The Development Digest | 2 March 2024

We are pleased to provide you with another edition of The Development Digest.

Please contact me on 0402 085 702 / jesse.radisich@jll.com if you would like to receive our more detailed weekly updates via email each Friday morning.

This update will cover:

• JLL’s Lunar New Year Event

• JLL Australian Apartment Market Research Overview Q4 2023

• Don’t Miss Out! - APDA Doom & Gloom or Coming Boom?

• Headlines of the Week

• Current JLL Development Site Opportunities

JLL’s Lunar New Year Event 

Last night, the JLL team in conjunction with Rothelowman and BMW had the privilege of hosting our annual Lunar New Year event to celebrate the commencement of the Year of the Dragon.

The event saw over 200 attendees, a key market update from JLL, and guests speakers from BMW and Rothelowman along with the traditional Lion dance. 

The room was filled with some of the most respected and active developers, consultants and capital providers.

JLL Australian Apartment Market Research Overview Q4 2023 

We are pleased to provide you with our next detailed summary from the JLL National Australian Apartment Market Overview Q4 report.

This Week’s Hot Topic: Demand

• A low level of listings across the existing dwelling sale market saw auction clearance  rates rise to a strong level of around 70% in early-2023. A recent lift in listings has seen a slight decline and clearance rates finished 2023 at slightly below 60%.

• The May Federal Budget estimates of net overseas migration continued the recent trend of upward revision. In total since the May 2021 Budget, the estimate has been revised up by 691,000 over the period from 2020-21 to 2023-24. Leading indicators suggest even more upward revisions may occur.

• Apartment sale transactions  have steadily risen across the six major capital cities over 2023. This follows a fall of more than a third in 2022 from very high levels. Sydney and Melbourne drove much of the initial recent rise.

Don’t Miss Out! - APDA Doom & Gloom or Coming Boom?

We are delighted to announce that our own Josh Rutman will be hosting at the upcoming APDA Event - Doom & Gloom or Coming Boom? Josh will be sitting down with Eddie Kutner for an intimate ‘fireside’ discussion, to uncover Eddie’s current views on the market, as well as his experiences in building one of Australia’s most successful development firms.  

Accompanied by a range of experts, this event will serve as a comprehensive exploration of the current state and the future of the development industry in 2024, and aims to bring together industry leaders, experts, and enthusiasts to engage in insightful discussions, share perspectives, and strategise for the future.

To secure your seats, please use JLL’s discount code DGBJLLCLIENTS to save over $150 per ticket.

Headlines of the Week

The AFR – Wage rises main driver of inflation

• Confidential Treasury analysis shows decade-high wages growth that has pushed the average fulltime salary above $100,000 is now the biggest driver of consumer price inflation, undercutting claims widespread corporate profit gouging is to blame.

• The inflation analysis showed labour costs made up almost two-thirds of headline CPI in the year to June 30, 2023. The remainder was made up of import prices, global price shocks and other elements. When annual CPI peaked at 7.8 per cent in December 2022, wages made up about 30 per cent.

The AFR – ANZ lowers home price outlook in key capitals

• ANZ has downgraded its house price forecast for Sydney and Melbourne for 2024, after prices slowed faster than expected since the start of the year.

• Melbourne is set to lift by 2 to 3 per cent, which is smaller than the 3 to 4 per cent expected earlier.

The AFR – Super funds explain their housing logic

• IFM Investors chairwoman Cath Bowtell has highlighted the commercial basis of the fund manager’s plans to invest money for Cbus Super, CareSuper, Hostplus and Rest in social and affordable housing, rejecting any notion the move went beyond the industry super funds’ core purpose.

• Ms Bowtell said the industry super-owned platform IFM’s plan to provide debt financing for community housing providers (CHP) in the tender round under way for financing from the federal government’s Housing Australia Future Fund (HAFF), was to get a risk-adjusted return on a largely derisked investment. The investment could potentially stretch into hundreds of millions of dollars.

• Disbursements worth $500 million a year from the $10 billion HAFF fund as well as a further $70 million from the federal government’s National Housing Accord Facility, aim to support the development of 40,000 social and affordable homes over the next five years.

The AFR – Regional housing outpaces capitals as rates rise

• Home values in regional markets are rising faster than those in the capitals as higher interest rates hit the cities harder and migration to the region escalates amid cost-of-living pressures, CoreLogic data shows.

• In the past three months to January, home values across the combined regional markets increased by 1.2 per cent, compared with the 1 per cent gain in the combined capitals.

• The loss of growth momentum in Sydney and Melbourne because of worsening affordability and higher rates had dragged down the combined capital cities’ overall performance, said Tim Lawless, CoreLogic research director.

The Age – Gap between wages and house prices widens

• The gap between wages and house prices just got wider, and experts say it will continue to grow unless there are sweeping changes to tax and planning policies.

• Wages increased by 0.9 per cent in the December 2023 quarter, according to the Australian Bureau of Statistics Wage Price Index.

• When dwelling prices are compared to wages over the past 20 years, the difference is pronounced. Wages have not quite doubled in that time, while home prices have nearly tripled.

The Age – Most back tax shift to aid home buyers

• A clear majority of voters back tax reform that can help young Australians buy their first homes, with 59 per cent in favour of using stamp duty exemptions to make housing more affordable.

• An exclusive survey also shows that 40 per cent of voters want changes to negative gearing on investment properties as one option to scale back tax concessions, while 26 per cent oppose the idea and the rest are unsure.

• While 36 per cent of voters support a reduction in tax concessions on capital gains, another 24 per cent oppose the idea and 39 per cent are undecided. ‘‘Support for changing negative gearing is in the minority, and has steadily dropped since we first asked the question in 2022,’’ Resolve director Jim Reed said.

The AFR – Falling approvals show Vic is way off home building target

• Stagnant approval rates show the Victorian government has little chance of meeting the target it set just six months ago of building 800,000 new homes in the next decade, housing industry groups say.

• Home building approvals in Victoria fell by 18.4 per cent to 4075 units in December, compared to the same month a year earlier, according Australian Bureau of Statistics data released this month.

• Victoria approved an average of 4514 new dwellings a month from October to December, the first three months after then-premier Daniel Andrews announced Labor’s plan to build 80,000 homes a year for the next decade, meaning the approval rate will need to almost double.

• This capped off a total of 51,045 new dwellings approved in Victoria for 2023, according to the ABS, the lowest in 10 years, and down from 62,281 in 2022 and nearly 71,000 in 2021.

The AFR – Cbus could put half a million into social housing: Swan

• Cbus chairman Wayne Swan said the industry super fund was comfortable with the risk settings of developing social and affordable housing and could invest more than the $500 million it has already committed through the Housing Australia Future Fund.

• Former Labor treasurer Mr Swan said the commitment made this week by Cbus, along with CareSuper, Hostplus and Rest, to debt-fund bids by community housing providers to develop 40,000 new low-income rental homes over the next five years showed it understood the new asset class.

The AFR – Ex-rental listings rise as investors bail out

• Mounting pressure from higher mortgage costs and increasing regulation could be prompting more residential landlords to sell their investment properties, potentially shrinking the already low rental supply further and fuelling another lift in rental growth, new data shows.

• The number of ex-rental homes listed for sale jumped by 30 per cent over the year to January, lifting the total to 11,950 nationwide according to data from property analytics firm Suburb-trends.

• The proportion of investor-owned listings has ballooned to 18 per cent, up from 16 per cent a year ago.

The AFR – Chalmers warns over weak growth

• The Australian economy may have contracted in December for the first time since the depths of the COVID-19 pandemic, economists say, as Treasurer Jim Chalmers warns GDP growth figures due next week are expected to be weak.

• Economic activity slowed steadily in 2023 as the household sector cut back on spending in response to high inflation and the sharpest interest rate tightening cycle in decades.

The AFR – Rents, building costs pose risk to RBA’s target

• Annual inflation held steady at 3.4 per cent last month, the Australian Bureau of Statistics said yesterday, which was lower than market expectations for the pace of price growth to tick up to 3.6 per cent.

• The annual increase in the cost of building a new home has fallen sharply from the post-pandemic highs of more than 20 per cent, but it has stalled since mid-2023 around a still-high 5 per cent. Rent inflation hit a decade high of 7.8 per cent last year and has shown few signs of moderating since.

The AFR – Pro-invest aims for $500m to convert hotels into homes

• Pro-invest Group has kicked off a $500 million equity raising to fund plans to convert older hotels and office buildings into potentially a $1 billion portfolio of co-living rental apartments and key working housing.

• The group, whose hospitality funds are backed by mainly offshore institutional investors, will look to tap into ‘‘very strong demand’’ for affordable housing close to the major cities to create a 2000-unit co-living portfolio over the next four to five years, it said.

• This raising will fund the first tranche development of about 2000 studio and one-bedroom apartments across 10 towers. This could be worth around $1 billion based on the metrics of Pro-invest’s existing $3 billion portfolio of 6000 rooms.

The AFR – Home building slumps to weakest since mid-2022

• Home building contracted 5.2 per cent in the three months to December, making for the weakest quarter in six as bottlenecks and labour shortages slowed activity, pointing to further weakness in a sector needed to boost the country’s stock of homes and of more builder failures.

• Australian Bureau of Statistics figures yesterday recorded a seasonally adjusted $19.7 billion worth of residential construction in the fourth quarter, the lowest since the three months to June 2022.

• The surprisingly weak residential construction contrasted with strong growth of 5 per cent in non-residential construction work to $14.6 billion and a 2.7 per cent quarter-on-quarter gain in engineering construction work to $31.1 billion.

The Australian – Home Construction to fall ‘well short’ of targets

• Australia will fall hundreds of thousands of homes short of the federal government’s housing targets as buyer appetite to build remains dampened by interest rates and builder insolvencies.

• Independent economist Harley Dale said he believed Australia would have a new home building shortfall of more than 70,000 homes in the first 12 months of the Albanese government’s plan to build 1.2 million homes in five years.

The Australian – Tax reform should focus on stamp duty

• Most states have not materially changed their stamp duty schedules in decades. That means that as home prices have grown more, homes have moved into higher-taxing brackets. The consequence of this bracket creep is that 95 per cent of buyers today face a stamp duty rate of at least 3 percent. In the early 1990s, as few as 12 per cent of buyers did.

• We know that stamp duty reform will be challenging. Stamp duty is a key source of state government revenue. In NSW and Victoria, stamp duty was more than a third of tax revenues in 2021-22.

• Victoria recently announced plans to phase out stamp duty for commercial and industrial properties over 10 years, something South Australia did in the mid-2010s.

The AFR – Wage rises main driver of inflation

• Home values nationwide gained momentum slightly in February, rising by 0.2 of a percentage point to 0.6 per cent, their fastest growth rate in five months, bolstered by increasing optimism over potential interest rate cuts later this year, data from CoreLogic shows.

• Melbourne values emerged from a three-month slump, gaining 0.1 per cent, while Sydney dwelling values increased by 0.5 per cent after drifting lower in November and December.

We hope you have enjoyed another edition of The Development Digest. Please contact our team if there is anything we can assist you with.

Jesse