au to book your discovery call. And now let's get back into the show. Now, I mean, this is a different opinion I have on the Sydney market and it's not so much different in the pace of it's wrong to be unaffordable. I definitely agree with what you've mentioned earlier in terms of Sydney's affordability being a concern. But is there a part of you that also thinks that Sydney itself has also changed a lot?

And what I mean by that, it's like, yes, Sydney house prices are very unaffordable. And yes, we should look at supply from it. But I also think that Sydney is a very different city in the fact that globally, Sydney, how it ranked today is different to how it ranked 20 years ago and how it ranked 30 years ago. And when I say rankings, I don't mean housing affordability because it's clearly not looking good on that ranking. But I mean, lifestyle, people wanting to call Australia home, people wanting to come here and be like, I want to start a better life here.

The across the ditch as a fellow Kiwi that's come across to New Zealand and from New Zealand to Australia to all my other Kiwis who know what I'm talking about saying life's good here, right? How do you also then look at it from that side where it's like we want to balance or we want to not just balance, but we want to look at it from the perspective of maybe there's any part of Sydney's expensiveness or price increase kind of also be like, well, it's also normal for a city that's that popular to pick up the way it has. What are your thoughts on that? Sydney has, for as long as I can remember, been the most expensive housing market in Australia and has been unaffordable for decades. But now it is more severely unaffordable than ever.

The statistics I cited earlier, 13 times average income now to buy an average home was four times 50 years ago. So yes, Sydney is always going to be expensive and more expensive than regional New South Wales and probably more expensive than other cities around Australia. We don't have Melbourne's vast unlimited planes, it's tautological planes, but we've got the ocean on one side, the Blue Mountains on another side, Royal National Park to the south, Karingai Chase and Hawkesbury to the north. So we are boxed in a bit, but ultimately the price of homes in Sydney is a function of the public policy we choose. We do need that input of people, that input of brainpower to keep the economy going.

We also need housing choice. The people you're talking about coming to Australia, they don't all want to live in quarter acre blocks and weed the garden and mow the lawn every weekend, particularly at different stages of life. That might be what people with young families might want, but without stereotyping people who are downsizers, who are older, don't want to have that upkeep and people who are younger probably don't want to have that burden as well. They also want restaurants and theatres and that which you get with a greater density. Yeah.

So I just want to touch on the 40% tax, like a house and land package being 40% of the cost is tax. I mean, I actually prepared this question because I heard about it a month ago and you touched on it earlier on. So if we could just break that down a bit, it's like you said, stamp duty, payroll tax, local government fees, development charges, permits, inspections, compliance costs, time delays that are red tape. So to put that into perspective for the people at home, you have a million dollar house and land package, 400,000 of it's going straight to tax. So what meaningful change do you think a policy could make in regards to the charges and tax to kind of bring that back?

Well, I think the government has to take its eye off the ball with that project. So in 2022, when we were still in government, we had a place strategy for Camellia Rose Hill. It's got light rail connection. It could accommodate, we thought about 10,000 new homes. Obviously it's going to be decontaminated.

Obviously that's a huge issue and that had been costed at around $250 million. But when the government was pursuing its idea of taking over the race course, I think it's taken its eye off that place strategy that was already in place. So we've said now that their Rose Hill proposal has fallen through, they should be looking at this as part of their plan B, as well as other things we've suggested. We think Newtown, McDonaldtown, Erskineville, St. Peter's, that's an incredibly well-located precinct with four train stations, 10 minutes from the CBD.

That's ripe for renewal. 10 or 15,000 new homes there. Long Bay Jail. Why would you have this massive jail and a prime site for residential real estate? We think that could be redeveloped as well.

And you'd actually make money out of selling that off, relocating a fit-for-purpose jail somewhere else. Because Long Bay is actually not fit for purpose as a jail. It's over a century old. And with that surplus- Surely they don't get views as well from the window, in the water views, eh? No.

But the surplus you'd get would pay for the infrastructure, the enabling infrastructure and the social infrastructure that you'd need with any major new development. And that's been part of the problem with the government's proposals at the moment around train stations is they haven't identified the extra infrastructure they're going to provide to support those new communities. Yeah. I mean, all this stuff that we're talking about, it's not going to happen overnight. But if you were to think about a timeline, five years, 10 years, and you look back, what does success look like if you were to start to inch forward?

So these sort of rezonings like Long Bay and Camilla Rose Hill, they're five, 10, 15-year plans. They're not going to solve the housing crisis overnight. But easing state government taxes and charges is something that can happen straight away. That can happen straight away. I think success, well, at the end of the housing accord period, success would be meeting and beating New South Wales' 377,000 new homes target.

I don't think we're going to get anywhere near that. The government's own budget papers for this year forecast 140,000 shortfall, a 40% shortfall. And very recently, the Property Council forecast that we will fall 60, 60% short of our housing target. So we're not heading the right way. The government has made a lot of announcements, which we broadly support, but they don't go far enough because they're not addressing financial feasibility.

Now, when it comes to the solutions, what I've appreciated about today's conversation is there's a multifaceted part. It's like, it isn't just, oh, just build more, but it's like, we have to consider the right level of workers here. We have to consider the fact that you can't just spray it and hope with quick fix policies. Taxes need consideration, the right areas, the right zoning, the right areas need repurposing. There's multiple things coming together here.

One of those things I want to talk about, though, is the right workers. We have had a tremendous, in a positive way, public infrastructure spend when it comes to Australia's job creation and when it comes to Australia's just overall output. A lot of it has come in the public part. Now, you could look at it glass half full, half empty, go like, hey, where's the development of our private industries and sector? Or you could look at it from the perspective of, great, there's reinvestment, there's major roads and railways and other things being, stadiums, and over the last seven or eight years.

But the problem is we find workers that then switch from the residential jobs over to these major contracts, and then that becomes hard to find the right workers to get it up to speed. What are your thoughts on the things that we could be tackling on just the right level of workforce output as well? Sure. Well, part of that is federal in terms of the effect that onerous industrial awards are having on productivity. Part of it is the responsibility of state government.

So our number of trainees and apprentices now commencing are at five-year lows.