Note: Where available, the PDF/Word icon below is provided to view the complete and fully formatted document
Address at the UDIA industry briefing, Sydney.



Download PDFDownload PDF

The Hon Tanya Plibersek MP Minister for Housing Minister for the Status of Women

UDIA NSW Industry Briefing

Four Seasons Hotel, 199 George Street, Sydney

Thursday, 19 February 2009

4.15pm

Acknowledgements

Nick Duncan - CEO UDIA (NSW)

Judy McKittrick President UDIA (NSW)

Professor Bill Randolph - City Futures Centre

Cameron Alderson - Affordable Housing Expert

I would also like to acknowledge the traditional owners of the land on which we meet today, the Gadigal people of the Eora nation, and pay my respects to their elders, past and present.

Introduction

• “It was the best of times, it was the worst of times.” So begins the classic Dickens historical novel A Tale of Two Cities.

• Australia, indeed the whole world, is facing a time of enormous financial difficulties.

• But in these difficult times lie some opportunities.

• The most obvious opportunity is the chance to build and rebuild our national infrastructure, including housing, without the inflationary challenges of a year ago.

• Housing affordability has improved, largely because of falling interest rates and special measures for first home buyers, and there is strong evidence that first home buyers are returning to the market.

• But we also have an opportunity to deliver on our homelessness agenda, by investing in the largest one-off injection into public housing in Australia’s history.

• Though times are difficult in many respects, early and decisive action by the Government will support continued confidence and activity in the construction sector.

The Global Financial Crisis

• The global financial crisis, dramatic slowing in China and the unwinding of the commodity boom has now wiped a total of $115 billion from budget revenues and pushed the budget into deficit.

• No country will escape the impacts of the global financial crisis and the weight of the global recession is now bearing down on the Australian economy.

• That’s why the Government is implementing a $42 billion Nation Building and Jobs Plan to provide immediate support for jobs and growth.

Housing Markets in Australia and Overseas

• Australians with an interest in housing have been watching housing markets in the United States and Britain with trepidation.

• Large falls in house prices and sub prime lending have created disastrous conditions.

• The Australian housing market is very different from these overseas markets.

• For a start Australia has not had the scale of sub prime lending that existed in the United States.

• Mortgage default rates have been low in Australia - the result of a better regulated banking sector.

• Default rates have increased slightly in the last three months, but currently stand at 0.59 per cent[1] compared with a US rate as high as 4.5% (up from a previous level of 1.7%[2])

• The second major difference with the US is that Australia has not been building enough houses for many years.

• Underlying demand for housing has been rising for years, driven by “ageing in place”, skilled migration and more people living alone.

• We are still dealing with an undersupply of housing - especially affordable housing - rather than an oversupply.

• Last year, I appointed a National Housing Supply Council to produce better evidence on our supply problem.

• The Council have confirmed we have a serious housing supply problem, and will release their first State of Supply report in the next few weeks, which will include robust estimates of the size of the gap.

Housing Market and Global Financial Crisis in Australia

[1] Fitch Ratings’ September 2008 Quarterly Australian Residential Mortgage Performance Report - 90 + days Delinquencies [2]

US Federal Reserve, November 2008, The rise in Mortgage Defaults

• Despite these differences, Australia isn’t immune from the effects of the Global Financial Crisis.

• Housing activity started tracking down in February 2008, driven by fewer investors.

• That means less employment in the residential housing sector and a difficult year for many businesses.

• The most recent estimates from the Housing Industry Association are that we will build just 145,300 houses in 2008-09.

• The value of housing finance commitments fell by $13.5 million between December 2007, and December 2008.[3]

• Access to credit has been more difficult in the last twelve months.

• Multi unit developers have been telling me they may need up to 70 per cent presales before they get finance and can commence construction.

• I have been concerned for some time about the number of projects that have full planning approval but are now having difficulty getting finance.

• We need those homes; those builders want the work; what’s missing is some certainty when it comes to financial arrangements.

• Construction is a big employer - almost a million Australians work in the sector - and investment in construction has a strong multiplier effect.

• To support the commercial property sector the Government established the Australian Business Investment Partnership to provide liquidity support to viable major commercial property projects.

• The partnership will draw on capital from both the Government and the major banks. Loans will be offered to viable projects and only with the unanimous agreement of all parties. Loans will be provided on commercial terms where they underlying assets are sound.

• We have a focus on completed commercial property investments and partly completed projects with secured pre-commitments such as retail shopping centres, commercial office and industrial property.

• When it comes to residential property our approach has been two-fold:

1. to help first home buyers into the market, and

2. direct investment in public housing and defence housing.

First Home Owners Boost

• As you all know, last October, the Government took early action to support confidence in the housing market through the First Home Owners Boost.

[3] ABS Catalogue No: 5609.0 - Housing Finance, Australia, December 2008

• Our intention was to make people who were thinking of buying a home some time in the future to bring forward that decision.

• Four months in, I think we can say that the Boost is making a difference.

• ABS Housing Finance data for the month of December showed a 6.4% increase in the number of new home loans for owner occupiers.

• Even more encouraging was the 15.1% increase in loans to purchase new dwellings, and just under a 10% increase in loans to construct new dwellings.

• These numbers are being driven by first home buyers.

• In December more than 25 per cent of dwellings financed were for first home buyers. Back in September the proportion of first home buyers was just 19 per cent.

• Builders tell me that January continued to be strong and that increased interest is translating to increased sales.

• The first home buyers I’m talking to say they think 2009 is a good time to buy because of low interest rates and the generous grants available until the end of the financial year.

• Many people have suggested to me that the First Home Owners Boost be extended.

• The Government is committed to working with industry to measure the impact of the Boost.

• It is important to bear in mind that we made the Boost a time limited measure for the very reason that we wanted to encourage young people who were ready to buy to act now, rather than to put off their decision.

Nation Building and Jobs Plan

• On 3 February, the Prime Minister announced our second stimulus package - the $42 billion Nation Building and Jobs Plan.

• It is a comprehensive package aimed at supporting jobs through big spends on infrastructure and payments.

• It includes spending on schools, energy efficiency, housing, roads, railway level crossing boom gates and community infrastructure like town halls or minor works undertaken by councils - all of which can commence quickly.

• Treasury estimates that the Nation Building and Jobs Plan will support up to 90,000 jobs in 2008-09 and 2009 -10, including 15 000 in the construction and building sector.

• For every dollar spent providing immediate stimulus to the economy, the Government has invested more than two on long term investments.

Social Housing

• One of the long term investments is the $6.4 billion spend on social housing.

• This is the largest single investment in new social housing ever made by an Australian Government.

• Funding will build 20,000 new public and community housing dwellings and renovate an additional 2,500 that would otherwise be uninhabitable.

• Funding will administered in co-operation with States and Territories with at least 15,000 homes to be built by December 2010.

• We are requiring States and Territories to run a competitive process, working closely with industry.

• I hope that we will be able restart some of those developments that can’t get finance by agreeing to buy a proportion, perhaps off the plan, as social housing.

• This isn’t charity though: the housing has to be good quality; energy and water efficient; well-located; robustly built so it will stay in good condition and keep its value.

• I don’t want to build vast new suburbs of public housing, but rather, mixed developments that include some public housing; some NRAS properties, perhaps rented to key workers; some first home buyers - a mixed community.

• Builders and developers who want to work with governments and community housing organisations should think about building housing that meets the needs of the tenant mix of these buildings: aged pensioners don’t have a lot of extra money to run expensive air conditioning; tenants who spend long hours at home probably need better than average noise insulation from the neighbours.

• These new homes will be owned by state housing authorities in some cases; but it’s also my intention that many will be owned by not-for-profit community housing providers. I want to use this as an opportunity to grow this sector in Australia.

• This building program gives us much needed new housing that will help us meet our goal of halving homelessness by 2020; but it will also keeps one of the most important employment sectors in the economy going strong; keeps tradies in work; keep apprentices on the job.

Other Nation Building Measures

• On top of the new social housing building program, we’re also bringing forward the construction of 802 new defence homes that will provide an important stimulus in seventeen regional economies such as Townsville and Sale and build much needed housing in centres like Darwin.

• We are installing ceiling insulation in 2.7 million Australian homes.

• This will cut around $200 each year off the energy bills of these households, and reduce greenhouse gas emissions by around 49.4 million tonnes by 2020, the equivalent of taking more than 1 million cars off the road.

• And most of the bats are made in Australia, too.

• The Government will build or upgrade school infrastructure, such as libraries and halls in every primary school, special school, and K-12 school in Australia or new science laboratories and language learning centres in many high schools.

• There’ll be extra work on the Black Spot Program, roads and railway level crossings will be fixed; local town halls painted and basket ball courts laid.

Other Housing Measures

• Even without the current economic situation, Australia has a long term problem with housing affordability to tackle.

• Our existing housing affordability programs like the National Rental Affordability Scheme; Housing Affordability Fund; First Home Saver Accounts and so on still remain.

• In January I announced 33 projects which are short listed to share in $112 million worth of funding that will proceed to final funding agreements if the business cases stack up.

• Round 1 will deliver cost savings to 14,000 new homes and lots through the construction of infrastructure such as bridges, water pipes, sewerage systems and community facilities.

• All of those projects will employ people and will commence very soon.

• I expect over 300,000 new homes to benefit indirectly from these projects through planning and development approval reforms across affected local government areas.

• Applications were assessed thoroughly by my department- the fundamental test applied was how much value the grant would deliver to purchasers of the homes supported through HAF.

• NSW will receive just under $16 million worth of projects from the first round.

• A few examples of successful first round projects from NSW include:

• The Clarence Valley Affordable Housing Reform Package which applied for $880,500 for earthworks, roadworks, stormwater drainage, water, sewerage and utilities to enable the delivery of 35 lots. With reforms, homebuyers will achieve savings in the range of $10,000 to $20,000.

• We have also shortlisted the Edmondson Park Project in Liverpool. The project applied for funds for construction of road works, Cabramatta Creek storm water infrastructure, sewer trunk mains and water mains.

• The developer has proposed to provide an average rebate of $25,000 for low-moderate income households purchasing 88 of the 168 lots which would be opened up as a result of the fund.

• This will result in some of the house and land packages being priced at lower than the median established house price for Liverpool.

• Applications for the next funding round will open later this year.

National Rental Affordability Scheme and social housing

• The first round of the National Rental Affordability Scheme allocated 2,800 incentives, including 507 in New South Wales.

• Many homes are already tenanted, and a total of 182 are to be available for rent in New South Wales by 30 June 2009.

• Rowan Dowland, the general manager of development for Melbourne-based credit union MECU, told the Financial Review on February 11 that the National Rental Affordability Scheme numbers were (and I quote): "stacking up better and better as rates reduce".

• “When NRAS was first launched, rates were in the vicinity of 8-8.5 per cent. Now we're looking at rates around 6 per cent and those NRAS projects are now able to stack up."

• Again the most interesting projects were those that thought creatively about how to use the incentive to deliver more affordable housing.

• One project delivers group housing for elderly people and people with disabilities.

• The project will deliver five separate houses located across four suburbs, each accommodating five tenants in their own private suites and with some shared living spaces to encourage and enhance community ownership of the dwellings.

• Round Two is now open and will close on 27 March 2009.

• I am particularly keen for people to think about how to use both NRAS and the new social housing funds in combined projects, and we’re simplifying the application processes to make that easier.

• I’d be very happy to see - say - 10 per cent of a new project for social housing for pensioners, another 10 per cent to be used as affordable rental for key workers through NRAS and then sell the rest on the open market.

Conclusion

• The Australian Government is implementing more housing programs than have existed at the federal level for decades, with a particular focus on increasing the amount of affordable housing being built.

• It’s been a difficult time to be in the housing industry, but it’s also an exciting time for those businesses that are able to adapt to the demand from first home buyers, for example.

• I look forward to continuing to work with you to minimise the impact of the global financial crisis on the development and construction sector, and tackling the long term problems of housing affordability.

• Thank you.

• ENDS