but is falling prices the solution?
Here's an uncomfortable truth: Prices simply cannot drop if you also want to stimulate new supply*.
Why? Because to make new #development projects feasible, the end price has to cover all of the many costs, taxes, and a deliver a bankable margin. And the price the market will pay for a new dwelling is closely linked to underlying established house prices.
If the gap is too large, like it is currently, buyers won't buy and projects don't happen. That's why there are tens of thousands of dwellings, especially apartments, approved around the country that are not being activated.
Minister Clare O'Neil has this right; Prices need to grow, at least to keep up with the level of cost inflation, to get projects moving.
The big price spikes we've seen in some different parts of the country are not a healthy phenomenon, but a symptom of that low historic supply.
With recent cost inflation, the gap between the cost of established housing and the price new homes need to command is only growing. This impacts all housing types, but particularly the high density space, where there is 30% or even higher mismatch between an existing dwelling and what a new one needs to sell for in the mass market.
Honing in on those units being the solution to supply and affordabilty is misguided. And fiddling with evil-sounding tax settings isn't going to stimulate more construction, as politically popular that might be.
* Yes, there are alternatives to prices continually rising that would help project feasibility and bring on new supply sooner: ✅reduced input costs – labor & materials ✅reduced finance costs/hurdles ✅lower regulations – to allow delivery of smaller, lower-priced product ✅shorter approval timeframes – small impact on apartments, big impact on greenfields ✅lower taxes, levies and charges on development ✅implement tax incentives ✅direct government investment (subsidies)
Barely any of these are on the table currently given fiscal circumsances at State and Federal levels – in fact, taxes and charges are increasing!
⬆️ Ergo, the only way is up (in the long term) with more supply pain in the interim. ⬆️