ACT News

Land shortage, $703 million Mr Fluffy buyback, spark fears of home price explosion

A land drought, the impact of a $703 million spend by 1021 Mr Fluffy victims and soaring building costs could soon drive very sharp rises in ACT home prices, builders, first home buyers and developers have warned.

Matt Smith of Gungahlin's Gold Ruby Homes said Canberra was staring down both barrels of a perfect storm similar to the one in which ACT median home prices (both houses and units) more than doubled between 2000 and 2004.

Master Builders Association residential sector acting chairman Marc Roland is concerned about the lack of freestanding ...
Master Builders Association residential sector acting chairman Marc Roland is concerned about the lack of freestanding homes for first home buyers.  Photo: Jeffrey Chan

He dismissed claims public service job cuts would keep local property prices, currently lagging well behind Sydney and Melbourne, low.

"If you had said in 1999 (given what was happening with the Howard-era job cuts) house prices would double in less than five years, people would have laughed at you," he said. "But it happened."

Hundreds of Mr Fluffy buyback participants, most of whom are quitting houses valued well above the ACT's 2014 $537,500 median house price, are already on the hunt.

Buyers have said telephone auctions and rising prices in desirable suburbs are already occurring.


One Hughes resident said while there were 18 affected homes in the suburb, only two suitable houses were on the market. "This is forcing me to either compete with other "fluffies" desperate to stay, like me, or move over the bridge, increasing the pool of buyers in other suburbs."

Canberra builders have said key costs, including bricks, tiles, trusses and concrete, have risen between 6 per cent and 10 per cent in less than six months.

February's interest rate cut, which has reduced the cost of borrowing to a level not seen since Lionel Rose beat Fighting Harada to become the World Bantam Weight Champion in 1968, is also expected to play a part.

Land, meanwhile, is almost impossible to obtain, with Land Development Agency documents stating the first blocks in Moncrieff, its newest suburb, won't be shovel-ready until November this year.

"The LDA does not currently have any build-ready land available," chief executive David Dawes said. "The release of Moncrieff had been delayed through the process of obtaining environmental clearances." Dawes said the government's response is to  commit to the construction of an entire suburb within the next 18 months.

The bulk of Moncrieff's 1800 blocks won't be ready to build on until 2016 and 2017, and builders said the cost of land had more than doubled since 2008, when Franklin was released.

The largest rises have been on smaller, entry level blocks, targeted at first home buyers. The going rate for a 250-metre-square block in Moncrieff is currently $720 a square metre. This is 131 per cent more than the going rate of $312 a square metre for a 955-metre-square block in the same development.

The ACT Master Builders Association has condemned what it said was the Land Development Agency's failure to continue a highly successful program of joint ventures with the private sector that dated back decades.

MBA ACT executives said this had already had an impact on land availability in the city state.

"Partnerships with CIC [formerly the Canberra Investment Corporation] and others delivered quality suburbs, such as Crace and Forde, in the past," Marc Roland, the chair of the MBA's residential building council, said.

CIC has moved across the border to Googong (in Queanbeyan) and Roland, who operates Elevated Living, is one of many Canberra builders buying the NSW blocks to keep the house and land packages flowing.

Dawes denied joint ventures had stopped, but would not, or could not, say when the next one would begin or how many blocks would be released to the market in this way over the next five years.

"The LDA is currently preparing documentation for a greenfield site that is likely to be released later this year and working in a public/private partnership on the development of West Belconnen, where an estimated 10,000 homes will be constructed," he said.

Dawes said the industry "declined to participate" in 2013, when 1700 dwelling sites were offered to the market in the new Molonglo suburb of Denman Prospect.

Frank Porreca, Master Builders Association ACT treasurer and a managing director of developer CRD, said the LDA had only itself to blame for the failure of Denman Prospect.

"Builders were offered a development model that was over-regulated and would have cost more to develop than the market would bear," he said. "The land was steep and, because of the solar access provision, it just wasn't going to work."

Porreca is in the process of closing down his company's development arm and its remaining staff will finish this month.

"Our firm has built close on 2,500 homes around Gungahlin since 2001," he said.

"CRD has bought land, subdivided and then supplied house and land packages and land by itself. We had a good turnaround with blocks, usually ready for release to the market within 10 months [compared to more than two years for many of the LDA blocks currently being developed in Moncrieff]. We just can't get the land to continue anymore."

Builders and developers said it was disingenuous of Dawes to speak of West Belconnen in the same way as Crace or Forde.

"Yes, it is a private/public partnership but we've never been offered any land there," Porreca said. "It is apparently a complex situation and one that is tied to a single developer; [it is] not being thrown open to the wider market."

The wheels have also come off key first home buyer initiatives such the fully subscribed OwnPlace program, which started in 2008. As a result, money that would have bought a free-standing three bedroom home with its own backyard two years ago, only stretches to a small townhouse, duplex or unit in 2015.

The LDA said affordable housing provisions have been embedded in all current and future land releases. Its critics say these are essentially restricted to units, not freestanding homes.

Dawes defended current property prices. He said the agency was required to sell land at market value and that increases on 450 metres square  and 540 metres square blocks between April 2011 and November 2014 had been 7 per cent and 2 per cent respectively.

Gold Ruby's Matt Smith said the GST (which drove construction costs up 40 per cent, not 10 per cent), a near 100 per cent rise in land prices, the construction pause caused by the collapse of HIH and the resulting inability of ACT builders to source mandatory home warranty insurance and the loss of 487 homes in the 2003 bushfires, had all contributed to the price explosion in the early years of the century.

The builder, who said he had been targeted by the LDA for "land banking" in the past, said he had anticipated the latest land shortage and acted accordingly, with the result he now has more build-ready land than the agency.

"I have 17 or 18 [build ready] residential blocks ... while they have no residential land that will be ready for 18 months or more," he said. "Builders and the public shouldn't have to wait nearly two years [from their purchase date] for their block to be serviced and ready to build."

The price spike warning comes less than a month after CommSec chief economist Craig James said the growing value gap between Canberra and the other capitals would kick start demand by attracting interstate and international investors within 18 months.

Property Council of Australia executive director Catherine Carter does not believe the Mr Fluffy effect will be as dramatic as other pundits predict, though she does expect house prices to rise.

"There is likely to be some lag and overlap with those moving off their existing properties," she said. "But it is highly unlikely that there will be a sudden flood of 1000 new home buyers on the market."

She said Canberra housing was already expensive and likely to rise further over time.

"This is good for existing homeowners but bad for those looking to buy their first home," she said. "The real problem is at the affordable end of the market, and the problem with the private sector not being able to participate in that market [any more]."

MBA ACT deputy chief executive director Jerry Howard agreed, saying his members had been "surprised and disappointed" by last year's budget announcement that the indicative land release target had been slashed by 3000.

Only 13,500 blocks are going to be released by the LDA over the next four years. This is less than double the 7000 blocks released to private developers alone over the past five years.

"At a time when certainty in the industry is flagging but where demand for new housing, especially affordable housing, remains steady, it is critical we maintain a strong supply of land for new development," Howard said.

He cited an MBA policy document released last July which stated: "If the land release program contracts, the government runs the risk of a near shutdown of Canberra's building industry and an escalation in the price of land.

"The Land Development Agency intends to assume responsibility for all new residential developments in the short to medium term. This would unacceptably limit competition in the market and has the potential to artificially distort land values leading to a lack of confidence within the building industry."