Home safe?

Home prices in Sydney are out of control. They compare unfavourably with almost every major city in the world.

Graph from this paper

Why? Well, that depends on your vested interest. Some people blame the State Government, for not releasing enough land to developers.

Others blame the State Government for not doing enough to force councils to rezone land to encourage higher density developments.

It's also easy to blame the Federal Government for excessive immigration. Or the Baby Bonus, which was created, at least in part, to encourage procreation.

Maybe it's just the inevitable consequence of living in a city that is widely regarded (by most) as being a thoroughly excellent city to live in.

It's probably all of those reasons. Of course, it doesn't really matter why it is so expensive - it just is, and the government needs to deal with that reality.

In recent years, a number of steps have been taken. New land is continually being released to developers - although eventually that land starts to become so remote from the rest of Sydney that the process becomes a farce.

Continuing to release land in the Campbelltown area (for example) is certainly necessary. But it can only be part of the solution - it is incredibly time consuming for those residents to commute to the Sydney CBD (or, for that matter, any of the "cities" that make up the Greater Sydney, except for Campbelltown itself).

From the NSW Planning and Infrastructure website

The Labor government also introduced a numbers of measures (continued by the O'Farrell Liberal government) requiring local councils to plan for an increase in the population density of the area.

In my local area (the North Shore) this has caused significant protest as the feel of quiet suburban streets has been wrecked by the construction of large apartment blocks. No doubt there have been similar experiences across Sydney.

But, at the end of the day, house prices have continued to rise.

Graph from here

This is why we have the first home buyers grant. It was introduced as a measure to assist First Home Buyers in getting a foothold in the market.

This makes intuitive sense. If house prices are out of reach, then why not give those trying to buy into the market a helping hand? If you've just sold a home, then odds are you have a benefited from the inexorable rise in prices - but a first home buyer does not have that advantage.

The grant was initially $7000. And, in the spirit of full disclosure, I gratefully accepted that sum when the wife and I bought our first home a few years ago.

The problem is that the research suggests that these steps did nothing to make homes more affordable for first home buyers (see for example this, or this)

Those who are purchasing their first home have particular preferences that differ from (say) families with kids, or retirees.

This meant that, where a vendor had a home that was attractive to a first home buyer, there would be a multitude of buyers who all had the backing of the grant.

As a result, in general, the price of the home was increased by more or less the value of the grant as bidders pushed up the price. The only people that benefited were the people who had bought in before the introduction of the grant.

Moreover, in light of what happened in the global economy in the last 5 years, there should be a level of concern about throwing money at first home buyers to assist them to buy into the market. The money would, in most cases, be used to assist the purchaser to get a deposit together.

There are good reasons why banks require a deposit. One of those is to show the bank that the borrower has the capacity to cobble together cash over a period of time, meaning that the borrower is more likely to be able to effectively budget well enough to repay a home loan.

Last year the rules were changed. When the state budget was released last year it was announced that, from 1 October 2012, the grant would increase to $15 000, but would apply only to new homes.

This made the grant far less about new home buyers and far more about propping up the building industry. Which is fair enough.

Given that the announcement was made in June 2012, it should hardly be surprising that there was a great deal of marketing along the lines of:

How much that helped is anyone's guess. Naturally enough, there are a multitude of factors that affect the quantity of homes financed. But this graph has been splashed around a fair bit today:

Graph from here

Now, there an immediately obvious reason for the fall - if you knew that the you had to get in before October to get that grant from the government, isn't it a no-brainer to change your plans to ensure your purchase qualifies?

The natural consequence is depressed figures for the quarter following the removal of the payment.

How much of the fall can be blamed on the amendment of the grant? It is impossible to tell. It would be helpful if the (otherwise outstanding) ABS provided further breakdown of the first home buyer purchases into new and existing properties, but I don't think it does.

In all those circumstances, this story that appeared on the SMH website today jarred with me.

Full story here

Further down:

Burney's comments are ridiculous, and deliberately mislead the reader. The reason for the fall is (at least in part) what I have outlined above - people getting in before the changes late last year.

The total number of new dwellings purchased has fallen in the last quarter.:

Total number of new dwelling purchases in nsw (source)

Whilst the number of established dwellings purchased has risen slightly:

Total number of established dwellings purchased (source)

Has the O'Farrell government "abandoned first home buyers"? Of course not.

If these first home buyers want to buy a new dwelling, the payment has doubled. Of course, the cost of those dwellings will no doubt be significantly higher than it would be without throwing money at first home buyers, but that is a different discussion.

As for those first home buyers who do want to buy an established dwelling - the cost of that dwelling will be significantly less given that most of the potential buyers will no longer have an extra $7 000 from the government backing them up.

The government has stopped pretending that the new home buyers grant would make housing more affordable for first home buyers, and is rather focussing on propping up the building industry.

Whether they should be doing so is another issue. But have they "abandoned first home buyers"? Hardly.

A Driving Ambition?

The criticism of O'Farrell's draft 20-year Master Plan has been almost universal.

It's surprising, and a little unfair, but not unexpected.

The people at the Terrorgraph have continued their campaign to paint O'Farrell as being a dithering planner rather than the bold doer they would rather write about.

Full editorial here

That criticism is not without basis. O'Farrell has showed himself to be quick to plan and slow to do.

Other papers have focused on the lack of confirmed funding for plans. Whilst the projects highlighted in the plan are categorised as being short, medium or long-term, there is no specific information as to how the projects will be paid for.

Precisely how the state of the budget in 2020 is meant to be predicted accurately enough to say that a project will be paid for in a certain way is beyond me.

That said, the plan is still only a draft - we won't get the final version until later this year. Plus, it's a PLAN - not a budget.

O'Farrell does deserve credit for planning in this way. An oft-repeated and richly deserved criticism of Labor's history of transport planning is that it was all "back-of-the-envelope" stuff - plans announced and then dropped before you knew it.

If ever an area of public policy required forward planning, it is transport. It is appropriate and commendable that these steps are being taken.

The problem for O'Farrell is that the public is restless for more action.

Full story on the Herald Sun site

That's not all O'Farrell's fault - he is being forced to carry the can for the failings of his predecessors. People are all out of patience.

He's snookered in because he came to power talking big about infrastructure and transport - but his budget just doesn't have the space.

These projects are going to be hugely, massively expensive - and he is committed to starting the North-West Rail link soon. This all in the face of a shrinking tax base and the exploding cost of the public service.

When the retrospectives are being written, no one is going to remember whether announced funding at this time, or the number of plans released.

What will be remembered is whether O'Farrell, like the Labor Premiers before him, announced then shelved plans, never once showing the citizen an ounce of respect.

Did he deliver on his promises? That's the question that matters.

PS Memo to John Robertson: No, you can't criticise yet. Give it a decade.

Plans on Track

I never normally pick up an MX magazine.  It is almost universally filled with the very worst kind of "news" - celebrity rubbish, trivia and "reporting" that consists of ripping meaningless stories of the internet.

And as for the letters page - suffice to say that it is the dumbest letters page in Sydney, and THAT is saying something.

The only redeeming feature is the overheard section, which is usually pretty funny.

The only time you'll ever spot anything resembling actual journalism is in relation to transport announcements, which, given that MX is predominantly handed out at stations to consumers, makes sense.

Anyway, when I saw this head line yesterday, I thought I had better grit my teeth and grab a copy.

The story was as follows: 

Now, in fairness, this is an announcement of plans, nothing more. The ALP government was famous for announcing a new project and then, when it became apparent that it was going to be politically inconvenient or merely that it was going to cost money, promptly shelving or cancelling the project.

Some projects were even reannounced over and over, as it the public didn't notice that they were being taken for a ride.

Having said that, the fact that the government kept getting re-elected seemed to suggest that perhaps the public hadn't noticed, but I suppose that's a different conversation.

This announcement, however, shows the government demonstrating foresight and planning.  It appears that there is presently little need for such a link, but it is not inconceivable that there may be such a need in the future.

Sydney Train Map at present

The North West Rail link is going to head more or less North West from Epping Station, which you can see at the point where the red line meets itself just above the middle of the map. It heads right into the heart of the major growth area of Sydney.

The train system as it presently stands is overwhelmingly geared towards getting people to and from the city.  The plans to try and diversify some employment out of the city is not going to work unless people are able to get to these locations other than via the city.

Once the North West Rail Link is operational, the commuters will have a way to get to and from the city.  But as the areas populate people will be wanted to get to Western Sydney. There are growing city centres around Parramatta and Penrith that will need to be serviced.

In the same way, the growing population in the North West will no doubt lead to an explosion of jobs in the area, and the workers who don't already live in the area will need to get there somewhere.

The proposed route will result in a line heading from the last North West Rail Link station to connect up with either Schofields or Riverstone, which can be seen 7 and 8 stations south-east of Richmond, the station in the top left of the map. It will create a sensible and, I have no doubt, very useful route for commuters travelling in that direction.

In fact, if you look at the below map, if would seem silly not to connect the two together in due course. Schofeilds can be see just to the west of the end of the North West Rail Link at Cudgegong Rd.

We do need to keep things in perspective - all that's been done is set aside the land.  The real test will be whether the government releases the land after the first call from a developer suggesting they may pay a little more for this or that block if they released the land.

But it is an important first step towards making sure that our rail system is able to effectively and efficiently move people around this city.  If the city is going to grow, and particularly if the North West is going to accept as many new residents as are presesntly planned, this kind of forward planning is essential.

Here's hoping O'Farrell has the courage to stick to this plan when it actually requires a "price" to be paid.