The reading for this week is of a textual context. It is the fifth chapter in a report prepared in 2000 commissioned by the Bracks Government. The report was to inform the planning and policy considerations that at the time were indicated by “a commitment to housing policy and planning reform through the Better Housing Program, its preparation of a new planning code… [and]… its planning policy review consultations around a new metropolitan strategy.”

The purpose of the report was to recognise and highlight Melbourne’s housing market trends and their wider economic and social context. Its’ legitimacy to planning reform was derived from the prosperous economic growth over the decade previous to the report, but more importantly the Government’s recognition of relatively inequitable distribution of income and wealth during this time along with the lack of well being and consumer confidence that was a result of similar booms previously experienced in post-war Melbourne.

This chapter of the report focuses on the building and land development industries and their impact on housing choice and affordability. The authors Burke and Hayward discuss the differences in the market-place between land developers and building companies; highlighting that land developers, one of which was the Government run Urban Land Corporation (re-badged the Urban and Regional Land Corporation, and more recently VicUrban) are made up of “three or four large developers…. [and]… house building, on the other hand… [being]… solely a private industry”. The competition in the building industry is far more competitive with over 8000 builders. The smaller companies had a tendency to build one storey homes specific to each site, while the larger firms focused their attention to building “project homes” on large sites on the urban fringe.

Towards the end of the 1980’s, the Government (through the ULC) with backing form developers, pushed for a reduction of residential block sizes within green field areas to reduce infrastructure costs. As a result, builders found an opportunity to build second storeys for these smaller sites to attract potential home owners in buying an ‘attractive large modern home’ – giving them value for money. This shift in housing style presented problems; challenging the regulations of overshadowing and overlooking set out by the Good Design Guide (now ResCode). It is this ‘double edged sword’ that has proven to be a sore point for planners. On one side the Government makes positive moves to cut infrastructure costs by making green field residential blocks smaller, increasing density in establish areas but on the other hand, does not intervene as convincingly to manage building form/height. It relies on the subjective regulatory controls maintained by ResCode, spending an enormous amount of time and money trying to contest an entire market whose sole intention is to maximise its profit per square meter.

The other major point highlighted by this report was the new breed of medium to high-density builder-developers and the influence and power on housing choice and affordability. The majority of larger companies were extensions of commercial construction firms like Becton who at the time were experiencing a downturn in commercial high-rise buildings. Their experience and ability to erect buildings in a timely manner and within budget opened up new avenues for them in a market with proven growing demand for residential dwellings. Because of their marketing prowess and market forces at the time, they were able to price and build on a speculative basis. They were able to sell their dwellings off the plan, primarily to create a solid financial foundation for which to commence construction on.

This ‘speculative’ basis for housing price meant that value was placed on something that was not yet tangible, allowing them to dictate prices on their own terms, with the only advantage to the customer being if they bought off the plan and didn’t have to pay stamp duty.

The overall effect of these privately owned companies dominating the land development and housing construction market has been more and more prominent as time has passed. Housing affordability is soon to be out of reach for the typical Australian home owner. Government regulation has been loosely applied to control development and with little success in terms of providing an opportunity for the average Australian a secure future.

Questions

• Realistically, is it too late for the Government to act on housing choice affordability?
• If not, suggest a way in which their intervention could provide relief for home owners while keeping the interest of developers through policy.
• As a soon-to-be home owner, what are your expectations of the housing market in the years to come?

Reference

Burke, T. Hayward, D. 2000, “Housing Production: The Building and Land Development Industries”, Housing Past, Housing Futures, Swinburne Institute of Social Research, ch. 5

7. Housing Market 21st April, 2008 00:22:30   [#] [1 comment] 

Kenneth M. Lusht from Pennsylvania State University investigated reviews of experimental researches that had been done regarding the process and revenues of sealed bids and English auction (although mostly English auction are used), and also their comparison to private negotiations. According to the author’s study, the English auction process has had its enormous escalating popularity in 1980’s, when the cost of auction sale title had shifted to the seller. The use of it raised 25% in just 5 years. (p.518)

The author began by classification of the Melbourne housing markets, moved on to process description of the auction and the theory price-maximizing seller. Then they followed by discussions and analysis about the result.

Moreover, the author defined the advantages of the auction process for the sellers. According to the study of Australian housing in 243 houses from January 1988 until March 1989, auctions rose the price of the house on the average of 8% higher from the private negotiations (p.518). English auctions use seller bidder (dummy) and advertisement. The agent sometimes simply calls out seller bidder or the fictitious bidder if the price has not met the seller’s minimum expectation, it is legal and regularly used (p.519). The use of advertising, by means to get more viewers and demands cost about 1% of the selling price. Nevertheless, the price of the house itself is kept unknown because it may be changed drastically during the bidding process.

Lusht then acknowledged the advantages for the agents. The fees for the agent for both auction and private sales were normally 2% plus AU$660 (p.518). The agents may get more profits from advertisement by having advertising space wholesale and recharge them to the clients at retail prices (p.519). They have more opportunity to get bigger income in the auction process. But in contrary, if 30 days prior to the house is failed to be sold on the seller’s expectation, the agents lost their rights to market them. Most houses never been auctioned twice.

Regarding to the current situation that most houses are for sale on auction process, the buyers might find it a bit easier to get the information about houses on the market. The author differentiated the buyer to independent and affiliated or risk neutral and risk-averse type (p.520). In relation to the price-maximizing theory, revenues in the English format maximized in deal with risk-neutral participants and affiliated bidders, while sealed bids deal with risk-averse participants and independent bidders (p.521). In the contrary to the fact that the price may rise higher on auctions, the author then made arguments through more researches in the coming years. Thirty seven percents of sellers realized the commitment of paying advertising cost on an auction listing is their disadvantage. Also 31,3% of them found the process of an auction is too stressful, and 18.1% of them concerned about the impact of failed auction on the quality of their houses (p.528).

Having established this, the authors concluded that the price comparisons between English auction and private negotiations did evident that the pricing mechanism matters. From the data mentioned, compared to private negotiations, auctions tended to bring significant 8% higher price. But auctions are better chosen for newer houses in still good conditions. The information found then raised few questions about suboptimal marketing choices, the seller bids and secretly reserved prices.

Questions for discussion:

• What do you think about few things happening behind the auction like fake bidder and secret reserved price in relation to the house value?
• As to become the planners and future buyers or sellers, which process do you want to choose?
• Other than having the auction, what other pricing mechanism do you think can be applied to raise the value of the house?
• Do you think auctions can be really utilized to increase the value of an area as the part of planning and developing?

Reference :

Lusht, K. 1996, “A Comparison of Prices Brought by English Auctions and Private Negotiations”, Real Estate Economics, v.24, i.4, p.517-530

7. Housing Market 20th April, 2008 01:01:18   [#] [1 comment] 

The reading titled ‘the private housebuilding process’ was written as part of the third chapter of the book titled ‘Delivering New Homes’ written by Matthew Carmona, Sarah Carmona and Nick Gallent. The book was aimed at exploring and examining the process and relationships that underline the development of housing within the United Kingdom. Throughout the reading the authors discuss the mechanics of the private house building process and explore why newly built private housing takes the form that it does.

Carmona, Carmona and Gallent begin by discussing the stages of the development process and what developers look for in investment opportunities, they point out that anything that increases cost within a development such as risk is greatly opposed by the investors, therefore they are less likely to pursue development that may have risk attached to it and would rather stick with a development style that they know has been trailed and produces a profit.

Carmona, Carmona and Gallent point out that the private home building sector is now dominated by larger building companies producing production style housing opposed to the local builder “the situation is compounded by the fact that of the 20,000 builders registered with the National House Building Council in 1998, just ten were responsible of over 35 percent of the combined UK output”, and that this is creating a phenomenon where the exact same house can be purchased and developed anywhere in the country. The authors reveal the criticism that has been directed at this phenomenon, as the then Secretary of State for the Environment John Gummer declared it “an insult to our sense of place to offer precisely the same house in Warrington as in Wallingford, Wadebridge or Wolverhampton”. The authors place some of the blame of this uniform housing on the market process as “profits for the house builders often remain tight, the emphasis tends to be on achieving the least costly solutions” and this often results in less time for good design solutions.

Carmona, Carmona and Gallent finally discuss that this type of uniform development is partly due to the consumer and their needs. They explain that due to the attitudes of British house buyers, who much like Australian house buyers, struggle onto the first rung of the housing market and inturn look to make a quick profit on their first house as to move up into something usually bigger. Thus space issues such as the number of bedrooms and bathrooms become the most important priority opposed to issues such as environmental quality and efficiency.

Discussion questions

• Do you believe that the attitudes of Australian house buyers are more concern with things such as the number of bedrooms opposed to environmental, construction or design concerns?
• Do you think that the ‘uniform’ house that can be purchased and located anywhere is a good thing?
• How do you think planning could result in reducing the risk for potential housing developments?

Carmona M., Carmona, S., Gallent, N. 2003 “The Private Housebuilding Process", Delivering New Homes: Processes, Planners and Providers, Routledge, London, ch. 3 (16p)

7. Housing Market 19th April, 2008 20:10:00   [#] [9 comments] 

M Cannon in the article “The perilous Course of Events”, provides examines Melbourne’s economic booms and depressions throughout the 19th Century. The author analyses what caused these booms and bust periods and in particular analyses the events that led to the property boom and bust cycle that started in the early 1880’s and finished in somewhat tragic circumstances in the early 1890’s. The article highlights the devastating effects that can stem from speculation and a lack of state intervention and a lack of strong legislation in regard to corporate directors and banking.
The land boom and the bust of the 1880’s was particularly devastating to the economy because so many people had borrowed money to invest in land “every type and degree of man was involved Clergyman, laborers, widows, school masters- all grasped at the chance of quick wealth and invested their savings” . Cannon suggests that the boom was pushed my two main group’s building societies and other investors who believed “that it was impossible to lose money by investing in land” (Cannon 1966, pg 19).

Cannon analyses the role that building societies played in causing the rapid rise in the housing and land prices in and around Melbourne in the 1880’s and 90’s. The author suggests that the building societies were only able to play such a pivotal role as the law allowed them to “buy and sell or mortgage freehold or leasehold estate” which cannon believes turned them into “little more than speculative operations, using public money which had been subscribed for quite different purposes”(Cannon 1966,pg 20).

The author closely examines the methods that were used to sell many of the blocks of land, methods such as “providing free public transport and elaborate lunches for buyers, sprinkled the crowd liberally with dummy bidders”. Other methods that were used to establish fictitious values were to build houses on the site and sell them to other land companies which were owned by the company, therefore effectively selling the land to them.
The article identifies the banks and lenders as one of the major reasons for boom and collapse of the property bubble, other factors such as high wool prices, good harvests and plenty of people from Britain willing to lend money also helped spurn the ever inflating house and land prices. The banks were more than willing to lend more money than they could realistically afford which proved to be many of the banks and investor’s ultimate downfall, Cannon stated that “If most of these transactions had been settled in cash, the bubble could never have exploded so greatly or burst so explosively” (Cannon 1966 pg 36)

During the bust period many directors and men in position of power took advantage of the trust placed in them and the weak companies act and set out minimizing the effects that the burst would have on them personally “As bank shares and other stocks began to slide in value, the directors of certain companies sent out dummies to buy their own shares and prop up their values temporally while directors sold their own shares”.

Cannon recognizes that the states minimal intervention in the market at the time as one of the reason that house and land prices ballooned then burst so quickly. The article provides from beginning to finish an in depth analyses of the land boom and bust of the 1880’s and early 1890’s identifying the major reasons for the price surge and fall and some of the mistakes made by officials which resulted in such a catastrophic burst in the housing bubble. The author also makes note of some of the tactics which ultimately caused the prices in housing to continue longer than they should have, and make the market crash much harder than it otherwise would have.

Questions

• Are there any similarities between the surging housing and land market of the early 1880’s and the late 1990’s 2000’s?
• Is it still possible to he housing markets plummet similar to that in the 1880’s or is it unlikely due to more state intervention in the housing market?

Reference

Cannon, M. 1966, “The Perilous Course of Events”, The Land Boomers, Melbourne University Press, Carlton, ch. 3 (19p)

7. Housing Market 19th April, 2008 19:10:17   [#] [5 comments] 

This article attempts to explain how external forces impact the prices of the residential property market in Australia and in turn affect housing affordability.

The Wakelins cover a very large area and explain very clearly how different conditions from economic and global to social impact on price fluctuations within Australian property markets. From the beginning they separate the types of properties into residential and commercial. Stating that each share some of the same influences however fundamentally they are affected differently from different factors. Stating that commercial property is much elastic in it’s price change caused by the strength local economic and business activity opposed to residential property that seems to be more inelastic in price change to these forces.

The Wakelin’s article goes into detail explaining the business cycle describing it as an Economic Clock. Believing that what goes around comes around. They believe that the Australian economy operates in 12 year cycles. The cycle explains boom times and the R word (Recession) and all influences that help achieve these circumstances or what cause the sudden arrival.

The article also explores many myths regarding property investment. Ranging from right time to invest, right type of investment and right time to sell. The article also studies each state capital and discusses how each city’s residential property prices reacted to the same national or global conditions.

The Wakelins underlying opinion about median house prices is that it will never drop. Price increases might plateau but not decrease. They do account for the odd subdivision in which lots are bought and services never arrive by using the term ‘median’ house prices rather than individual house prices will never fall . The Wakelins state that inflation and interest rates have a minor affect on house prices, rather they influence greatly the rate at which houses are bought. They believe the factors that have the biggest influence of residential house prices and affordability are location- comparing how far it is from the CBD, architectural type- how common of scarce it is, supply and demand- of housing types and government intervention- stopping urban sprawl eg. Urban growth boundary.

Questions:

• Do the different cities property markets really operate independently of Sydney and Melbourne?
• Do you think that old block style apartments are a bad investment as stated in the article?
• Can the government do more to make buying house more affordable?
• Should the government consider encouraging pay increase to help housing affordability?

Reference

Wakelin, M., Wakelin, R. 2002, “External Influences on Residential Property: Economics and Other Denizens of the Deep and Meaningful”, Streets Ahead: How to Make Money from Residential Property, Hodder, Sydney, p34 (34p)

7. Housing Market 19th April, 2008 17:50:01   [#] [4 comments] 

Doctor Yan Song and Professor Gerrit-Jan Knaap published an article in 2003 in the Urban Economics Journal. The article addressed the issues of new urbanism in the context of neighbourhood design. Song was educated in both the U.S.A (at the University of Illinois and Florida State University in Urban and Regional Planning) and in China (ShenZhen University in Architecture). Song wrote this article to tackle the little to no formal analysis in which the quantitative measures have been applied to benefits of new urbanism.

Song outlines that new urbanism (or smart growth), can be quantitatively measured through the directed correlation between new urbanism and housing prices. Furthermore, Song deems and justifies through this journal article that new urban features of the neighbourhood do have an effect on housing price.

What is new urbanism design according to Song (Song & Knaap 2003, p.219).

• Urban high density.
• Mixed use neighbourhoods.
• Convenient public transport.
• Bicycles paths.
• Pedestrian-friendly street networks.
• Strategically placed open spaces architecture designed to foster social interaction.

She considers that new urbanism is an imperative of modern day planning practice, because of its role in resolving problems of “urban sprawl”(p.218). New urbanism has a function in neighborhood community development with health and well being in the form of “improvement in the quality of life”(p.218) and “recreation of communities” (p.218). Song included and strongly stated “New urbanism has been hailed as the most significant movement in urban planning and architecture in this century”(p.218). Additionally, she delineates there has been a criticism in the past of new urbanism but now it has been expected and widely taught in planning and architecture school.

The nature of new urbanism is “difficult to quantify”(pp.219) or measure as a result of the reason for the uses of new urbanism is it usually to address an “ill defined problem”(pp.219) by governments. With this in mind Song outlines by using “Geographic Information Systems (GIS) we first develop quantitative measures of urban form; we then incorporate those measures in a hedonic price analysis.” This will reveal the real price difference of new urban forms on the market place, which is measured on the housing prices people, will pay for these areas. In contrast, Song did not analyse “price analysis social welfare opponent of new urbanism development” (p.219) in this report.

Her research based was metro area of Portland in Washington County in the U.S.A. From this data she collected and interpreted the results. Furthermore, Song applied this knowledge to a comparison between two neighbourhoods. A hypothetical neighbourhood Forrest Glen that had the mean values of new urbanism features in the Portland study. Orenco Station Neighbourhood, which was an existing neighbourhood that had new urbanism features. The results of the study illustrated that a house price had a difference of a “$24,255 premium”(p.235) between Forrest Glen and Orenco Station neighbourhood, which was superior.

The analysis revealed that Orenco Station neighbourhood was an success in terms of new urbanism due to the following features: (p.223)

• Smaller lots.
• Better internal street connectivity.
• More and smaller blocks.
• More streets but shorter cul-de-sacs.
• Higher population.
• Single-family dwelling unit densities.
• More mixing of land uses.
• Better access to parks.
• Commercial areas.
• More transit mode choices.
• Better pedestrian workability to commercial stores and bus stops.
• Lower external connectivity than the typical neighbourhoods.

In conclusion Song relates to the debate we have had in a class about design characteristics of an area. In this report and in class it is evident that neighbourhood design has profound effect its economic viability and its residents. Song has ingeniously seen that there has no research on neighbourhood’s quantitative measure or economical profit of housing prices in these new urbanism areas. From this report it is very clear to people in monetary terms outside the design professions. Using finest design features will influence and hopefully convince developers to have new urbanism features in their new developments.

Questions

1) Song states “In short, design matters”(p. 236) how much do you think developers in Melbourne use these principles of new urbanism?

2) Do you think state and local government have sufficient enough powers in both the strategic Melbourne 2030 and the statutory system in VPP, on insisting on new urbanism design principles in new developing suburbs?

Reference
Song, Y. and Knaap G.J., 2003. “New urbanism and housing values: a disaggregate assessment”, Journal of Urban Economics, Vol. 54. pp. 218

Fig. 2. Forrest Glen (upper) and Orenco Station neighbourhood (lower).

7. Housing Market 18th April, 2008 21:57:03   [#] [5 comments] 

Gerrit Knapp, Chengri Ding and Lewis Hopkins are all professors of urban and regional planning in American universities. Their paper “Do Plans Matter? The Effects of Light Rail Plans on Land Values in Station Areas” was published in 2001 in the Journal of Planning Education and Research. They seek to test 'whether the announcement of plans can be used to encourage transit supportive development by altering the market conditions that govern the initial pattern of urban development' (p.34).

Summary

Knapp, Ding and Hopkins begin by stating there are three reasons for their research:

• They want to add to the literature on the effects of light rail plans on urban property values;
• Find out whether plans alone can 'create market conditions that discourage low-density residential development and encourage high-density, transportation-oriented development' (p.32); and
• They want empirical evidence 'that planning matters' (p.32).

They go on to summarise previous studies undertaken throughout America in Washington, Vancouver, Miami and Chicago. All of the mentioned studies were undertaken in already developed areas in contrast to this study which would look at the land prices in undeveloped areas. However, in all but one of the examples it was found that property prices did significantly increase for those within a mile of the proposed light rail station. The exception was Miami and their Metrorail system in 1971-1990 which found the 'system had at most weak impacts on single-family property values' (p.33). Knapp, Ding and Hopkins describe the results as having a sorting effect on people's priority to live near a station and outbid each other for the property. They suggest that announcing plans for light rail in undeveloped areas can affect development and it helps promote the light rail and raise revenue at the same time. From the previous research they reviewed they concluded that due to the increased land value around stations it 'creates a disincentive to develop at low densities, encourages land owners to delay development until the light rail system begins operation, and encourages higher density development' (p.33).

Knapp, Ding and Hopkins go on to describe the Westside light rail alignment and the justify their study by highlighting the different between their study and previous research in that they are looking at the impacts on vacant land values compared to already developed land. Their research specifically focuses on 'changes in land values that occurred following the announcement of the station locations but before new zoning codes and incentive programs were adopted' (p.34).

The results of their study found that:

• Land values per acre decrease with parcel size;
• Land values also decrease with the distance to a public park or open space, the property tax rate, and with distance from downtown Portland;
• The effects of density zoning are insignificant;
• Land values are lower for parcels located in a floodplain and for parcels adjoining a major or minor road;
• Land values increase with time, per pupil expenditure by the pertinent school district, and the median housing value of the pertinent census tract; and
• Land values increased on average approximately 11 percent per year (p.36).

Knapp, Ding and Hopkins conclude that their results were as they expected and 'plans to invest in transportation infrastructure can affect property values even before the infrastructure is in place' (p.38). They refer to economic theory and how the light rail stations would likely alter the patter of development. 'First, higher land values will discourage the development of low-density housing in the station areas, thus avoiding potentially costly redevelopment in future years. Second, high land values will encourage high-density, transportation-oriented development' (p.38). They found that 'planning is a behaviour of local government that can be used to alter urban development patters for the purpose of increasing social welfare' (p.38). This led them to answer their initial question and conclude that plans do matter!

Relation to planning and economics

This article relates to planning in Victoria in that housing prices along rail corridors are by en large higher than those prices for areas not along a corridor. An example of people investing in property at a proposed rail station is evident at the proposed station in Lynbrook which is still waiting for the State Government to build their station along the Cranbourne line.

Discussion Questions

• Would you invest in property at the location of a proposed station in Victoria?
• Are transport plans (e.g. Meeting Our Transport Challenges) used to alter urban development patterns with the intention of increasing social welfare?
• Do transport plans matter?

Reference

Knapp, G.J., Ding, C. and Hopkins, L.D. 2001. “Do Plans Matter? The Effects of Light Rail Plans on Land Values in Station Areas.” Journal of Planning Education and Research, Vol. 21 (1, Fall), pp. 3

7. Housing Market 18th April, 2008 12:27:40   [#] [3 comments]