Prices Up, Volumes Down. The Time for Change is Now.

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The Queensland residential market has remained one of the most patchy in the country.  With the start of the year showing signs of recovery, only to falter in mid-February and March leaving the industry to ponder when the dead cat bounce will actually stop. 

Now for all those people wedded to the simplistic theory of “Supply and Demand”, the below graph demonstrates that despite the challenging conditions, land prices continued to grow in the face of significantly declining volumes for the majority of centres.  There is no guessing where the impact of the Coal Seam Gas (CSG) terminates with Gladstone having historically the lowest land values now almost on par with the Gold Coast.  The resource boom is real and the workforces to drive these billion dollar projects are massive, in their thousands.  However they are geographically isolated and bring their own sets of problems and benefits to each community.  The supply of land and accommodation being one of them.

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Graph 1 : Median Land Prices for Queensland’s Major Centres, 1991-2011

Over the last three years, many of these centres have experienced declines in land sales by as much as 68% despite prices increasing and lot sizes falling.  If you are in the business of building homes, quite clearly your volumes are going to be well down on what many have forecast in their budgets.  You simply can’t have a strong home building sector if land sales are at record or near record lows. 

This is even more relevant in the South East corner of the State where the volumes are the most significant.  This has historically been the engine room of the State.  This has certainly changed in the short term, but balance will again be found within the next three years.  While Gladstone is the shining light at present, it still only represents 600-700 new house starts per annum in a very good year, a fraction of what SEQ should be achieving. Given that every house generates four direct jobs and three indirect jobs, this is a substantial part of the economy that has gone missing.  So whilst the previous government targeted the housing sector through the building boost, perhaps one might argue that they put the horse before the cart.  Without strong land sales, new house sales realistically can only be weak.

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Graph 2 : The Change to Land Sales Volumes SEQ, 2009-2011 (old LGA boundaries)

As we started the article discussing dead cat bounces, the mandate the new State government brings to the table should allow for some fresh consumer confidence.  Clearly the public wanted a change and that is hopefully what they will get.

If NPR could influence one aspect of the changes that the government could effect and effect quickly, it would be a decrease in stamp duties.  By raising the stamp duty in the past combined with the building boost (a mixed message if ever there was one), instead of increasing funds into the government coffers, it has only served to weaken the sector through declining volumes.  A three year moratorium on reduced stamp duties would help the sector recover whilst adding more income into the state through greater volumes in land sales and by default, the general housing sector. 

If the industry and government can get the grass roots fundamentals right, Queensland will be well on its way to discovering the prosperity it was so well known for.  Do this and interstate migration will again start to ratchet up.  The new cycle will begin.

This will be the test for Campbell Newman.  As Ross Noble in his English accent put it, “will it be Can Do Campbell Newman or Candy Newman…”  Virtually all of Queensland is hoping for the former, the results of the election speak volumes for how flat consumer confidence was in this State.  The rebuilding of Queensland now begins, pardon the pun.