By Michael Kennedy

As one looks at many of the new dwellings popping up around Melbourne, and as it would be in other major capital cities, one instantly notes how many units are on what was once a single residential property. That old house down the road being sold, is likely going to be bulldozed to make way for townhouses, “terraces” (as if two houses side by side can be called terraces!), or 2 or more units, maybe many more. Good for the developers pockets, bad news for Australians.

Supporters claim it improves housing affordability, but this argument can be easily debunked. Firstly, the developers are making a profit. If they weren’t they wouldn’t be doing it, and if they are making a profit, then it is likely they are selling something at a higher price than they paid for it. They certainty are doing more than just recouping the costs of demolition and construction and breaking even! It is the land which primarily, is being sold at a higher price than the developer originally payed. The scenario is played out all over Melbourne. A developer buys up a home which was originally brought by a working class Australian which is now priced at $700K, outside affordability’s realm for anyone doing the same work now. The developer bulldozes the house and builds, say, two units. Those units sell for $550K each, perhaps now just within the realm of affordability. Now the 600 square meter block of land has been sold for $1.1 million, when it was originally bought for $700K. A dramatic increase in price per unit of land! Not only this, but as the density increases, the value of large blocks increases, as they become rarer and warrant a higher ‘premium’. Won’t be long before backyards are rare sights, and hotly contested at Auctions, demanding a premium, and affordable only by the wealthiest. They might just end up being bought by the Asian investor, land-banking, or by the developer, wanting to place 6 sterile units in its place, barely large enough for a couple, let along a family.

“But now you can buy a house at $550K where you couldn’t afford one before”, supporters of high density living will exclaim. This is true, but all this has done is placed a worse investment in a more accessible place over a better investment. Lets consider a hypothetical scenario where milk is sold in 1L containers, but very few people can afford to by them at $2 a container. The “investor”, who can afford them, buys up many of the containers (keeping the price high by maintaining demand) and repacks the milk into 500mL containers, which are sold at $1.60 each, just affordable. Now the people can buy, and the developer get credibility from the government doing them a favour, namely solving a problem the government most likely caused in the first place. The reality, as can be plainly seen, is that the price of milk has gone from $2 a litre to $3.20 a litre. The people are being scammed, but this whole charade is packaged as ‘making milk affordable’. A market anomaly is allowed to be exploited for the profit of the already wealthy, instead of being allowed to correct. As always, our economic understanding is topsy turvy, and pundits will say this increasing of price means greater affordability. So it is with the housing market. Instead of being allowed to correct, the government keeps it high through home buyers grants, which seem to eternally exist and through increased immigration, satisfying the demands of the real estate industry. Developers create homes which are essentially higher in price per unit, and are patted on the back by government sycophants and footballers in places they should never be. If prices were allowed to drop to levels comparable to other Western economies, people would be able to afford houses without having to buy a poorer investment.

“But the developer builds two, three or more homes where there was only one, which is why their total price is higher than the original property”, people say. This is true, but all this has done, is placed a worse investment in a more accessible place over a better investment. There is a cost in the housing itself, but in the end, who cares? Land is almost always the primary source of value, and it is the only REAL soure of value. Does the developer buying a house or houses to build care about the house? As far as they are concerned, they are just buying land, which happens to have a house or houses on it. The houses are worth nothing. Whether they have an ensuite, tiles, central heating and feature wall matter nothing. The value is in SPACE, and the purchaser of the subdivided property is buying half the space that there was. If it’s units, they are buying no space at all.

One such developer, who of course is credited by the mainstream media as providing “affordable housing” is Harry Triguboff, a Billionaire son of Russian Jewish emigrants. His vision? Concrete grey in place of green, an Australia which resembles, physically and demographically, the concrete jungles of Asia. Harry says about Sydney;

 Sydney has too much green and not enough grey, and if you want to look at trees – well, go climb a mountain. i

He desires Sydney to have a population of 20 million by 2050 in an Australia of 150 million, a goal that can only be reached by unsustainable and unwanted mass immigration and destruction of the Australian way of life. He saw the space that Australians enjoyed, a lifestyle which was envied by others, and decided it had to go.

 I looked around and I saw cottages everywhere, I thought it was time they lived in apartments. ii

This is the crux of what the quest for high density living is really about. It is not about space, Australia is sparsely populated compared to most other nations and despite the fact that our continent is arid, there are many regional towns crying out for people. It is not about the environment, as this property developer is quoted as saying that Sydney has “too many forests and parks” and apartments are neither environmentally friendly nor energy efficient. It is simply about profit, about selling our quality of life so Billionaire’s like Mr Triguboff can sell boutique apartments to single young professionals, many from China, Korea, Singapore and Indonesia. iiiDo we really want people like this dictating to us how we should live?

Residential real estate is really two markets. Land and residence. Residence’s are places to live, and people who need a place to live, pay for a place to live. But the place itself, whether house, unit, terrace or tenement is only of value to other who need a place of live. It only commands a price because someone who needs a place to live, is willing to pay for it. But in the grand scheme of things, it is the land where the real value is. History has always talked of land owners, not unit owners or terrace owners, and with good reason, as wealth is in the land, not the residence. Units are only worth something to those seeking a place to live, or of they are spectacular or spectacular locations, such as a central Manhattan penthouse. To investors, they are only useful to rent to those who are seeking a place to live. These are of no value though to developers, the real movers and shakers in real estate. Land has value to them, and therefore land is a more secure, more solid form of value.

So the proliferation of units, subdivided properties and high density living is doing more than just destroying what makes Melbourne great, that is space and backyards and room to move and live, it is further eroding the working and middle class, by shifting them away from being landowners. The more we allow our residential space to by subdivided, to be converted from freestanding houses to units, the more we allow ourselves to be denied the opportunity to own land, a solid investment and store of our wealth. This is a financial problem, as it no longer allows individuals to profit from their land. You cannot subdivide a unit or an already subdivided property. The opportunity to really develop something of value is simply not there and as such, more and more people are going to be denied the ability to do what the investors have been able to do. It is also a political problem, as peoples are having their greatest investment of their life being transformed from land, something solid, to a residence, whose value is more subject to market whims. They have the same place to live, more or less, but taking a 2nd class position as property owners.

There is more to subdivision and the erection of units in the suburbs than simple density issues. It represents a financial transformation of suburban Australia for the worse. We must ensure that in Australia, we don’t allow the slide away from becoming owners of land, of space to continue, for reasons more than just lifestyle and density.

 

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3 Responses to Subdivision and the vanishing Australian housing dream:

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  3. […] highlighted how property investment is creating a poorer quality Real Estate market, by leaving subdivided dregs, worth far less as an investment, for us. If the current generation haven’t had enough […]

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