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The End of Affordable Housing in Melbourne?

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The End of Affordable Housing in Melbourne? THE END OF AFFORDABLE HOUSING IN MELBOURNE? Bob Birrell, Ernest Healy, Virginia Rapson and T. Fred Smith Centre for Population and Urban Research Monash University June 2012 TABLE OF CONTENTS Executive Summary ............................................................................................. vi Chapter One: Melbourne’s development challenges ............................................. 1 Planning for Melbourne 2002 to 2030 .................................................................... 1 Melbourne’s development after 2002: the reality ............................................................ 2 Dwelling price movements in Melbourne ........................................................................ 4 Melbourne loses its comparative advantage in dwelling prices .......................................... 7 Chapter Two: The response to the crisis in the supply of affordable housing ......... 9 Making the compact city work ...................................................................................... 10 Governance .................................................................................................................. 10 Expanding the coverage of activity centres .................................................................... 11 Opening up the development frontier ........................................................................... 13 Chapter Three: The outcome of activity centre intensification ........................... 15 North of the Yarra ........................................................................................................ 15 Brunswick case study ......................................................................................................... 15 Darebin case study ............................................................................................................. 17 South of the Yarra ......................................................................................................... 19 Glen Eira case study ............................................................................................................ 19 Boroondara case study ....................................................................................................... 21 Chapter Four: The development task ahead for Melbourne ............................... 24 The population outlook ................................................................................................. 24 An alternative population projection for Melbourne ......................................................... 25 Household projections .................................................................................................. 26 Implications of household projections for the housing market .......................................... 27 The demand for housing will come from new households ................................................ 29 Implications for Melbourne’s dwelling needs ................................................................ 31 The Grattan Institute view .................................................................................................. 32 Chapter Five: The housing market in established suburbia after Labor’s reformulation of Melbourne 2030 ................................................ 34 Infill .............................................................................................................................. 36 Medium-density apartments ......................................................................................... 37 Why are apartment costs so high? ................................................................................. 41 Upmarket apartment projects ........................................................................................ 43 High-density small apartments ...................................................................................... 44 Chapter Six: New fringe housing within the Urban Growth Boundary ................. 46 The land market in outer suburbia ................................................................................. 46 The 2008 Labor Government initiatives .......................................................................... 47 How long does the precinct planning process take? ........................................................ 49 The pace of subdivision ................................................................................................. 50 The costs of developing land on the fringe ..................................................................... 52 Developing fringe land – who pays? .................................................................................. 52 Infrastructure initiatives in PSPs ......................................................................................... 53 Has the provision of local infrastructure actually improved? ............................................. 55 The costs of producing sub-divided lots .............................................................................. 56 The implications of high fringe land costs .......................................................................... 57 ii Chapter Seven: Unanticipated outcomes — the peri-urban sprawl ...................... 62 Defining Melbourne’s peri-urban area............................................................................ 62 Peri-urban location and house-hunting .............................................................................. 63 The potential reach of the peri-urban spread ..................................................................... 64 Housing opportunities in peri-urban areas ..................................................................... 65 Development costs in peri-urban locations ........................................................................ 68 Outlook ......................................................................................................................... 69 Wallan becomes part of the UGB.......................................................................................69 Chapter Eight: Is Melbourne becoming like Sydney? .......................................... 71 The housing market in Sydney since the early 2000s ....................................................... 71 Implications .................................................................................................................. 75 The consequences of Sydney’s housing crisis .................................................................. 76 Lower household formation................................................................................................ 76 Decline in home ownership ................................................................................................. 77 Slowing population growth ................................................................................................ 78 Chapter Nine: Summary ..................................................................................... 79 Prologue ....................................................................................................................... 79 The current housing situation in Melbourne ................................................................... 79 The demography of household growth in Melbourne ..................................................... 81 The outlook for housing in Melbourne ........................................................................... 82 The fringe safety valve ........................................................................................................ 84 The bottom line ................................................................................................................... 85 Appendix: The causes of Melbourne’s dwelling price surge ................................. 87 The bubble explanation ................................................................................................. 87 The scarcity hypothesis .................................................................................................. 91 Summing up .................................................................................................................. 93 References .......................................................................................................... 95 iii List of Tables and Figures Figure 1.1: Mean house price by location in Melbourne, 1985 to Mar Qtr 2011.................................................... 6 Figure 1.2: Mean unit/apartment price by location in Melbourne, 1985 to Mar Qtr 2011 .................................... 6 Figure 1.3: Price index of established houses based on reference year 2003-04, five state capitals, March 2002 to March 2012 ........................................................................................................................................ 8 Figure 1.4: Median price of established house transfers, five state capitals, March 2002 to Sep 2011 ................. 8 Figure 3.1: Built form guidelines, Brunswick Structure Plan ................................................................................. 16 Figure 3.2: Keilor Road Activity Centre Structure Plan, City of Moonee Valley .................................................... 17 Figure 3.3: Locations of planning applications for medium- and high-density residential developments for the years 2009. 2010 and 2011, in relation to major activity centres in the municipality of Darebin, by size of development
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