There is much discussion about the current constrained supply of land across Australia. Here on the West Coast there has been an ongoing debate between developers and the gate keepers of supply (the bureaucrats on the planning side) as to the actual state of affairs. Depending which side you are on, it’s difficult to accurately determine what the real situation is. Is there a supply shortage or not?
One thing is certain, and that is that bringing development projects to fruition in our country remains a fraught proposition.
The cost of delivering land supply to the market continues to spiral as more and more red tape binds up developers, forcing unjustifiable delays while projects are continually bounced from one government authority to another. A process that should take months now takes years to reach approval stage.
Delays cause a huge escalation in the cost of the final product, and this is further exacerbated by greater holding costs. One of Australia’s foremost developers of apartments and land, Stockland, recently called for a single, national body to control the development approval process, to replace our present, clumsy reliance on hundreds of separate local authorities.
Speeding up and un-encumbering the approval process for all areas of property development will bring product to the market at a cheaper price for the end user. A speedier approval process and elimination of red tape would also create more supply to the market, which in turn would increase the rate of supply and therefore decrease the eventual end price. Unfortunately there is no chance of this eventuating in the foreseeable future.
The other cloud on the horizon at present is the ‘Dudd Tax’, which n one single swoop has wiped tens of millions of dollars off the share market, shelved many promising projects, stripped tens of millions of dollars from the value of superfunds, downgraded Australia’s global standing, stifled any chance we had of economic recovery and sowed many seeds of doubt across all sectors of the community. Coupled with the ‘basket case’ economies in Europe, the continuing US predicament and the possibility that China is running out of steam, it is not surprise that an air of caution currently pervades the retail, housing and resource sectors, not to mention the mindset of the average Australian householder. All this combines to affect supply just as much as it affects demand.
Yet, as Australia, and more importantly Western Australia, has proven, we are in by far the best place in the world to experience a positive recovery. Once we move out of the current state of flux and being to head upwards on the trajectory, the lack of supply brought about by the factors highlighted above and the realisation that so many developers over the last couple of years have decided not to build more houses or apartments will combine to put incredible pressure on supply. This will of course, only serve to push prices further upwards.
The message here would be: you probably won’t buy property any cheaper or better than you can today. As a ‘counter cynical investor’, right now could well prove to be the perfect time to purchase.