McGrath Land: Expectation versus reality
I’ve spent 30 years working in the property industry and I’ve never seen a market quite like this. A year ago - as the world faced a once-in-a-lifetime pandemic and unprecedented global economic uncertainty - no one could have predicted the high demand for Sydney property we’re seeing today.
Record low interest rates, combined with the Federal Government’s HomeBuilder scheme, meant the desire for vacant land, especially from first home buyers, in and around Sydney hit new highs in 2020. In March, when COVID-19 became a reality for Australians, we saw demand all but dry up. By June, however, the announcement of HomeBuilder saw land sales soar. The promise of $25,000 (then $15,000 from January 1, 2021) to help Australians build their new dream home was just too good to pass up.
Applications for HomeBuilder may have closed in mid-April 2021, but with dwelling prices rising at their fasted pace in 32 years and a significant undersupply of established stock across Sydney, the option of building a new home remains an attractive choice for house hunters. The fact that so many buyers are ready to open their chequebooks is great news for the building and construction industry (and the economy as a whole) but Sydney is facing a huge property problem - there just isn’t enough rezoned and serviceable land to go around.
The recently released State of The Land 2021 report by the Urban Development Institute of Australia (UDIA), showed that Sydney recorded a 52 per cent uptick in lots released to market across 2020. Sydney was also the only city to record substantive growth during the year with a 6 per cent increase to $1285 per square metre - a figure that has continued to rise since the UDIA report was published in March. On the surface those numbers shed a positive light on a sector that could have otherwise slumped during a global health crisis, but when you dig a little deeper the cracks begin to show. When COVID hit last year, the first people many developers put off were those driving development and rezoning applications simply because no one really knew how long the pandemic was going to last, or what the severity would be.
Fast-forward to June 2020 when HomeBuilder came in and buyers discovered that all land bought under the scheme had to be registered by December and the race was on. All that did was pull forward sales - that would have occurred naturally over the following 12 to 18 months - into a very short six-month period. As a result, we’ve now got a massive lag between available land that's both serviceable and zoned for building to begin this year and into 2022.
According to Planning NSW’s current Sydney Housing Supply Forecast (the State Government’s estimate on where, when and how many new homes are likely to be completed in Sydney over the next five years) 132,800 to 171,200 new dwellings could be built between now and the 2024/25 financial year. I believe they’re just not going to hit those targets. Part of the problem is they’re still counting apartments in the mix and that market has seen a dramatic fall in sales and sites starts.
Recently, we’ve had another spanner thrown into the works. The powers that be within the State Government have decided there will be no more re-zoning in the North West until the flood issues are addressed. It feels like the Government has deferred decision-making back onto local councils.
What we’re left with is the reality that availability of new land in the North West of Sydney (home to the city’s main growth corridor in recent years) has nearly dried up. There are areas like Vineyard and into the Hawkesbury that are available but around Marsden Park North and Schofields West, which were about to be rezoned, have been potentially pushed back for three to five years.
With the North West’s land supply severely hampered, and very little to come on in the West, the South West is shaping up to be the main player for available land - and it will probably be that way for the next 10 years. Unfortunately that’s not enough to feed the appetite of Sydney buyers, not to mention the huge number of new Australians expected to arrive down under once borders open up. Annually, Australia issues approximately 140,000 permanent visas (and the recipients mainly settle in Sydney and traditionally build new homes) and I believe that number could rise as the Federal Government plays post-pandemic population catch up. Ultimately, it’s time the NSW government gets to work on building more infrastructure (not just for Western Sydney Airport) and rezones more land to get to market as soon as possible.