Shifts in Sydney’s Growth in 2018 and the Impact of Public Policy

Everybody is so busy thinking about smart cities and blinded by the secret algorithms that they have forgotten to focus on the fundamentals of the development market. Urbanised has just finished running its own models in Sydney and we now have sufficient observations to test the predictive capabilities of the models. Out of the five districts were can make predictions in 4 within reasonable bounds of confidence. Something is going on in the Eastern City unit approvals that our models can predict with confidence only 57% of the time. That said there are ten different forecasts (approvals and completions) and they stack up rather well.  

 There are some pretty big shifts occurring in a falling market. The government was concerned about affordability and guess what? The market adjusted to help largely solve that problem. Now all political parties are talking about over development –even Mark Latham One Nation candidate was talking about it the other day. Like affordability, it looks like we are seeing an adjustment take place that will fix the so called over development problem. Significant declines in approvals and to a marginally lesser extent completions are being experienced at the moment. It looks as though the Sydney region will struggle to reach 30,000 approvals in 2018.

But, the interesting phenomenon is that contribution to growth is shifting in Sydney. Western Sydney has fallen from the property powerhouse mantle that is has held over recent years. The Central region (Parramatta, the Hills, Cumberland) now takes this mantle and will contribute almost one third of the growth of the property completion in 2018. Western Sydney will fall back from more than a quarter of the growth to one fifth of the growth in 2018. Had it not been for Campbelltown holding up the figures would have been significantly worse. The Eastern City has also shown similar trends with significantly lower contributions to growth in a falling market. The Southern District (Canterbury Bankstown, Georges River and Sutherland) seems to be mirroring the Central City with a considerable increase in the share of both completions and approvals (although still only half of the larger Eastern City and Western City regions).

 These are only models and as I have been frequently told that a forecast is just a line between two mistakes, but they are illustrative. All the talk at the moment is about (and CoreLogic just reported the market is experiencing oversupply!) but it looks as though there are definitely locational factors at play. Observationally, it would appear that the State Government (and to a lesser extent certain Councils) play a rather large role in the acceptance of growth. Public policy plays a key role in market performance. For instance, policies by the State Government to hold planning proposals in abeyance have impacted Ryde. The PMF, a 1 in 100 flood event constraint in Penrith, has seen approvals drop off a cliff. The threat of impositions of Special Infrastructure Charges and the uncapping of other infrastructure charges in greenfield areas will no doubt be a contributing factor in the Western District. The sheer difficulty of dealing with some Councils in the Central District may be an issue but the Central District is reliant on apartment development and with the flight of foreign buyers (since the introduction of the foreign buyers’ tax) from the market there are few feasibilities that would stack up even to the most liberal financier. Although the Central City is growing its share in a falling market, the prospect of value capture in Parramatta could explain the growth in other areas in that district.

 To be fair, there have been considerable infrastructure investments made by the Government. There are areas that appear to be influenced by the investment such as the Hills but there is little other evidence that infrastructure investment is sustaining approvals or completions in other areas. For instance, the biggest beneficiary of infrastructure investment, Western Sydney, has experienced some of the biggest forecast falls in approvals and completions.

 This downturn has been influenced by policy, whether by State Government or local councils. The most conservative economic loss of the market downturn in 2018 will likely be $4.5 billion in approvals and almost $3 billion in completions in Sydney alone. There are substantial multiplier effects associated with these losses for government, jobs and gross state product.

 Every political party continues to talk of overdevelopment and this weekend’s election does present the prospect of even more poorly thought through policies. Urbanised’s forecasts show that the market has reached a threshold point. Let’s hope that after Saturday, whoever is in Government, acknowledges that the policy settings have fixed the supposed over development problem, we reset and start to develop public policy that supports the broader industry and community interest.  

 Urbanised Economics property development market forecasts are a subscription service. Please send inquiries to info@urbanised.net.