HIA Land Monitor: propaganda pretending to be research

Posted on 18/05/2007  
The Housing Industry Association is trying to hoodwink us with its new Land Monitor Report. It masquerades as serious research but in reality it’s just another plank in the HIA’s campaign to harass state governments into releasing more land for developers.

 

The HIA-Australian Property Monitors Land Monitor Report claims to provide “clear evidence that until the supply of reasonably priced land improves, housing affordability will continue to deteriorate”.

But the report does nothing of the sort. When the data is examined (by a mind not distorted by vested interest), it provides a different set of conclusions. The HIA appears to have adopted an age-old tactic: keep repeating the claim often enough (that land shortages are “fuelling a national decline in housing affordability”) and eventually people will accept it as fact.

The one thing everyone agrees about is that affordability is a serious issue. The area of disagreement is the causes and the solutions. The HIA wants us to believe that the problem will be solved if lots of new development land is made available. This is self-serving nonsense. The affordability issue is more complex than that.

There are many components. Taxes and charges at all three levels of government is a huge factor in the cost of new housing. They can add between $100,000 and $200,000 to the cost of a new house-and-land package, depending on the location.

But new housing is only a small segment of the market. It comprises only one in ten of home purchases. Ninety percent of buyers purchase existing homes. This means the HIA argument is irrelevant to most home buyers. It’s a big issue for HIA members, who make their living building new houses, but for most families the cost of new house-and-land packages is of no consequence because they buy existing houses.

So the HIA claim that high land prices are “crippling housing affordability” is highly suspect - and releasing new land for development will do little to affect typical home prices.

I’m not the only person who thinks the HIA campaign is a furphy. The Sydney Morning Herald reported on 12 May: “One group that campaigns on housing affordability said the claim that land supply affected affordability across cities was unproven and only served the interest of property developers. Land on the fringe of Sydney did not necessarily affect the market in established areas, said Australians for Affordable Housing spokesman David Imber.”

The HIA makes some alarming conclusions from the figures it’s collected. But none of them are supported by the data.

It would have us believe that we’ve seen extraordinary growth in land prices and that it’s caused by a government-induced land shortage. But land prices in the five largest cities have merely followed the pattern of the overall property cycle.

Prices rose as the recent boom took off in the early part of the decade. Price rises peaked in 2003 and 2004, and then levelled off to negligible growth as the boom subsided. There’s nothing extraordinary in that.

The weighted average vacant lot price in the five largest cities grew 7.7% last year. That’s pretty much in line with the average growth in house prices. But that’s the national average: land price actually fell in Brisbane, other parts of Queensland, Darwin, Hobart and Western Australia (excluding Perth).

The HIA makes much of the rise of land costs as a proportion of new house-and-land prices. But, again, when you examine the figures you see that in all the major cities except Perth the current proportion is well below its peak. In other words, the land component as a factor in the cost of a house-and-land package has fallen recently – which deflates the argument that rising land costs are creating the affordability problem.

In Melbourne, for example, land as a proportion of new house-and-land prices peaked at about 45% in 2001. Then it fell markedly before settling at around 40% in 2003 – where it has stayed, unchanged, for the past four years.

In Brisbane, this factor peaked at around 48% in 2005 and then fell away to its current level of 45%. In Adelaide, the land component factor has fluctuated quite considerably over the three years and is currently below its 2005 peak. Even in Sydney (where land prices are much higher than in Brisbane, Adelaide or Melbourne) the land cost component was at its highest in 2003 and 2004 and has fallen away since to its current level of 57%.

Perhaps the best clue explaining the HIA’s conclusions is contained in the footnote to the Land Monitor report. It says the report is based on State Government data and anecdotes from residential property developers.

The loudest noise in the property market is the voice of vested interest and no group pursues their interests more vigorously than the development lobby.

ENDS

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