Current Market Insights
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Current Market Insights
Episode 88: Glebe Island, GDP & the Housing Crunch
Hosts Ciaran O'Brien and Peter O'Malley unpack Premier Chris Minns’ potential pivot to Glebe Island for housing development, after the collapse of the Rose Hill Racecourse plan. With Sydney’s median house price pushing $1.486 million and economic growth flatlining, we examine the state’s struggle to address a worsening housing shortage. From strata issues to land tax pressures and investor flight, this episode highlights the complex dynamics facing buyers, landlords, and policymakers alike.
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Speaker 2:Welcome to the Current Market Insights podcast brought to you by Harris Partners Real Estate. Each episode we chat with real estate author and industry leader, peter O'Malley, to discuss the current property market conditions and provide insights to assist you on your property journey.
Speaker 3:Hello and welcome to another edition of Current Market Insights. I'm your host, kieran O'Brien, and with me is my co-host and good friend, mr Peter O'Malley. Peter hello, kieran, great to see you, great to be with you again, peter. I want to reverse things a little bit this week and just change up the way that we deliver the podcast. We always start with a cool topic and then kind of finish with our raps. But I'd love to start tonight by just getting a bit of a recap on some things that have been happening in the property space across Australia, but also in Sydney.
Speaker 3:I saw an article in the Herald that was released.
Speaker 3:I saw an article in the Herald that was released two days ago now that talks about Chris Minn's plan. Obviously, as our listeners I'm sure will know, the New South Wales government had a very bold plan to rezone and rebuild Rose Hill Racecourse, reclaim it and turn it into a housing space 25,000 dwellings or something like that, I think it was and recently the Turf Club or the Jockey Club decided that they didn't want to go ahead with that proposal and it's been shelved. Chris Minns, according to this article, has suggested that Glebe Island might be another suitable location. Now I know Glebe Island reasonably well. I mean, I drive past it quite often. I wondered, pete, if, to start off the episode tonight, you might be able to, I guess, give a little bit more insight to our listeners into glib island itself, but also what this proposal looks like and whether or not you think it's a reasonable alternative so at no stage has chris min said that he would use all of the sites yep um for housing, but he's suggesting through the media that it does not.
Speaker 1:In his words, it's not necessarily part of a fallback plan, despite speculation was next in line.
Speaker 1:He says there's a couple of options that we're looking into right now and he said that it doesn't necessarily need to be all used as housing, so it could be part port, part housing. Lots of opposition to to the idea that the port could take housing on and it could cost jobs. Rose Hill Racecourse was a big blow to Premier Minns, there's no doubt about it, because I think he really had that slated in his own mind and his own strategy for breaking the back or, you know, making a large contribution to the housing supply in this city. So essentially, as we've touched on in previous podcasts, his legacy is in, you know, is in deep jeopardy here, where he knows that his term of the premiership needs to be about creating new housing in Sydney and he has barely made a start on it.
Speaker 3:To be fair, I guess in his defence you mentioned on the podcast last week or the week before that one of the things Chris Minns had said was that he was committed to finishing projects right, and he was talking about infrastructure and typically, I think, transport in that space. But he has made the point that he wants to, you know, be known as someone who follows through and completes the task, because I guess it does kind of fit that he is looking for alternatives. I know that the Bays Precinct is something that's kind of been worked on and it's a proposal for, you know, roselle and the Balmain Foreshore. It's a, you know, there's I've seen some original plans. There's new walkways and waterfronts and restaurants and all kinds of things.
Speaker 3:This article is suggesting that Glebe Island was kind of slated for part of that precinct anyway and that this, you know, may yield up to 10,000 homes. Given that those proposals for the precinct were pretty well established and already out there for the public to look at initially, do you think that there's any, you know? Do you think that he'll be able to get this project moving forward without really too much opposition? As you say, there is some from the ports?
Speaker 1:Oh, there'll be opposition If you take any time, you take an iconic location in Sydney like that out of play and push it in any direction. The same amount of people that you please you essentially alienate. I was going to say piss off there, so I might as well follow through with it, just keep it in.
Speaker 1:Yeah, yeah, that's it, you piss off twice as many. So I think what Chris Minns said at the end of this article is probably a true insight into his thinking, kieran, which is in the past we've had a culture where we've tried to rule out new housing developments rather than rule them in. So he welcomes debate. I think Chris Minns wants people talking about this because whilst they're talking about what should be the next major housing site, what they're inadvertently doing is justifying the fact that we need it. Yeah, um. So I think this is a bit of a an ambit claim, um by chris minns just to get the conversation going.
Speaker 1:Um, yes, he did say that in regards to um absorbing a lot of the trades people in the city to finish off transport projects, and he didn't want to cancel those transport projects to let more labour leak back into the economy, because labour does have a poor record of finishing transport infrastructure. He wanted to see that through, but the reality is that when Gladys Berejiklian and Barry O'Farrell came to power, they did have a mandate to bring much-needed infrastructure overhaul to the city, which they succeeded in doing, not in their first term, but they succeeded in doing through the O'Farrell, baird, berejiklian and then Perrottet governments. Chris Minns was elected on a mandate of creating housing and he was very, very strident in March 2023 that he would create tens of thousands of new dwellings in the city to house all of the people that the federal government have invited in, and he's barely made a dent. Housing approvals we didn't talk about this last week the people that the federal government have invited in and he's barely made a dent.
Speaker 1:Housing approvals we didn't talk about this last week, but last week when the housing approval numbers came out, they'd gone down yeah so the population is continuing to grow, as you can see on the streets when you're driving around everywhere you go in sydney at the moment. I had to go to. I had to go west on saturday night and I know it's vivid, but I tell you from haberfield, where I got onto the m4 heading west to st claire, there's four lanes of traffic at 5 30 in the afternoon coming back into the city yeah, yeah the city is it's horrible.
Speaker 1:It's overcrowded, it is cooked, so there's not enough room for people on the roads and there's clearly not enough housing for the people that are in the city, and that's evidenced by what's happening at rental open houses at the moment. So I believe chris minns is under pressure because infrastructure doesn't happen overnight and he's struggling. You know his signature housing, um, a signature housing, uh location has just been voted down, last week, as you say, by the Jockey Club.
Speaker 3:Yeah, yeah, look, he's certainly on the ropes, I think, and he is just swinging, hoping for a solution Before we move on. One of the things in the article that I find interesting is the suggestion was that the and I mentioned this just before, but the site might yield up to 10,000 homes, which is obviously not. You know, it's less than half of what Glebe Island.
Speaker 2:Glebe.
Speaker 3:Island right is less than half of what was proposed in Rose Hill to begin with. But one of the things, one of the other comments in the article talks about a spokesman for the cement group, cement Australia, the lobbyists for that industry, and their or his comments, or their comments, were that if the proposal goes ahead and the port facility, particularly for the cement space, is shifted to Port Kembla or Newcastle, that that shift alone might add 50 billion dollars in costs to the construction sector. Now, given that this is a proposal to get housing up more readily and more efficiently and at an affordable cost for people, does this not like? To me that just seems like insanity. Right to disrupt a whilst the location's great, disrupting an entire sector to just push through on your promise or your commitment at inflated costs and at a time when approvals are down, et cetera. It just seems like a recipe for disaster.
Speaker 1:Oh, 100%, kieran. You've read the Herald article on this. I read the Daily Telegraph one and some of the comments that the Daily Telegraph had were along those lines. So great point you make. Paul Nicolaou said Government must not gamble Sydney's future on a short-sighted, economically destructive decision, that's it, turning a working port into housing. Margie Osman said thousands of jobs are related to these port activities. It would dislocate a whole group of Sydney workers. Alistair Kelch said anything that increases the cost of home construction is the last thing that Sydney needs at the height of a housing crisis. And and clearly, sending you know the cement providers, as you've just outlined, back out of town and having it transported back in at a huge cost would do exactly that. If you go back to WestConnex a bit of a raw topic.
Speaker 3:No one in.
Speaker 1:Roselle has forgotten that. Yeah, a bit of a raw topic for our audience, but if you go back to how the Liberal government at that time managed that, they had some outrageous designs that they leaked to the media I don't know if you remember them, but basically spaghetti junctions and all of it all happening around the end of anzac bridge and where the city west link and victoria road all come together and it made it look like you know one of those american metropolises and it would have been ghastly. It wasn't discreet and underground like it is now. And I don't think that when the State Government at that time was releasing those concept plans, they ever truly expected to even attempt to get those plans through. What they were doing is they were managing the public's expectations so that when they finally came through with the eventual plan, everyone went well, that's a lot more reasonable than we started with.
Speaker 1:So Minns may or may not be doing something there where he's picking some sacred sites and saying, hey, well, we need more housing. There's a place there when Minns got it wrong is. He said at the start of his premiership that he believes that Sydney-siders understand the need for a lot more inner-city units.
Speaker 3:Yeah, high density yeah high density.
Speaker 1:I don't know who you hang around and socialise with, Kieran. I know who I hang around and socialise with, but nobody was in agreement with what Chris Minns felt that Sydney-siders were looking for at the start of his tenure. If you ask me, he's invented that.
Speaker 3:Yeah, he's invented that narrative. Some bureaucrat somewhere has given him that kind of line and said this is the solution, this is the narrative to bring the people with you.
Speaker 1:The reality is is that if you ask most Sydneysiders, they think the place is full, and why are we continuing to invite literally hundreds of thousands of people here each year? In terms of interesting sites and controversial sites, where it's like, yeah, okay, let's talk about that. There's a site that's been mentioned in the last week that I like, and that's Long Bay Jail.
Speaker 3:So I mean, La Perouse has just had a new. Is it like an Aboriginal Land Council or an Aboriginal Reserve like allotment set aside out there, which is obviously not far from Long Bay? I don't know whether you're just making a joke there, or has Long Bay actually been proposed as a housing site? Oh, absolutely yeah.
Speaker 1:Yeah, but see, look, a working port. You can't put housing on a working port, where you shouldn't put housing, particularly in a city like Sydney, but Long Bay Jail. You can rehouse a jail back to the city fringe in a cheaper land location and it's not with respect to those that are involved with the jail and there's always unintended consequences consequences, as we've always said, but there's not the same impact or loss of productivity to the overall economy as there would be at a working port.
Speaker 2:Yeah.
Speaker 1:So, look, I'm just again. I'm just saying that's one site that's been proposed where it's like, well, at face value, without giving it deep, deep, deep thought, that could make sense rehouse the jail, and then the jail becomes what is now the. The long bay jail becomes the uh, you know that's. This is a pretty substantial land holding in a, in a location that a lot of people would like to be, but there will be associated costs. That's kind of a one road in, one road out, yeah, scenario to get there, isn't it?
Speaker 3:oh it is, yeah, yeah, I mean, that area has evolved incredibly since I was a kid, anyway and used to. You know, I learned to play golf out there at St Michael's some 30-something years ago.
Speaker 1:That's why I was there for golf. I wasn't going to the junkyard. Oh yeah, that's right.
Speaker 3:Yeah, that's why I saw you there. Yeah, yeah, you look good in your. It doesn't escape me, though, that both of those sites let's use Glebe Island and Long Bay they're both in prime real estate. Right To me, it seems like they're clutching at locations that they potentially could claim, but they're also not going to make any of that affordable. It's not going to be practical for people to live there on a, you know, Although, mandated.
Speaker 1:So if I can jump in there, if you go back to our chat about tigers last week, or the week before the government's pushed it forward and said go knock yourself out, build it, but there's 59 affordable housing in there now 59 affordable housing dwellings, as we, as we laughed at the time, is not going to turn the housing crisis around, but it's a template for what you will see going forward.
Speaker 3:Yeah, oh, look, of course It'd be interesting to look. I think, personally, it's going to be very interesting to follow this story, particularly as someone who was in the Navy for many years. They use Glebe Island when Garden Island is full as overflow, and I can't imagine that, you know, the Australian military is just going to give that up for Chris Minns to put some apartments up, to be honest. So I'll certainly be keeping my eyes on this one as we move forward. Then I would love to get some data. I know the Australian Home Value Index was released this week, and then we've also got some market details to cover off before we move on to a topic, a major topic I want to talk about. So, if you can, it's been a little while since we spoke about the home value index, so you're able to just give a bit of a I guess, a recap for our listeners as to what the index is, yes, a cotality, which is the old core logic.
Speaker 1:According the Sydney median house price as of June 1, for $1.486 million, kieran.
Speaker 2:Yep.
Speaker 1:And the next most expensive capital city as far as median house price goes is actually Brisbane. $1 million neat and $422 is the median house price in Brisbane. Melbourne's got a median house price of $939 and Canber's got a median house price of $939 and Canberra has a median house price of $975. So you're seeing there that with the next most expensive capital city in Australia after Sydney, the Sydneysiders are having to pay 50% more to live here.
Speaker 3:Yeah, and for many people it's probably a shock, I think, to hear that it's brisbane, because we just, you know, obviously we've talked a lot about how brisbane's seen a boom over the last few years, particularly through covid. There was a lot of people moving there, but I I suspect most people who don't pay close attention just naturally assume that melbourne is going to be the next most expensive because it's the next most popular city, right?
Speaker 1:it's the next most popular city. Right, it's the next most populous city. It's definitely not the next most popular city.
Speaker 3:Oh, I think it's declining in popularity, to be honest.
Speaker 1:Yeah, so the way that place is being run at the moment, there's a massive leak there and has been since COVID and the way it was managed. So I think that's the big one there out of those numbers. When it comes to apartments, that's a little bit more of a closer field there where it looks like Sydney's running at a median house price for apartments over $800,000. But there's so much variance in the apartment sector, both in location, standard, build age and offering that it's a little bit harder to get a nuanced feel there.
Speaker 1:So I think discussing the median house prices is the one. In the last quarter, sydney house prices rose 1.3%. So if you annualise that that's 5.2%. That's back over the rate of inflation. So it wasn't hovering at those levels in recent times and that might just be a nice segue. To go straight into today's GDP numbers, which, reading the forecast yesterday, I saw that CBA forecasts the Australian economy will have expanded by 0.3% in the March quarter when the numbers are released, and Westpac have downgraded their GDP forecast to 0.1% for the quarter. So they were at differing odds. And then, lo and behold, the number did come out today. Australia's economy grew 0.2% percentage points in the March quarter, an absolute shocker, according to one finance journalist who said that GDP per capita is minus 0.4 in the year to March.
Speaker 3:Yeah right.
Speaker 1:So productivity has gone backwards as well. So what we're seeing there is that inflation is still in the mid-twos, but the economy is growing at a rate of 0.8 percentage points. So what is happening is the government can stand up and say we've got inflation under control. The economy is slowly but surely growing, but not greatly. But where the inflation rate is, and what the rate of growth is, the average household is going backwards, which is no surprise to most people listening.
Speaker 3:Yeah, I suspect most people feel that Certainly they don't need the numbers to tell them. Did the GDP figures talk about what the primary driver was or what groups of you know product or activity has helped boost GDP in this quarter?
Speaker 1:No, I didn't go that deep into it, I was just looking at the headline numbers. What it does do is probably cause a rate cut in July, basically a lock, subject to any more rogue data. Interestingly, kieran, because I know you've been caught up in some other things, the rba minutes were released this week from their may meeting and quote unquote the rba considered a 0.5 interest rate cut to reach the terminal cash rate sooner to provide greater insurance against more adverse scenarios.
Speaker 3:Interesting, which is in line with what you said was possible. But you know, when they released the statement they did make the point that whilst it was on the table it wasn't quite, you know, the conditions weren't quite right that employment number probably took it back away as well as the creep up in the underlying inflation from 2.7 to 2.8.
Speaker 1:But yeah, when we said on that podcast, look, 0.5 can't be ruled out. Here it's in the zone a lot of people said to me there that they absolutely saw absolutely no chance that that could possibly happen. But here it is. It's come out in the May minutes.
Speaker 3:It's on the record.
Speaker 1:It was on the table yeah, the uh.
Speaker 3:Just before we move on, then I the only comment I want to make on the, the average house price. I find interesting that you, you know annualized growth of shade over five percent for the year, uh, but at a time of restrictive you know interest rate settings, still, you know we've had very little relief, uh, but we still had a five percent growth in the market, which you know interest rate settings still, you know we've had very little relief, but we still had a 5% growth in the market which you know just shows the resilience of the city.
Speaker 1:Oh, we haven't had a 5% growth. Sorry If the current rate of growth was annualised.
Speaker 3:Oh, if it was maintained, right, okay.
Speaker 1:Yeah, so it was 1.3% for the quarter Annualised. That would work out.
Speaker 3:Yeah, okay right, oh Okay right. That makes more sense. Well, given that we've had a 1.3% growth for the quarter and every week we talk about what the auction numbers are and what the clearance rate is doing, can you run us through the clearance data for this week, keeping in mind for our listeners that may have missed our last one? It was one of, if not the first week that we've reported a clearance rate over 50% for a very long time. Yeah, since February, since February so week that we've reported a clearance rate over 50% for a very long time, and certainly Since February.
Speaker 1:Since February, so the first few auctions of the year when they cut rates and stock. You know New Year stock was coming on. It cracked 50% twice in February and then reverted to where it's been running since last August, which is in the mid to high 40s.
Speaker 3:Yeah, well, I think we hit a low of 44 somewhere in April, possibly mid to early April. So last week we hit a low of 44 somewhere in April, possibly mid to early April. So last week we had a bit of a bounce. How has this week gone for the Sydney market?
Speaker 1:Look line ball interesting number 49.5%.
Speaker 3:Overall.
Speaker 1:Overall midweek and Saturday auctions, but on heavy volumes, so not a bad result. I saw Louis Christopher of SQM Research, who owns these results, say that yes, it was below 50 only just, but given the volumes it was a pretty decent result, and I've seen locally some properties that didn't sell under the hammer last weekend have since been marked up as sold, so it probably did trickle past 50 percent. Um, you know if you consider the sold after yeah, those ones by the end of the week.
Speaker 1:So a decent result. And on the ground we're feeling the same thing. We're seeing some good results. Buyers are more prepared to act. They know there's more rate cuts coming. How I would describe it? You know, you look at that as you say. Annualized, the market is running on trend at about five percent if this rate of growth keeps up, which is which is pretty healthy. So what that's telling us is that the sydney property market probably doesn't need any more rate cuts at the moment, but the broader economy does. Yeah, so the broader economy. This is really interesting. This is a nuanced point the rba flagged a few weeks ago house prices are not our issue. Yeah, we're not here to run monetary policy for the broader economy based on what house prices are doing. So basically they're saying if house prices are too high and are rising at a time when they should be falling, it's because the government are piling up too much demand and haven't done their job on bringing supply to market. Don't try and make that the problem of Martin Place to deal with.
Speaker 2:Yeah.
Speaker 1:Our job's to manage inflation and job stability and price stability in the economy, and they're doing a good job of that. But it was just good that they really set those guidelines that, as we cut interest rates to support the broader economy, if house prices pop, don't start throwing rocks at us, because we're not the ones that have invited a million people into the country in the last few years and we're not the ones that have got a structure and a bureaucracy that's choking on itself and you can barely put up a tent, never mind build 1.2 million houses that they've promised.
Speaker 3:Oh, absolutely. I mean Sydney house prices have consistently performed well for decades and, as we've talked about, the RBA can't base economic policy on the value of a four-bedroom house in the Sydney suburbs. I mean that's absurd. They have to look at jobs, employment, you know, business viability, economic growth, exports, you know it's a much larger equation. The side effect, of course, is house prices typically, do you know, move as we talk about. They're up and down pattern, based on seasons and interest rates et cetera. But you know, as we often talk about, I can't help but think you know one of the unfortunate side effects, of course, increased numbers of people coming in house prices going is, you know the rental market tends to spike and that of course then contributes to CPI and inflation and you know the cycle just kind of continues. It's an unfortunate side effect. But, as you say, it's not the RBA's problem to fix housing or to support it or to back it or to whatever they're looking after the cash rate.
Speaker 1:It was really good that they came out and were really really clear is that house prices are not under our remit.
Speaker 3:Yeah.
Speaker 1:So if this pops, real estate agents will like it and people will throw rocks at the RBA and they're saying, not our problem, not our remit.
Speaker 3:Yeah, it's good for jobs because all these people, when there's a boom, you know they'll come and join the industry to try and capitalise.
Speaker 1:Yes, that's what Sydney needs more real estate.
Speaker 3:That's what they need. That's what they need. All right, as we move on then, pete, I want to finish up tonight's episode. Often we talk about your real estate report, which is a newsletter you put out through your agency in Balmain, harris Partners, and, at the risk of, you know, inflating your ego a little, you usually write pretty insightful articles, I find, and you've written a great one in this this month's episode, or this month's edition, I should say, which is the six unreported trends in the current market. And given that our podcast is literally the current market insights, I thought it might be a good idea to run our listeners through this article and, I guess, give an audio representation of what those six unreported trends are and how they influence the market in Sydney.
Speaker 1:Thanks, Kieran. Well, look the first of these sort of unreported trends are and how they influence the market in Sydney. Thanks, Kieran. Well, look, the first of these sort of unreported trends that are playing a big role in the market is apartment buyers are hypersensitive to strata issues, and well-run stratas and disciplined stratas sell well, sell quicker and sell for more than buildings with defects, obviously. But buildings and this is probably the tragedy and why I touched on this topic there's a number of buildings around town where, at their core, they're good buildings.
Speaker 3:Yep.
Speaker 1:But they're poorly managed because every grievance that an occupant has, whether it's a tenant or an owner there, gets captured in the minutes.
Speaker 1:And as a real estate agent, you give the prospective purchaser a strata report before they make their offer. They read the minutes and see that the building's full of conflict because Johnny had the music up too loud last week and Sue's worried about the air conditioning running at night, and everyone's grievances are captured in the minutes and then make their way into the Strata report and scare buyers off. So there's things that need to be in a Strata report that are not optional. A buyer's entitled to know about them the finances, the expenditure, the special levies, the, the budget, where it's all going. But I think and you're seeing this in another way with the criticism and the strata manager who was struck off recently for mismanagement there's a real area of opportunity to clean up strata management and get these apartment buildings running better for the ultimate benefit of the occupants whilst they live there and the owners as they decide to sell because of all of the press with mascot towers um, what was the one in homebush?
Speaker 1:the opal, opal tower, um buyers are hypersensitive to strata issues and they're now overreacting, if I can say, in some instances not every, but in some instances they're overreacting on nothing, burgers, such as the damage that's been done to that sector of the property market yeah, look, I'm not surprised as someone who owns in strata.
Speaker 3:I just, yeah, it absolutely baffles me the, the content and the things that go to the strata managers to be resolved and the things that, yeah, you know, everyone's got their grievances in life, but, as you say, had I. Uh, you know, if some of the things that come through our strata, for example, were made aware to me when I bought some years ago, I would have walked away, that's for sure it needs a strong chairman that sends people with nonsense issues away.
Speaker 3:Yeah, absolutely. Which is hard to find right, Send them packing Hard to find a volunteer In this.
Speaker 1:PC world we're in. I guess it is, but you know it's not doing anyone any favours. You know documenting all of your minor grievances in a strata report and then the next time someone decides to sell they get 50 grand wiped off their value. Because it's a whingy wine, peter doesn't like yellow flowers in the garden.
Speaker 3:Yeah, no, exactly. The next topic you mentioned in your trends is rental regulation. Now you, I think, correct me if I'm wrong, but you're referencing regulations designed to protect tenants and, you know, give them some certainty and security in their housing. How, I mean, given that that sounds, you know, broadly, like a great initiative, how is that something that's actually impacting market conditions?
Speaker 1:What we say in the report here is that the government has inadvertently yet decisively tipped the scales against landlords. So no grounds, evictions, the imposition of a re-letting restriction period, a new pet policy, an inability to enable a proper competitive bidding process for in-demand properties are all in the new regulations imposed on landlords in recent times. So say the no rental bidding, for example. Agents were abusing that and it needed to be tidied up. Don't get me wrong. But here we have here where the government have effectively capped, in an open market operation, a landlord's ability to get full and fair you know rent for their property in an environment where rental properties are in demand and therefore the price is going up. Now, if the price is going up because the government has, let me repeat it again, invited too many people into the country and not built enough houses, it's not up to the individual property investor to start compensating tenants for that.
Speaker 3:Yeah.
Speaker 1:And that's where we've got to, where the government hasn't done its job and they're now pushing the pain of fixing or putting Band-Aid solutions onto the private sector because they haven't done their job, they haven't met their own brief, their own mandate, which is to manage migration levels at a sustainable level, which they haven't done. It's very clear Just go for a drive peak hour in Sydney and you can't move and clearly nowhere near creating housing for these people that have come in. And it's not playing out in the sales market. We just discussed the sales market 1.3% growth for the last quarter, which was the best quarter in some time. So the lack of dwelling supply and the excess people in town is not playing out in property prices, it's playing out in the rental market.
Speaker 3:Yeah, and it has to be said too that even removing rental bidding, you know, the argument was obviously that it's fair out in the rental market. Yeah, and it has to be said too that even removing rental bidding, you know, the argument was obviously that it's fair on tenants et cetera, and you know it's. But it doesn't change the fact that people come and overbid silently anyway. I mean, when you get to a rental and there's 150 people lined up to get it, and let's say it's $500, there is always going to be someone there saying, well, there's so many people here, I just want to lock it in, I'm going to pay more anyway. So even though bidding is not open and transparent, it's not making it cheaper for tenants anyway. It's just restricting the amount of rentals out there, which is part of the broader problem, as you say.
Speaker 1:Well, look, if it was just that one change in and of itself, as it was originally when MINS first came to government, people would say, well, I don't like it, but combined with everything else, I'll take the good with the bad. What this point in the article is highlighting, kieran, is that no grounds eviction. So if you do want to take your property back or you do want a different tenant in your property, you don't necessarily get a say on that anymore. Yeah, so to give you an idea of some of the things that are going on out there, we listed a property last week that's listed with another agent. Yeah, right, Under the new regulations and I had to double check this was correct and that the other agent wasn't being a smarty I had to send a copy of my agency agreement to a competitor to show that, yes, the owners had indeed listed the property on the market and that's why we were politely giving the tenants notice to leave so we could tidy it up and sell it.
Speaker 1:Yeah, so that's the sort of knock-on effect from this regulation, where I've never in 25 years sent a copy of my agency agreement to a competitor. Here I am last week, in response to these new laws, having to do that. There's restrictions on how landlords can and can't act with their own property, even if they're acting with decency. They're falling outside these laws. And what I'm saying is, when you put these, when you stitch these laws together, this new legislation together that's been introduced over the last two years, do you know what the investor says? I'm not interested. I'm not interested.
Speaker 3:How much?
Speaker 1:equity is in it. What's it worth? Yeah, I know exactly what I can do with that money. So they're selling out. And who do they sell? To An owner-occupier. Right, we barely sell to investors anymore. We barely sell to investors anymore. Every time we sell something off our rent roll, it sells to an owner-occupier, and that's not just in this office, that's across the industry. I'm hearing it.
Speaker 3:Yeah.
Speaker 1:So the rental pool across Sydney is shrinking at a time that the government desperately need more investors in the market to create more supply for the people that they've brought into town.
Speaker 3:Yeah, that ties in perfectly to your next point in the article, which is that one of the other things that is prohibitive in the investment space is land tax. Now, land tax has been one of those things that's been contentious for a very long time, I think, but if you can give our listeners some insight into what kind of impact land tax actually has on the investment market itself, look it says.
Speaker 1:The article says, quote unquote land tax is driving landlords out of the market. Many landlords receive a land tax bill in the first quarter of the calendar year, a bill that absorbs 100 of their rental income for the first three to four months of that year yeah that's like a huge amount.
Speaker 1:So the landlord needs to pay their remaining costs, such as water, council rates, agents fees, maintenance repairs and mortgage repayments from eight or nine months rental income and again they're severely negatively geared. They're having to prop up the money, prop up the, the mortgage and the you know keep to keep the investment going each month. And then they've got a big chunk of equity in there and they say just sell it, put the equity against my home mortgage where it's non-tax deductible. I've got other investments I want to play with. I don't. I don't need this in my life.
Speaker 3:Yeah, especially when you couple it with all the other rental changes, the stress of tenants, the fees, the ongoing costs, etc. Moving forward then, the next couple of points talk a little bit more about the sales side of the market. So underquoting is a topic that you talk about here which we have spoken about to death, and I'm sure we have spoken about to death and I'm sure we will come back to many, many times in the future because it is such a scourge. On real estate. You say here that underquoting bites vendors when bidding wars fails to materialise, which is really the crux of what we've talked about in the past. So I guess we have spoken about the impact that underquoting has, but how is it? I mean, you talk about this as a kind of unreported measure in the market, but I feel like this is a topic that's pretty out there and he's talked about quite often uh, what we under quote it's usually, it's usually discussed, kieran is underquoting hurts or input negatively impacts the buyers right.
Speaker 1:what the article's saying is underquoting hurts or negatively impacts the buyers Right. What the article is saying is underquoting bites vendors Right. So what I'm saying is that in stronger markets sometimes agents will say to the vendor I know you want 2.1, let me quote 1.75 and a bidding war will erupt and it will probably go through 2.1. And what has happened with numerous examples that I've seen recently is the bidding war doesn't materialise. And it's not necessarily not materialising because the market conditions are not strong enough. Buyers are fed up.
Speaker 3:Yeah.
Speaker 1:They're fed up with going to auctions and having it go wildly past their expectations, so they're refusing to partake. And then the bidding war that the vendor was promised, even though they're under-quoted by 10% to 20%, doesn't happen and their auction passes in for a low price, which damages any chance of them achieving a decent price, which damages any chance of them achieving a decent price. I spoke to a government employee yesterday that is charged with selling a number of government properties and he was telling me how they went to auction on one of their properties and there were no bidders.
Speaker 3:Right.
Speaker 1:No bidders on this property and he said if there was a bidder at X on that property on that day they would have bought it for that. After the auction on the Monday they put it on the market at an asking price higher than what he would have accepted on the day. Four bidders came in at that asking price and then the price went up higher yeah, well and he said that's just was evidence there that people weren't prepared to partake in the process.
Speaker 1:But when they had certainty about where the vendors expectations were that this thing will sell, they all rushed in and that has. That's what's happened to the marketplace with this. Systemic underquoting is increasingly. Buyers are sick of turning up to auctions and being cannon fodder.
Speaker 3:Yeah, which you know. You can't blame them. I certainly don't. The Bank of Mum and Dad has been heavily in the media recently as it pertains to the sales market, but you make the point in your article that the Bank of mum and dad is also playing a role in the rental market. Now, the only time I've ever seen mums and dads at a rental inspection is, you know, if the kids are out of town or overseas or whatever. So what, what's your take on? Uh, parents getting involved in rental inspections, in sydney in particular?
Speaker 1:well, if you've got a um adult child who's studying at university first time out of home, they don't have a rental history, you know, and you want them to live independently as a parent and get started and you know, move out of your space. Yeah, do all those sorts of things. You know how hard it is to to to gain credibility, um, on a rental application, when you've got no history.
Speaker 3:Yeah.
Speaker 1:So increasingly, parents are backing up the kids' rental application because the market is so fierce as we've described. Yeah, and it's not going to change.
Speaker 3:So is this a case of parents making the application and then letting the child live there?
Speaker 1:or just coming in as supporters and saying look, paying the rent sometime, being guarantor for the rent going on the lease Paying up front that kind of thing Paying the rent sometime, being guarantor for the rent going on the lease, paying up front, that kind of thing, all sorts of things.
Speaker 3:That's right yeah okay, which again just makes it even more competitive in a market where it's already tight.
Speaker 1:Yeah, that's right. Well, it's very, very common. We lease a lot of properties around Camperdown to international students. Very common for Chinese students' parents to pay 12 months rent on the first day.
Speaker 3:Yeah, yeah, oh look, I've experienced that myself, you know, especially around the University of Sydney.
Speaker 1:Yeah, of course you know it's the Chinese bank of mum and dad. But if you've got a Chinese parent in China paying 12 months rent straight up front I hear it quite often as they're reviewing an application in the rental department here and they'll say to the landlord look, there's no risk, you won't get paid because you get.
Speaker 3:You're getting it all on day one. Yeah and exactly. And how does anyone else compete? Right, I've been to so many, I have shown so many rentals over the years where I have, you know, like, say, two young guys or two young girls or whatever, coming up to me afterwards just saying what do we need to do? Because we've been trying for months, we did. And I would say to them put in an application like everyone else. But this is kind of what you're competing against, these people that are dropped six months up front. In some cases we might be talking like $20,000 or $30,000 up front.
Speaker 1:I think it's $40,000, $45,000. You're talking $900 a week for 12 months.
Speaker 3:For 12 months. Yeah, some of these six to 12 months is a huge drop of cash.
Speaker 1:For 12 months, yeah, but yeah, some of these, you know six to 12 months is a huge drop of cash, so it's not a massive trend, but it is out there.
Speaker 1:Because the media made a very, very big issue, of course, when the bank of mum and dad were out there helping kids buy at auctions, and you'll see an article every second week where dad buys daughter and mum helps son and all that sort of thing. But most people can't relate to that. But more and more people can relate to. We've come down from the country to attend the rental open house with our kids who are going to university or just got their first job here and we just want the real estate agent to know we're good people and all we want is a good property for our kids and we'll we'll stand behind the application. We just need them them to get started and get going and it's just sad really that that's where the city's at at the moment. We have good people that are coming from the bush, kids that are moving from the suburbs to move close to the inner city to kick off their new job as an intern or whatever Can't get basic housing.
Speaker 3:Yeah, yeah, as we've talked about, there's so many factors that have made this time particularly tough, and that's why you know there's not many landlords that are going to turn down six or 12 months rent paid up front at a time of cost of living pressure, right? The final point in your article then ties everything really together. You know you talk about the fact that developers aren't interested in taking on new projects. We have said in this episode alone, but also in many others, that approvals are at an all-time low, housing supplies are at an all-time low, immigrations that are high, cost of production, labour materials et cetera is at an all-time high, and now all of those factors are coming together and developers aren't interested in playing the game. Given that, again, you know Chris Minns and his government has a mandate and a promise to deliver for the people of New South Wales. How much is this having an effect and how serious is this going to be over the you know the coming years? Do you think?
Speaker 1:Oh look, it's a perfect storm. I think that's what they call it, isn't it really? Yeah, so you know, we've had unrenovated terraces and big-time apartment developers come through and say, yeah, this might just tie us over for a little while. It's like why do you want this? And he's like I don't. He said, peter, I don't mind buying this, renovating it and reselling, and as long as I at least break even, that's good enough, as long as I can just keep my tradies going until this whole scenario breaks in our favour. But no feasibility on certain size projects is stacking up at the moment.
Speaker 3:Do you think? The pessimist in me says that this scenario may never break?
Speaker 1:You know, I wonder. No, it's all cycles. No, it'll always break.
Speaker 3:I mean, I wonder, obviously there'll be easing of cost of living, there'll be easing of supply costs, et cetera. But I wonder truly, you know, do things ever really go back In a supply and demand scenario? Do they ever truly go back to their baseline? Because I feel like costs are always going to be slightly inflated.
Speaker 1:Oh, this is what Japan have had, not China Japan. There's disinflation, which is the rate of inflation is falling.
Speaker 1:That's what we've got in Australia disinflation, and then there's deflation where the cost of things are going backwards, but that's one way it can correct is deflation, where suddenly we just have an economic event where the whole deck of cards comes down and we've got to rebuild it. Not, but that's one way. The other way is that I've said here tonight that the the whole equation of too many people coming into the city and not enough dwellings is playing out in the rental market and the growth in the property market is somewhat contained at 1.3. Another way that it can break, or the bubble can pop at a different perspective, is that suddenly property prices go on a tremendous tear.
Speaker 1:And I just said to a client tonight who asked for a valuation on his one-bedroom unit is, I said, the reality. I gave him a valuation that was a little bit above what he expected and I said well, here's the direct comparable to your property. So you can see why I'm saying what I'm saying. And the reality is, as interest rates come down and the rental market keeps going up, first home buyers are saying now's probably the time to go all in on buying a property and that's why the bottom end of the property market has probably got more life in it at the moment than it has for some time oh, and couple it with the federal government's, you know, stimulus and and home equity schemes and all that kind of thing.
Speaker 3:I mean it really is. It's a perfect storm and I, I so property prices do pop, tying it off.
Speaker 1:If property prices do pop, then that puts a different shade of light on the feasibility yeah, of course, because then you know the margins get bigger again, and yeah of course correct, so the cycle will go around. But this is a really awkward point in in in the cycle at the moment and it's driven by the cost of materials and the cost of labor and the shortage of both oh, and just decades of government mismanagement around housing and allocations, et cetera.
Speaker 3:Look, really great chat tonight, peter. It's been a long one for our listeners, but I think it's important we cover it off on, obviously, what's happening in the market at the moment, and you know particularly what's happening with the Minsk government, but also I'm glad we crossed over on the six unreported trends, because I do know I value the articles you write and I know they are well informed and insightful, and there are certainly some of our listeners who may not be aware of the newsletter itself. So, for our listeners, I will make sure I put a copy of that article up with the podcast so you can have a read if you like. As always, though, peter, really great chat and I thank you for coming in. Good on you. Thanks, kieran, all the best. Thank you, really great chat, and I thank you for coming in. Good on you. Thanks, Kieran, all the best. Thank you, and thanks to everyone for listening to Current Market Insights.
Speaker 2:We look forward to speaking with you next time thanks for joining us on the Current Market Insights podcast brought to you by Harris Partners Real Estate, the podcast providing real estate insights you won't find anywhere else.
