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SA's declining housing industry needs an affordability boost

Opinion

The building industry wants a raft of reforms to arrest the sharp decline of South Australia’s housing market – and that means measures like compulsory rainwater tanks need to be reconsidered, argues Ian Markos.

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South Australia’s housing industry is struggling.

Building approvals for private sector houses have declined for 11 consecutive months and are at a five-year low. The 600 houses approved in October was the lowest since April 2013. A whopping 126 more homes were approved during the same period last year.

News last week another builder had gone into administration sent shockwaves through the industry. It was a striking reminder of the current state of the market.

There is a myriad of reasons for the decline. The state’s population growth was less than half the national average last year, keeping a lid on demand. Interstate migration represented a net loss of 6800 people during 2016/17. When you look at dwelling price to income ratio – a more accurate indicator of affordability – South Australia is actually the third most expensive state and significantly higher than international averages.

Recently expired concessions for off-the-plan apartments, supported by Master Builders SA, were tremendously successful in stimulating that market segment. However, there was no equivalent assistance for families who want to live and work in the suburbs and have a backyard for their kids to play in.

Finance is also tighter in the midst of the banking royal commission and APRA interventions. The number of loan rejections for first homebuyers nationally has skyrocketed from 282 in August 2017 to 3828 in July 2018. Investors have not fared any better, with the number of rejections shooting up from 1144 to 16,076 over the same period.

Master Builders SA is confident we have the blueprint to turn things around. “Make Housing Great Again”, our five-point plan to rejuvenate the housing sector and help more first home buyers get into the market, will help build a highly productive industry and a prosperous South Australian economy. According to the ABS, for every $1 million spent in construction a possible $2.9 million of output would be generated, including 37 jobs.

Our plan is simple, practical and based on what is proven to work. There is no single magic bullet. Our suggested approach on affordability is the same as how to eat an elephant – “one bite at a time”.

House prices are driven up by about 40 per cent by inept land release strategies, unnecessary planning and building requirements and expensive development levies, taxes and charges. The newly-established South Australian Productivity Commission must investigate red tape that is preventing first home buyers entering the market and businesses from growing and employing more South Australians.

Adding to the sense of urgency is that home buyers could see their borrowing capacity cut as a result of reforms likely to be driven by the banking royal commission. According to Digital Finance Analytics, those with a household income of $150,000 could see a 34 per cent reduction in their borrowing limit from $817,340 to $538,622.

South Australia must introduce a stamp duty exemption for first home buyers on new builds up to the median house price. Similar policies have seen the first home buyer markets in New South Wales and Victoria go absolutely gangbusters since being introduced in July 2017.

The draconian requirement to install plumbed minimum-sized rainwater tanks must be abolished. When Queensland removed this in 2013, it was estimated the average home buyer saved more than $5000. If South Australia followed suit and a stamp duty exemption was introduced, these two policies alone would mean the average first home buyer would not have to borrow approximately $25,000. For many, that’s the difference between owning your own home or not.

Master Builders SA also recommends that the existing First Home Owner Grant of up to $15,000 be increased to $20,000 in regional South Australia. This is based on the very successful model for regional Victoria.

South Australia is currently undergoing the biggest changes to the planning system in decades. While this represents a tremendous opportunity, there is also great risk. A key principle must be that planning reforms promote economic growth, not threaten affordability. Master Builders SA is deeply concerned about the cost implications of proposals on climate-smart buildings, water sensitive urban design, green infrastructure, urban greening and tree canopy enhancement.

The Marshall Government should be commended for the work it is doing on migration and immigration policy, but the industry can’t wait years for the rubber to hit the road. The latest report by Macromonitor, one of Australia’s leading industry research and forecasting firms, warns of a decline in the value of houses and total residential building in each of the next four years.

The clock is ticking. We can’t wait for another builder to go into administration. Policy-makers must stand up for first home buyers and the thousands of South Australians directly employed in the industry. Next year’s State Budget is a golden opportunity for the Marshall Government to draw a line in the sand and make a statement that South Australia is the place for housing affordability.

Ian Markos is CEO of Master Builders SA.

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