Developers starve housing supply to drive up prices

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The Queensland government last week convened a housing summit to deliver affordable homes. The summit will look at greenfield development as a way of solving a lack of housing in the state’s south-east.

However, Dr Cameron Murray believes such greenfield development will not help reduce house prices:

“You can rezone and do whatever you want out at Caboolture West,” he said, “but it’s not going to make houses cheaper.”

Murray spoke about a “built-in speed limit” of housing supply in a private property market: profit. Rather than flood the market with a glut of newly built homes, developers of large-scale estates can make far more money by releasing houses in stages, keeping demand high.

He said there was already “an unfathomable amount” of land zoned for housing in south-east Queensland: “We have Yarrabilba, we have Springfield still going, we have Flagstone, we still have North Lakes finishing, we have Caloundra South, Mango Hill, Pinkenba, Coomera…

The biggest winners, according to Murray, are the owners of agricultural and rural land whose properties are rezoned for high-value residential uses.

“This is just a convenient story for strategic landlords to direct investment towards their land,” Murray said.

“That’s the game that is really going on.”

Dr Murray is right that developers manipulate the land market to ration supply and maximise their profits.

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Consider the below testimony from ‘Highrise’ Harry Triguboff’s, who explained how Meriton had deliberately withheld apartment stock from the market to drive up prices:

The documents showed a 15 per cent increase in the number of investment units including serviced apartments on the Meriton books, with the company owning 13,314 units as at June 30.

Meriton owns more units than it sold for the year, which was 12,359 apartments or about 4 per cent less than it sold in 2020.

Mr Triguboff, who said he expected a $400m profit from leasing the units owned by Meriton next year, told The Australian: “I am holding a lot more than I am selling at the moment, and as the value of property goes up the value of what I have kept rises…

Mr Triguboff said demand for his apartments was outstripping supply, a problem he blamed on a lack of approvals by local government authorities in NSW and Queensland…

So according to Triguboff, demand for his apartments was outstripping supply due to planning constraints, yet he chose to hold onto properties and drip-fed stock onto the market to maximise returns! Talk about a contradiction.

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Property developer Mirvac Group engages in similar supply manipulation, with CEO Susan Lloyd-Hurwitz stating that with demand rising on the back of immigration, Mirvac will respond by releasing 900 apartments to the market in Sydney, Melbourne and Brisbane, compared with about 700 in 2021-22:

Mirvac will bring 900 apartments to market this year as inbound foreign migration returns and in response to an east coast housing market that was “increasingly undersupplied” by a hiatus in new developments, chief executive Susan Lloyd-Hurwitz said.

The new apartment launches across Brisbane, Melbourne and Sydney [is] more than the 700 it released last year…

The above shows that it is the deliberate actions of developers, not planning restrictions, that is causing the ‘lack of supply’ in the housing market.

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It is ‘economics 101’ for developers to act like a cartel, exercise their market power, and maximise their profits by restricting land releases.

Zoned residential land

Developers are sitting on masses of zoned land.

How else would lot prices have skyrocketed while developers sat a mountain of zoned residential land, totaling more than a decade of supply?

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Why would developers bother to flood the market with lots when they can instead ration them and sell their stock at higher prices to maximise their profits?

About the author
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.