“Among owner-occupiers, there is a lack of confidence, and many people are simply not moving from their existing home."
Affordability at the heart of limited property supply: Mark Percy in conversation with Peter Chittenden
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In my recent conversation with Mark Percy, executive manager of residential of Cbus Property, we explored some of the main issues confronting our sector. I was also very pleased to hear Mark express some refreshing thoughts across a range of ongoing topics impacting the housing market, as well as some timely points directly related to project marketing.
According to Mark, it is affordability that sits at the heart of limited new housing supply housing, combined with limited development sites and planning delays. He suggests that this will drive major changes with more demand for smaller houses and apartments already occurring.
“The demand for smaller homes is not only driven by affordability. The increasing demand and acceptability of this form of housing is complex, as it is being driven by many market factors such as the location of existing infrastructure, work, family, shops, restaurants, theatres, etc. Buyers will compromise their expectations on a dwelling size to be located as possible to this infrastructure and support network.
"This has led to the continued infilling of our major urban areas which has the added benefit of making better use of existing infrastructure. This has the added benefit of reducing pressure on providing infrastructure on the edges of the existing urban area but increases the demand for housing in the inner-urban areas.”
However, in the immediate future Mark believes that the biggest hurdle for the residential market is that there has been a shift in market conditions because of the lack of confidence among buyers and, although manifest in the issue of affordability, it is a very complex issue.
“Among owner-occupiers, there is a lack of confidence, and many people are simply not moving from their existing home. There are many reasons for staying put; many are financial, but there are also social and demographics working here.”
Mark believes that buyer motivation and timing have shifted, which he sees as key reasons for the big drop in demand and hence the fall in home building construction. The cost of moving and poor capital growth are other factors, Mark says.
“In NSW, because of stamp duty incentives available before 30 June 2012, we saw that investors and first-time buyers below $600,000 were very active in the market. But I think it could be argued that this may well have created a distortion in the overall market as many developers moved to change their product offering to meet the inflated demand in this sector of the market caused by the temporary incentives on offer.
"Immediately after 30 June, there was a noticeable drop in demand for new housing. I think that generally the product range and quality needs to be sufficiently broad to attract a cross section of buyers – focusing on one sector of the market is risky, particularly when demand for a particular sector of the market can be affected by Government incentives being introduced or withdrawn through the life of a project” he said.
But while Mark agrees that incentives create activity in the particular sector of the market to which they apply, he believes that despite the incentives that were on recently on offer, the wider market appears to have a lack of motivation and confidence.
While affordability is a big issue, Generation X and Y are simply not driven to buy a home as any sort of priority, unlike their baby boomer parents were. This has reduced the formation of new households in this age demographic.
Mark cites the clear trend that Gen X and Y are more inclined to want to travel and stay at home longer than their parents did. Homes, either big homes or smaller ones, are today not on their short term agenda. But Mark thinks that the industry needs to think about how this will play out in the mid to long term when Gen X & Y finally “settles down” – the development industry needs to focus a lot of attention and forward planning on this group of buyers to understand their drivers when it comes time to purchase a home and ensure that housing forms provided are suitable for this market.
“Clearly the market has changed in an almost generational shift in priorities and economic circumstances. They are happy to stay at home longer. Many are marrying and having children later and this trend, combined with what plans and aspirations mum and dad, the baby boomers, have is creating a fascinating mix of challenges and opportunities.
“Mum and dad might down-size and help the kids with by contributing some cash to assist their children to buy a home but this does not address the deeper issues of affordability.”