The Future of Housing - Part 3
Continuing our look at the Environmental, Financial and Health impacts of the 3 current strategies being employed to fight the housing affordability fight –
1. Open up more land for development and increase supply
2. Reduce Government Fees & Charges
3. Create Smaller Products
Now let’s focus on topic 2 Reducing Government Fees & Charges.
There is no doubt property has become a gravy train for governments. The taxes, fees and charges applied to the industry are second to none. Now don’t get me wrong, I agree that everyone needs to pay their share and that without government taxes and charges, we won’t get the infrastructure we need. However…the property industry is burdened with more than its fair share. There is significant room for taxes and fee reductions that would assist housing affordability.
But that just means more money in the developer’s pocket!! This is an argument trotted out by the political left whenever changes are foreshadowed to the property industry. Let’s put the record straight on at least three fronts –
Developers simply can’t charge what they want. We live in a capitalist competitive market. A developer may say I’ll keep all these fees and charges up my sleeve and make more money, but then the next developer will pass those cost savings on so he can reduce his sale prices and be more competitive and attract sales.
Developers must target a 20% return on Cost as a minimum otherwise they will not be able to attract development funding from banks. If you reduce the return on cost below 20%, then no development will get done because it can’t be funded. If you simply increase sale prices to get to 25%, then you are not competitive. Every extra Tax or Fee or Charge must be passed onto the end buyer which impacts affordability. It’s a small window of financial opportunity where property development actually works.
…and finally who is taking the risk? When people complain about greedy developers, they conveniently forget the financial risk that these developers are taking, let alone the employment they are creating.
I’m definitely not saying every developer is an upstanding honest citizen, but neither is every low wage earner an honest and stand-up citizen. Reducing taxes and red tape to an acceptable social level, will only help the industry provide more affordable solutions and create more jobs and general economic benefit.
Next week…Creating Smaller Products
John Rosel