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Townsville population forecasts risk oversupply and further price stagnation

Jenny Hill Councillor Team

Townsville population forecasts proxy for mining federal funding

Townsville population forecasts stimulate supply. From a population perspective, additional supply is observed as a great opportunity because it creates “jobs” and brings employment. Supply risk is often depicted by planners as a slowing down of dwelling construction.

Well, incumbent property owners and investors in the market should see this relationship between population and housing supply as a two-edged sword.

What are the property experts saying?

Herron Todd White Valuers, in their September property market update, observed that “population growth is a major driver of the property market with jobs and job security underpinning this growth,”

This is an undisputed fact about population growth. However, population forecasts are notoriously inaccurate. More often than not, the population forecasts formulated by the department of State planning, are overcooked.

What housing policies are evolving from government?

In a recently released strategic plan for North Queensland, the state minister for planning identified that Townsville and the surrounding districts of Charters Towers, Ayr, Home Hill, Palm Island will build 50,000 more homes by 2041.

The supply of new dwellings in the market is based on population projections. Therefore, it is important for property exposed investors to understand dwelling supply dynamic on prices and values in the North Queensland economy.

TREN eMagazine exposed the previous Queensland Treasurer of this hypocrisy when he clearly didn’t understand the difference between the values and supply of new housing and existing real estate. No coincidence, the former Treasurer was overlooked in the Treasurer by his colleagues to become Speaker of the House in the current term of Parliament.

What impact does excessive home building have on supply and prices?

New home building starts were overcooked in the previous economic cycle based on optimistic population forecasts by government, incompetence in local government and opportunistic companies sowing proposals, quotes and submissions to capitalise on the inevitable government policy and fiscal stimulus.

This mistaken population forecast and subsequent building programs created an imbalance in the property market that contributed to downward price pressures on 2nd generation plus stock and the subsequent breakeven price or equity valuations of residential dwellings.

The foreclosures and bankruptcies have been pervasive in the previous cycle, and might I say, are still prevalent in the market today.

From these dreary days, first home buyers and investors bought new dwellings sold off the plan, that given the unfortuitous financial handwinds, were sold as a 2nd generation homes only 12 month old to clear debt. These distressed investors discounted their homes by as much as 40 percent, in comparison to the lock-up, off-the-plan construction costs, to achieve the eventual sale price and debt relief.

As Townsville and surrounding areas have a dwelling stock of approximately 90,000 dwellings, the likelihood of a 55% increase in new home building occurring, predicted by population modelling, is unlikely to say the least.

Its this risks of oversupply that could occur based on overcooked population forecasts by state planning actors, who apply “baiting” submissions by proxy in population forecasts, to mine federal funding for major infrastructure interests.

An independent review by the council of the town plan and associated planning and development processes confirmed the faults and errors that occurred. The independent audit criticised State planning for supplying inaccurate population data to local planning administrators.

However, Master Builders have recently criticised the State government for applying too much regulation being the cause of a slump in housing building starts.

Townsville V8 Supercars secured for another 5 years

What does this mean to property owners and investors?

This “baiting” practise is a form of bureaucratic hack that presents a significant risk factor for private capital, property owners, business directors and community leaders.

As Townsville’s leadership has become accustomed to social and public sector financing, government intervention in the supply economy of residential property presents additional risks should population forecasts under perform.

These government policy supply side risks materialise in the form of initiatives such as the National Rental Affordability Scheme and the new Social Impact Investment schemes by State and Federal governments.

As part of the State governments housing for health policies, a significant number of subsidised homes with “affordable” rental prices are planned for construction in the Townsville economy over the next 20 years. This public housing supply impacts accommodation prices in the general economy which filters through to sale price outcomes.

What are the mitigating factors that reduce the risk to private capital?  

Without multiple large-scale private industry investments such as the Queensland Nickel refinery – or equivalent local employer organisations – in the opinion of the author, population growth is likely to remain below average, despite the seemingly positive pipeline of projects.

Nevertheless, the building and construction industry will be called upon by public administrators to ramp up operations to achieve the housing capacity to meet the overcooked population forecast, thereby creating a climate of fabricated confidence in which an oversupply of dwellings occurs.

As Herron Todd White rightly points out that population is the driver of growth. In the Townsville and North Queensland experience from 2005 to 2015, population forecasts are an indication of growth potential but are equally used as a proxy policy agenda for State’s to mine more infrastructure funding from federal coffers, and unsuspecting industrial, commercial and residential investors.

Although these planning and development policies by government are important, it’s the financial appetite and goodwill deeds of large private investors and publicly funded infrastructure that mitigate the risk of future supply side risk to real estate and property investors.

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Disclaimer

Aaron M, Editior
Aaron is the founder and editor of TREN eMagazine with 15 years experience in the real estate industry investing and helping investors seek value, leverage value and capitalise on value, developing professional and technical skills and capabilities that have enabled his success in business from startups, adoption, asset growth, management and community leadership projects. Aaron also loves travelling, sports, his partner Jodie and helping people discover their "why" and find their few "what's" in life that realise the "wows. The " www" in www.townsvillerealestatenews.com.au is one of his why, what and wow's that strive to add valuable content and analysis for readers to participate and win.
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2 thoughts on “Townsville population forecasts risk oversupply and further price stagnation

  1. Excellent analysis Aaron. I sold my unit bought off the plan 10 years ago and sold this year for 51% of its purchase price, and will carry the legacy debt from the shortfall from the mortgage forever.
    It seems Townsville is doomed to repeat the mistakes of its very raw recent history and just keep building for a the benefit of the careers and wallets of a privileged few.
    I warn all private property investors to stay well away.

    By the way, was that you I saw on TV at a rally to make North Queensland a stand-alone State?

    regards
    dave

    1. Hi Dave,

      Thank you Dave for your feedback. Your story is tragic, and one all too common in the Townsville property market, that must be explained in good faith so future residents and investors understand fully the inequities and imbalances that have evolved in regional markets impacted by globalisation, greater centralisation of services and the growing apathy of individuals locked away in their virtual world of technologies.

      Hence my support of statehood for North Queensland. Time and time again, the data and macro proposals from government and private industry demonstrate capital cities are the principle beneficiaries of geographic, demographic and civic resourcing because of the way in which power and supply structures function.

      Thank you for sharing your experiences. Your comments and friendship is much appreciated.

      I hope the winds of fortune blow in your direction in the coming seasons.

      All the best.

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