WEBVTT - Why house prices will keep going higher... even without further rate cuts 0:00:09.920 --> 0:00:12.840 Hello, and welcome to The Australian's Money Puzzle podcast. 0:00:12.880 --> 0:00:15.280 I'm James Kirby. Welcome aboard everybody. 0:00:15.320 --> 0:00:18.960 While we're sitting at what seems to be the end 0:00:19.280 --> 0:00:23.360 of a rate cutting cycle, and nine times out of 0:00:23.480 --> 0:00:28.080 ten that would be bad news really in terms of 0:00:28.120 --> 0:00:31.600 housing or investor certainly in terms of residential property market, 0:00:31.640 --> 0:00:34.199 because you might find that the momentum may stole a 0:00:34.200 --> 0:00:36.920 little where people can't borrow more than they were. 0:00:36.800 --> 0:00:37.760 Planning to, et cetera. 0:00:37.840 --> 0:00:40.320 That sort of energy that went into the market through 0:00:40.400 --> 0:00:43.680 rate cuts will dissipate. But I think this time around 0:00:44.400 --> 0:00:47.440 it's slightly different. We're not in a conventional housing market. 0:00:47.560 --> 0:00:51.240 We have chronic lack of supply, we have a rental crisis, 0:00:52.240 --> 0:00:56.480 and I think we are into a period where this 0:00:56.640 --> 0:01:00.240 initial rebound we've seen in house prices, particularly apart sort 0:01:00.280 --> 0:01:02.760 of different matter is going to steam on. I might 0:01:02.800 --> 0:01:05.679 be wrong, I could be challenged. My guest today is 0:01:05.720 --> 0:01:09.320 the ideal guest for what's going on right now. It's 0:01:09.440 --> 0:01:14.559 Max Shiffman of the Interpack Group. He's a developer of folks. 0:01:14.560 --> 0:01:16.679 We haven't had many developers, and we had Charlie Buxton 0:01:16.720 --> 0:01:18.760 on a few months ago. It's always interesting to get 0:01:18.840 --> 0:01:21.200 their opinion. How are you, Max, Thanks for coming on 0:01:21.240 --> 0:01:21.559 the show. 0:01:22.000 --> 0:01:23.880 Yeah, great to be here, James, thanks for having me. 0:01:24.280 --> 0:01:24.960 Great to have you. 0:01:25.040 --> 0:01:29.319 It's interesting how quickly the momentum in an investment market 0:01:29.520 --> 0:01:33.680 or the sort of the overriding narrative can change. So 0:01:34.160 --> 0:01:37.080 here's some top economists now I'm thinking of that. Let's 0:01:37.120 --> 0:01:42.520 say Paul Bloxham at HSBC talking about how high rates 0:01:42.560 --> 0:01:43.560 will move from here. 0:01:44.000 --> 0:01:45.360 I want to talk to you specifically. 0:01:45.440 --> 0:01:48.200 Our listeners are as investors, they just want to get 0:01:48.200 --> 0:01:51.200 a picture, a helicopter view of the market, and you, 0:01:52.080 --> 0:01:56.040 as a developer, quite outspoken in public policy, and one 0:01:56.080 --> 0:01:59.760 of the things you're saying is that both housing and 0:02:00.080 --> 0:02:03.800 even apartment promises are not going to be delivered. 0:02:03.360 --> 0:02:04.360 As we expect. 0:02:05.240 --> 0:02:09.200 Just for the general listener, what are the issues that 0:02:09.639 --> 0:02:10.680 you're alluding to there. 0:02:11.960 --> 0:02:14.440 Yeah, so there's been a lot of talk about housing targets. 0:02:14.639 --> 0:02:17.520 Housing has clearly become a major issue for a lot 0:02:17.560 --> 0:02:20.920 of cohorts, particularly younger people, and so you know, the 0:02:20.960 --> 0:02:24.400 politics means that politicians now need to be talking to 0:02:24.480 --> 0:02:26.680 it to be seen to be doing something about it, 0:02:26.760 --> 0:02:29.840 and the best they seem to come up with is 0:02:29.880 --> 0:02:33.239 setting all these lofty housing targets around the place, but 0:02:33.400 --> 0:02:35.440 it at a state level or at a federal level 0:02:35.440 --> 0:02:39.320 with a federal housing accord, and in my view, not 0:02:39.360 --> 0:02:42.079 doing the things you'd actually have to do to reach 0:02:42.160 --> 0:02:45.560 those goals. So there's a disconnect between you know, let's 0:02:45.560 --> 0:02:49.720 be optimistic and call it good intent and the actual result. 0:02:50.240 --> 0:02:52.600 We have a proof already, haven't we really that there 0:02:52.680 --> 0:02:56.760 was this initial housing target, the million houses over five years, 0:02:56.800 --> 0:02:59.200 that was two hundred and forty thousand houses a year. 0:03:00.080 --> 0:03:01.920 Just a few weeks ago we had the first year, 0:03:02.320 --> 0:03:05.440 You're one hundred and seventy thousand built, which means, of 0:03:05.440 --> 0:03:09.680 course it pushes this target out unless they actually accelerate then, 0:03:09.800 --> 0:03:11.920 but they're going to build, I mean, cut of the chase. 0:03:11.960 --> 0:03:15.240 Maybe it's I'm about to have targets at least you 0:03:15.360 --> 0:03:16.360 aspire to something. 0:03:17.320 --> 0:03:18.839 Yeah, look, that's a good thing. 0:03:18.880 --> 0:03:21.919 I mean, I'm supportive of having targets, be it federally 0:03:22.000 --> 0:03:23.520 or at state level or at a local level. 0:03:23.560 --> 0:03:24.680 I think that's a good thing. 0:03:25.320 --> 0:03:28.680 But again, a target without doing the stuff you need 0:03:28.760 --> 0:03:31.040 to do to reach the target is kind of pointless. 0:03:31.040 --> 0:03:32.840 And that's the thing that I've been banging on about 0:03:32.880 --> 0:03:35.840 the last couple of years. I mean from an industry perspective, 0:03:36.440 --> 0:03:39.440 when they first announced, you know, these targets, so you know, 0:03:39.480 --> 0:03:41.520 the big target is the one point two million homes 0:03:41.520 --> 0:03:45.520 federally that was announced as a target back in initially 0:03:45.680 --> 0:03:48.640 October twenty twenty two as a million homes, and they 0:03:48.640 --> 0:03:51.480 opped it to one point two. And my commentary at 0:03:51.520 --> 0:03:53.040 the time was, We're not going to hit a million 0:03:53.400 --> 0:03:55.440 based on what I'm seeing in the data and new 0:03:55.520 --> 0:03:57.520 supply and approvals, let alone one point two. 0:03:57.520 --> 0:03:58.760 And that's proving to be the case. 0:03:59.320 --> 0:03:59.920 Put it to be the case. 0:04:00.680 --> 0:04:02.840 But additionally you're saying, see, I think people are on 0:04:03.360 --> 0:04:04.720 tell me if I'm wrong, But I think a lot 0:04:04.760 --> 0:04:07.960 of investors think, okay, you know, fixed apply of houses 0:04:08.480 --> 0:04:12.160 houses standalone houses going literally twice as well as apartments 0:04:12.600 --> 0:04:15.839 in recent years in terms of price action price increases. 0:04:16.800 --> 0:04:19.599 So the issue then is apartments. And then there's a 0:04:19.640 --> 0:04:24.160 sense that apartments won't quite flood the market, but that 0:04:24.200 --> 0:04:27.160 the state governments around the country are bending over backwards 0:04:27.160 --> 0:04:30.440 to make it happen that there will be more apartments. 0:04:30.480 --> 0:04:32.919 But you're saying the apartments won't come on stream either. 0:04:33.160 --> 0:04:35.560 Tell us your view of things in that area. 0:04:35.839 --> 0:04:36.119 Yeah. 0:04:36.160 --> 0:04:40.400 So the thing about apartments is people assume that apartments 0:04:40.440 --> 0:04:42.560 are cheap. I think that's probably the starting point or 0:04:42.680 --> 0:04:46.520 cheap relative to housing, and in many parts of the 0:04:46.560 --> 0:04:49.279 world that's true. I mean, for example, you go to 0:04:49.800 --> 0:04:53.599 New York City, very dense city, everything is expensive, but 0:04:54.120 --> 0:04:58.160 owning a brownstone in a great part of downtown is 0:04:58.400 --> 0:05:01.440 much much more expensive than buying quiple an apartment. So 0:05:01.880 --> 0:05:04.960 apartments can deliver a relative affordability when you've got a 0:05:05.040 --> 0:05:09.080 very high underlying house price. The disconnect is in an 0:05:09.080 --> 0:05:13.520 Australian context, building apartments is the most expensive type of construction. 0:05:14.080 --> 0:05:17.719 It uses a lot of structural materials because it's very large. 0:05:17.760 --> 0:05:19.960 It's highly regulated because you've got a lot of people 0:05:20.000 --> 0:05:21.760 in the same space. You want to make sure they're 0:05:21.760 --> 0:05:26.320 protected from noise and fires and things like that. There's 0:05:26.320 --> 0:05:29.160 a lot of regulation design that goes into it. There's 0:05:29.160 --> 0:05:31.719 been concerns around the quality of building, especially when you 0:05:31.720 --> 0:05:34.560 go to high rise and then you've got a labor force, 0:05:34.760 --> 0:05:38.000 which is very expensive. And you know, the example I 0:05:38.080 --> 0:05:40.360 give people, and I'll use this here is you go 0:05:40.400 --> 0:05:42.360 to many parts of the world and any reason they're 0:05:42.400 --> 0:05:44.320 building apartments for a lot less than what we are 0:05:44.400 --> 0:05:46.960 is because they effectively have slave labor. Like it's a 0:05:47.000 --> 0:05:49.200 really weird way to look at it, but it's actually 0:05:49.200 --> 0:05:52.080 the truth. You go to Dubai or Singapore or any 0:05:52.080 --> 0:05:52.520 of these. 0:05:52.920 --> 0:05:55.000 People are working seven days a week and they're working 0:05:55.040 --> 0:05:56.160 in all sorts of conditions. 0:05:56.800 --> 0:06:00.760 You could see that from other countries, Yeah, exactly, in 0:06:00.760 --> 0:06:03.600 from other countries living in camps, being worked to the bone, 0:06:03.640 --> 0:06:05.839 and they're making more money than they would at home. 0:06:06.160 --> 0:06:09.000 But it's not exactly what we would call a good 0:06:09.000 --> 0:06:11.920 way of living. And so you contrast that with how 0:06:11.960 --> 0:06:14.400 we're prayed in Australia. We have the CFMU. Has been 0:06:14.400 --> 0:06:16.720 a lot of discussion in the CFMU and labor costs, 0:06:17.240 --> 0:06:20.440 but it's the fact that we have this enormous push 0:06:20.440 --> 0:06:24.480 into infrastructure projects around the country, Victoria being the epicenter, 0:06:24.560 --> 0:06:27.039 but currently that's sort of migrating a little bit north 0:06:27.080 --> 0:06:29.840 with the Olympics happening in Queensland. But every state is 0:06:29.880 --> 0:06:33.479 embarking on huge infrastructure projects. And what that's meant is 0:06:33.480 --> 0:06:36.080 the labor force. The labor pool, because unemployment has been 0:06:36.080 --> 0:06:38.880 so low, has been pulled into all sorts of directions 0:06:38.920 --> 0:06:42.320 and those projects have been paying substantially high on what 0:06:42.360 --> 0:06:45.479 the private sector was paying previously, and so that's just 0:06:45.600 --> 0:06:48.280 elevated the cost of any sort of type of construction 0:06:48.400 --> 0:06:51.760 labor and that's fed straight into housing costs, particularly in apartments. 0:06:52.120 --> 0:06:54.960 We have the most overlap in the sorts of trades 0:06:55.000 --> 0:06:57.960 that would be building the structural components as you might 0:06:58.000 --> 0:07:00.680 do in a tunnel, for example, in the mid of Melbourne. 0:07:01.120 --> 0:07:04.200 Right, So this is and is it true that there are. 0:07:05.920 --> 0:07:11.000 Sites all over the major cities Brisbane, Sydney, Melbourne owned 0:07:11.040 --> 0:07:16.440 by developers ear Marsh for apartment developments that are not happening, 0:07:17.040 --> 0:07:19.720 that there is an exceptional amount of space kind of 0:07:19.720 --> 0:07:24.200 tied up old factories and warehouses, et cetera. Is that true? 0:07:24.480 --> 0:07:27.920 I mean, on its face, yes, So there are tens 0:07:27.960 --> 0:07:30.720 and tens of thousands, if not hundreds of thousands of 0:07:31.440 --> 0:07:35.560 theoretically approved dwellings around the country, across the major cities, 0:07:35.920 --> 0:07:39.360 but there's a big difference between having an approval and 0:07:39.400 --> 0:07:40.920 having a project that's feasible. 0:07:41.520 --> 0:07:43.080 Is the gap between the I mean, there's always a 0:07:43.120 --> 0:07:45.360 bit of a gap between approvals and commencements, But is 0:07:45.400 --> 0:07:46.920 that gap bigger than we're used to. 0:07:47.440 --> 0:07:50.560 Yeah, So the number of approvals that aren't being activated 0:07:50.640 --> 0:07:53.640 is sitting it around record highs, and it's yeah, And 0:07:53.680 --> 0:07:58.880 it's that feasibility equation because when you factor in the 0:07:58.920 --> 0:08:02.160 cost of delivery and then you work out as a 0:08:02.200 --> 0:08:05.080 developer at the end price would need to be the 0:08:05.120 --> 0:08:07.880 cohort that would pay that sort of money for these 0:08:07.920 --> 0:08:11.800 projects is very small, and in many cases you're competing 0:08:11.840 --> 0:08:15.280 with substantial numbers of apartments in and around the same 0:08:15.360 --> 0:08:18.320 area that are costing as listful as half of what 0:08:18.360 --> 0:08:20.800 you'd have to deliver a new dwelling for. So obviously 0:08:20.840 --> 0:08:22.960 the market's not going to pay that sort of premium, 0:08:22.960 --> 0:08:26.080 So those projects will sit there really for quite a 0:08:26.080 --> 0:08:28.640 long time. And that assumes underlying values go up and 0:08:28.680 --> 0:08:30.600 people have more borrowing power, which may not be the 0:08:30.640 --> 0:08:31.400 case with interest rates. 0:08:32.000 --> 0:08:34.320 Why do the apartments you're about to build costs more 0:08:34.360 --> 0:08:37.160 than half the ones that are around the corner. 0:08:37.720 --> 0:08:39.680 Well, look, it's just it's time. We obviously had a 0:08:39.679 --> 0:08:42.880 lot of inflation during that sort of post COVID period, 0:08:42.920 --> 0:08:45.199 So the number that's obviously floated a lot of the 0:08:45.240 --> 0:08:48.800 time is about fifty percent cost increase, and whilst the 0:08:48.880 --> 0:08:52.679 rate of inflation has dropped, it costs aren't dropping. Some 0:08:52.760 --> 0:08:58.280 people sometimes mistake inflation dropping as things going and becoming cheaper. 0:08:58.800 --> 0:09:01.840 It just means they're getting more expensive less quickly. So 0:09:02.000 --> 0:09:05.080 the cost of construction isn't reducing. And so we've got 0:09:05.080 --> 0:09:08.040 this step change in construction costs and it impacts everything. 0:09:08.080 --> 0:09:10.840 It impacts the suburban rail loop Melbourne and impacts every 0:09:10.840 --> 0:09:14.000 apartment building in the country. It impacts our house and 0:09:14.080 --> 0:09:16.960 land package. In the business that I'm in, everything is 0:09:17.000 --> 0:09:20.520 impacted by the increase in construction, which filters into what 0:09:20.679 --> 0:09:23.480 a developer would need to charge to an end consumer. 0:09:23.720 --> 0:09:25.840 And yet you have this glut of apartments in certain 0:09:25.880 --> 0:09:29.720 parts of the country which are because they're not high demand, 0:09:29.760 --> 0:09:31.679 as sort of dragging the whole market backwards. 0:09:32.760 --> 0:09:34.440 I would go to a break because we want to 0:09:34.440 --> 0:09:36.600 talk some specifics which I think our listeners will find 0:09:36.600 --> 0:09:38.840 really interesting, and you're in a great position to answer 0:09:38.840 --> 0:09:42.680 it just quickly. The glot of apartments. Are you thinking 0:09:42.720 --> 0:09:44.600 of some black spots? Basically where are they? 0:09:45.080 --> 0:09:48.480 Well, one that's commonly discussed is in and around the 0:09:48.520 --> 0:09:50.760 South Bank in Victoria and Melbourne, where you've had a 0:09:50.800 --> 0:09:55.000 lot of investor style apartments built and the records that 0:09:55.360 --> 0:09:58.600 I keep seeing. You know, there's circa eight thousand unsold 0:09:58.640 --> 0:10:01.360 apartments across Melbourne. There's a big chunk of them there, 0:10:01.400 --> 0:10:03.800 and so people are still able to buy an apartment 0:10:03.840 --> 0:10:07.360 that's you know, within a decade old. It's not particularly old, 0:10:07.920 --> 0:10:11.080 but that's selling it a possibly a lower price than 0:10:11.080 --> 0:10:13.240 what they originally sold it for when they first built it, 0:10:14.080 --> 0:10:16.400 and then the replacement cost of it is probably double 0:10:16.480 --> 0:10:17.559 what it was ten years ago. 0:10:18.400 --> 0:10:20.040 Interesting. I'm looking out of them right now. 0:10:20.080 --> 0:10:20.360 Max. 0:10:20.720 --> 0:10:23.800 That's where we are, so I think surrounded by perhaps 0:10:23.840 --> 0:10:26.840 thousands of empty apartments, or at least apartments where the 0:10:26.920 --> 0:10:29.520 investors will be taking a long time to make a book. Okay, 0:10:29.559 --> 0:10:41.319 folks back in a moment. Hello, Welcome back to The 0:10:41.320 --> 0:10:44.520 Australian's Money Puzzled podcast and with Max Schiffman. He's the 0:10:44.679 --> 0:10:47.880 CEO of Interpac. It's a developer, an interestate developer. I 0:10:47.880 --> 0:10:50.239 think most of your action is in Victoria and Queensland, 0:10:50.280 --> 0:10:51.200 is that right, Max? 0:10:51.280 --> 0:10:52.720 Yeah? Northern New South Wales? Done? 0:10:53.840 --> 0:10:56.760 Yeah, Okay, I'm going to just kind of throw a 0:10:56.800 --> 0:10:59.480 few random questions which I think our listeners would like 0:10:59.679 --> 0:11:02.400 to hear. What you have to say basically about it, 0:11:02.400 --> 0:11:04.000 and I mean we take it from the first part 0:11:04.040 --> 0:11:06.480 of the show that certainly on the supply side you 0:11:06.559 --> 0:11:10.760 see issues breaks basically on both apartment and standalone houses. 0:11:11.120 --> 0:11:13.400 That's the first thing. From an investor point of view. 0:11:13.480 --> 0:11:18.240 You mentioned some areas that are oversupplied, but then again, 0:11:18.320 --> 0:11:20.920 more generally there's a lot of pent up. There's pent 0:11:21.000 --> 0:11:23.680 up demand and there's also pent up. We should be 0:11:23.760 --> 0:11:26.360 liked by the developers to build, but the numbers aren't 0:11:26.360 --> 0:11:27.880 stacking up for them. Can I ask you a few 0:11:27.960 --> 0:11:30.720 random questions which I've been wondering. One from an investment 0:11:30.720 --> 0:11:33.600 point of view, one bedroom apartment they were once upon 0:11:33.600 --> 0:11:35.440 a time a sort of entry level first step for 0:11:35.480 --> 0:11:39.280 investors into the market. Some have said that with the 0:11:39.360 --> 0:11:43.520 work from home they are finished as an investment. Where 0:11:43.520 --> 0:11:44.640 do you come from on that one? 0:11:46.000 --> 0:11:48.640 Look, they'll always be demand for small dwellings and they 0:11:48.640 --> 0:11:51.679 are as costly as a one bedroom, so I think 0:11:52.720 --> 0:11:55.720 they're not going to disappear entirely. Not everyone works from home, 0:11:55.880 --> 0:11:58.520 even despite some of the conversations being head at a 0:11:58.520 --> 0:12:02.120 state level at the moment abounding train that, but certainly 0:12:02.200 --> 0:12:06.160 from an investment point of view, to maximize the addressable 0:12:06.200 --> 0:12:09.080 market of people you might be attracting. You'd want to 0:12:09.080 --> 0:12:11.440 have a bit more space, So that could be you know, 0:12:11.440 --> 0:12:13.719 at least having some sort of you know, study or 0:12:13.760 --> 0:12:16.480 working in your core, a little zoom room. I'd certainly 0:12:16.520 --> 0:12:18.520 be saying, you know, a two bedroom apartment's going to 0:12:18.559 --> 0:12:20.600 have a lot more flexibility and longevity than a one 0:12:20.600 --> 0:12:21.960 better if I can get. 0:12:21.840 --> 0:12:22.680 It, Okay. 0:12:23.240 --> 0:12:27.000 Also, I was just thinking in terms of natural consequences. 0:12:27.280 --> 0:12:32.080 If it's the case that there are apartments unsold and 0:12:32.120 --> 0:12:35.520 at the same time there's this demand, and in parallel 0:12:35.520 --> 0:12:40.000 we have like oceans of empty office space at record numbers, 0:12:40.040 --> 0:12:43.640 at recession type levels, a natural response people might say, well, 0:12:43.679 --> 0:12:45.800 you know, a lot of those office box are going 0:12:45.800 --> 0:12:48.120 to be turned into apartment towers. Is that pie in 0:12:48.160 --> 0:12:50.760 the sky. Apparently it's very difficult to do so is that? 0:12:51.880 --> 0:12:52.080 Yeah. 0:12:52.080 --> 0:12:53.880 Look, there's been a lot of discussion around that, and 0:12:53.920 --> 0:12:56.160 I know people that have done studies of some of 0:12:56.200 --> 0:12:59.199 the buildings that lie empty or partially empty around the 0:12:59.240 --> 0:13:03.520 major CBD. So there's a couple of challenges with converting 0:13:03.520 --> 0:13:07.559 commercial buildings and retaining the structure and turning it into residential. 0:13:08.400 --> 0:13:10.800 The regulation is a big part of it. So the 0:13:10.840 --> 0:13:13.840 floor plates are usually bigger than what you'd have for 0:13:13.920 --> 0:13:16.280 residential building, which means you don't have a natural light, 0:13:16.320 --> 0:13:18.640 which is very important from a regulatory point of view. 0:13:18.920 --> 0:13:22.760 But it's also things like retrofitting services so you might 0:13:22.760 --> 0:13:24.920 not have enough lifts to service a lot of apartments 0:13:25.000 --> 0:13:28.280 versus say commercial building, but also things like just water 0:13:28.440 --> 0:13:31.360 so all the bits and pieces you need, the heating, cooling. 0:13:31.760 --> 0:13:33.440 So by the time you work out where you have 0:13:33.520 --> 0:13:35.640 the right floorplate, it's going to be limited to certain 0:13:35.840 --> 0:13:37.920 size of buildings, and then you work at how you 0:13:38.000 --> 0:13:39.520 retrofit all these bits and pieces. 0:13:39.559 --> 0:13:40.800 It is just cost prohibitive. 0:13:40.880 --> 0:13:43.720 So you know, it was Hassle that did a study 0:13:43.720 --> 0:13:47.040 of the city of Melbourne and identified several hundred buildings 0:13:47.040 --> 0:13:50.280 that could potentially be converted, but it hasn't happened because again, 0:13:50.840 --> 0:13:53.640 the cost of buying the building, doing all the retrofits, 0:13:53.679 --> 0:13:57.560 beaning all the regulations and working at the end price 0:13:57.679 --> 0:13:59.959 means it would be substantially higher than what the mark 0:14:00.080 --> 0:14:02.600 it would pay for those completed apartments for the most part. 0:14:02.840 --> 0:14:05.920 Okay, interesting, all right, that's a very clear answer on 0:14:05.960 --> 0:14:08.000 that one. I'm bouncing around here. But I think the 0:14:08.080 --> 0:14:10.400 listeners will be keen to see where you're coming from us. 0:14:10.440 --> 0:14:13.679 They say. We had him on the show. 0:14:13.520 --> 0:14:18.080 From core Logic recently and he's a really interesting report 0:14:18.120 --> 0:14:21.640 where he looked at the price action around the Sydney 0:14:21.680 --> 0:14:25.360 Metro line, where you would think logic would suggest that 0:14:25.400 --> 0:14:29.880 the prices along a new line would be doing very well. 0:14:30.280 --> 0:14:34.560 This whole idea of capture land capture along railway lines 0:14:34.600 --> 0:14:37.200 and people similarly in other parts of the country buying 0:14:37.240 --> 0:14:40.840 apartments or houses on the basis of proximity to new 0:14:40.880 --> 0:14:44.680 lines such as the Gold Coast light Rail or the 0:14:44.920 --> 0:14:49.080 Melbourne Metro project. But Tim found they were doing worse 0:14:49.120 --> 0:14:52.600 than the average suburb for the last two years. He 0:14:52.640 --> 0:14:54.800 had an explanation, but I was I'm wondering what you 0:14:54.800 --> 0:14:55.880 your explanation might be. 0:14:56.680 --> 0:14:58.680 Yeah, well, I think because I did read the article 0:14:58.720 --> 0:15:00.880 on I think he's right about the fact there would 0:15:00.880 --> 0:15:03.440 have been some very early speculation, you know, after the 0:15:03.440 --> 0:15:08.200 project was announced. I mean, often property values follow infrastructure investment, 0:15:08.480 --> 0:15:11.280 so you know it can be a sound investment strategy. 0:15:11.760 --> 0:15:12.600 I guess, you know. 0:15:12.640 --> 0:15:14.240 One of the things that I was thinking about was 0:15:14.280 --> 0:15:16.200 just the time frame you'd have to be sitting on 0:15:16.240 --> 0:15:17.080 a piece of land there. 0:15:17.080 --> 0:15:20.600 I mean Metro was announced what twenty twelve, So. 0:15:20.560 --> 0:15:22.560 You want to be buying in two thirteen to get 0:15:22.600 --> 0:15:24.440 the lift, That's what he suggested. 0:15:24.520 --> 0:15:26.160 Really yeah, I mean you want to, but you want 0:15:26.160 --> 0:15:28.800 to be almost there before there's any announcement because you 0:15:28.880 --> 0:15:30.480 get this run up and then you've kind of got 0:15:30.480 --> 0:15:33.840 a weight for the project to happen. And what kills 0:15:34.320 --> 0:15:38.960 feasibilities for development is actually time. So invariably these projects 0:15:39.080 --> 0:15:42.040 run lace, they run over budget. They you know, as 0:15:42.080 --> 0:15:45.000 part of the planning for the precincts around them, they 0:15:45.040 --> 0:15:47.320 start to decide, hey, we want to have more contributions 0:15:47.360 --> 0:15:50.600 towards open space and local infrastructure, all the bits and pieces, 0:15:50.600 --> 0:15:54.160 which ramps up the cost of delivery. And so what 0:15:54.200 --> 0:15:56.760 you find is probably this early ramp up where prices 0:15:56.800 --> 0:15:59.040 get to a point before people have really thought through 0:15:59.160 --> 0:16:01.120 what's actually going to be a acquired Then you get 0:16:01.120 --> 0:16:02.800 a bit of a tapering off and I think that's 0:16:02.840 --> 0:16:05.280 exactly what we've seen and I was thinking about how 0:16:05.280 --> 0:16:08.640 that might apply, for example, with the suburban rail loop 0:16:08.800 --> 0:16:10.280 in Melbourne, because there is going to be a lot 0:16:10.320 --> 0:16:13.600 of discussion around building up those precincts. I've been a 0:16:13.600 --> 0:16:17.200 pretty noted skeptic of the feasibility of the whole project, 0:16:17.400 --> 0:16:20.720 but I'd be surprised if there was a similar dynamic 0:16:20.760 --> 0:16:23.880 in Melbourne because in Victoria they've released or they've got 0:16:23.880 --> 0:16:26.880 this windfall gains tax which takes some of the uplift 0:16:27.400 --> 0:16:30.720 from a reazoning. And so if anything, that's a barrier 0:16:31.000 --> 0:16:33.000 to people wanting to buy into these areas because you 0:16:33.040 --> 0:16:35.840 have this unknowable tax that might be charged at some 0:16:36.000 --> 0:16:39.040 point which takes any sort of uplift from holding the 0:16:39.120 --> 0:16:41.960 land away. So it takes incentive away. And probably one 0:16:42.040 --> 0:16:44.760 last thing on that, I was thinking through the other 0:16:44.840 --> 0:16:47.480 dynamics that might happen in some of these precincts. And 0:16:47.560 --> 0:16:50.360 so obviously developers might want to come in and start 0:16:50.680 --> 0:16:53.280 planning to build apartment buildings, But if you're a person 0:16:53.320 --> 0:16:55.400 who wants to have a home near a train station, 0:16:55.520 --> 0:16:57.080 the last thing you want to do is then buy 0:16:57.080 --> 0:16:59.160 a house when you know you're going to have all 0:16:59.160 --> 0:17:03.000 this development around. So I suspect that's pushing traditional home 0:17:03.080 --> 0:17:05.160 buyers out of these precincts as well, and they're buying 0:17:05.240 --> 0:17:08.000 just on the periphery, which I think showed was performing better. 0:17:08.480 --> 0:17:11.199 That's right, the peripheries of the that's right. So it 0:17:11.240 --> 0:17:13.600 wasn't the immediate catchment area of the lines that were 0:17:13.640 --> 0:17:15.359 doing well. This is the last two years, folks, the 0:17:15.400 --> 0:17:16.400 last two years, it. 0:17:16.359 --> 0:17:17.000 Was beyond that. 0:17:17.280 --> 0:17:19.520 Okay, before we go to questions, I just want to 0:17:19.520 --> 0:17:23.879 ask you, so it seems to me listening to you 0:17:23.920 --> 0:17:29.760 this morning, that if I am interested in investing in property, 0:17:29.840 --> 0:17:32.679 it seems to me I needn't worry an awful lot 0:17:33.000 --> 0:17:36.399 about an oversupply of even apartments coming down the line, 0:17:36.480 --> 0:17:39.720 because the supply seems to be blocked at so many levels. 0:17:40.200 --> 0:17:42.000 And I could make the assumption. 0:17:41.600 --> 0:17:46.880 That the current numbers, being the rental vacancy ratio has 0:17:46.920 --> 0:17:50.879 been you know, one to two percent are going to stay. 0:17:51.880 --> 0:17:53.679 Do you see anything to challenge that notion? 0:17:55.119 --> 0:17:57.680 No, short answer is I think you're spot on. One 0:17:57.680 --> 0:18:01.439 thing we know is population growth is continuing pretty much 0:18:01.520 --> 0:18:04.400 underbated in Australia and that's going to keep putting pressure 0:18:04.440 --> 0:18:08.000 on house prices and rentals and we're just not keeping up. 0:18:08.160 --> 0:18:12.119 And so particularly as we try and shrink wrap the 0:18:12.119 --> 0:18:15.639 city's forced that densification, the more that's going to limit 0:18:15.680 --> 0:18:18.680 how much new housing is put on stream. So yeah, 0:18:18.720 --> 0:18:20.400 I don't think it's going to be a great time 0:18:20.520 --> 0:18:22.959 for renters anytime sooner. Nor do I see there being 0:18:23.000 --> 0:18:25.159 any material reduction in underlying pricing. 0:18:25.680 --> 0:18:27.840 And do you think if rates did start a lift 0:18:28.040 --> 0:18:32.879 with that in any way cool the increase in housing prices. 0:18:33.320 --> 0:18:36.000 Short ans Yes, I mean interest rates are definitely a factor. 0:18:36.119 --> 0:18:39.080 And because we've had that cost dynamic I was speaking 0:18:39.119 --> 0:18:44.440 about previously, we've needed a step change in buyers capacity 0:18:44.480 --> 0:18:47.760 and expectation for what they're prepared to pay for a 0:18:47.800 --> 0:18:50.440 new dwelling of any kind, And so if we start 0:18:50.520 --> 0:18:52.960 seeing interest rates shoot up again, that's just going to 0:18:53.000 --> 0:18:56.199 dampen the entire supply story further. 0:18:57.280 --> 0:18:57.879 Yeah, further. 0:18:57.960 --> 0:19:00.359 I mean we've come off the very bottom, you know, 0:19:00.400 --> 0:19:03.280 we've bottomed out in twenty twenty three, twenty twenty four, 0:19:03.320 --> 0:19:06.959 bally improved. There have been some slide improvements in new 0:19:07.000 --> 0:19:11.760 approvals and starts this year. But I think if we've 0:19:11.800 --> 0:19:13.760 seen straights go back the other way, it's going to 0:19:13.760 --> 0:19:14.800 put a handbrake. 0:19:14.480 --> 0:19:14.960 On it all. 0:19:15.200 --> 0:19:18.480 Does it happen straight away or does it happen gradually? 0:19:20.320 --> 0:19:22.080 I think it's changed. It used to take a bit 0:19:22.119 --> 0:19:24.399 longer for things to sort of filter through. But the 0:19:24.480 --> 0:19:27.879 media cycle now everyone knows the moment, the rbas they do. 0:19:28.160 --> 0:19:29.760 It's true at anything that's. 0:19:29.640 --> 0:19:32.920 Right, So it's very volatile. And even the we've seen, 0:19:32.960 --> 0:19:35.720 even from an inquiry perspective, where even the weeks where 0:19:35.720 --> 0:19:38.720 there might have been an expectation of a rate cut 0:19:38.720 --> 0:19:42.280 and perhaps it was deferred for some reason, that weekend 0:19:42.359 --> 0:19:44.760 straight after tends to be a bit more subdued. Then 0:19:44.760 --> 0:19:46.600 it sort of goes back to bit of normality. But 0:19:46.640 --> 0:19:49.720 people need the time to kind of absorb the news. 0:19:50.400 --> 0:19:52.280 I shudder to think what it'll be like when we 0:19:52.359 --> 0:19:55.280 start seeing straights go up again, particularly when everyone was 0:19:55.320 --> 0:19:56.960 expecting them to keep dropping for so long. 0:19:57.320 --> 0:20:01.800