Residential Development Index...No reliance for whatsoever purpose should be placed on any of the contents of this report. The readers are cautioned not to take any actions or decisions

| Residential Development Index1VICTORIA

RDI Research Partners:

Residential Development IndexAnnual update

2018

VICTORIA

| Residential Development Index | Residential Development Index2 3VICTORIA VICTORIA

Table of Contents Important Notice or Disclaimer

The contents of this report are based on secondary research using a variety of sources and research

partners including EY, UDIA Victoria members and publicity available databases including the ABS.

These sources are believed to be reliable. The information obtained from such sources, however,

was not independently verified and was relied upon in performing the analysis. Accordingly, no

representation or warranty is provided regarding the accuracy or completeness of the information

contained in this report.

The information contained in this report includes forecasts that are based on assumptions and

qualifications which are outlined in this report. Readers are cautioned that the actual results are often

different than as forecasted, because events and circumstances frequently do not occur as expected,

and those differences may be material. UDIA Victoria (including its research partners) disclaim any

responsibility whatsoever in relation to the contents of this report and have no obligations to provide

any updates or corrections to the recipient of this report. The key points and conclusions contained in

this report represent UDIA Victoria’s views.

No reliance for whatsoever purpose should be placed on any of the contents of this report. The readers

are cautioned not to take any actions or decisions based on the contents of this report, should they do

so it will be at their own risk.

Executive Summary 4

Residential Development Index (RDI) 11

What is the Residential Development Index? 12

Current Residential Development Index Rating 13

Drivers of the Residential Development Index 14

Demand and Supply Gap 16

Current Demand and Supply Gap 17

Residential Development by Region 19

Inner Melbourne 20

Middle Melbourne 21

Outer Melbourne 22

Melbourne’s Growth Areas 23

Regional Areas 24

Spotlight : Building Approvals Q3 – Q4 FY17/18 26 Future Drivers of Activity 28

UDIA Victoria Member Sales Data 29

Home Loan Approvals of Dwellings in Victoria 30

Changes to Policy and Regulation 31

Purchasing Power 32

Services and Infrastructure in Victoria’s Growth Areas 33

Precinct Structure Plan Matrix Explanation 34

Case Study 1: Northern Growth Corridor 35

Case Study 2: South Eastern Growth Corridor 36

Case Study 3: Western Growth Corridor 37

Economic Trends and Impacts of The Residential Development Sector 38

Contribution to the Victorian Economy - Employment 39

Methodology and Assumptions 42

Data Sources and Glossary 43

Geographical Study Areas 44



This annual update provides the Residential Development Index (RDI) rating for June 2018.

The RDI uses a unique model to assess the health of the Victorian residential development industry and measure its activity on an ongoing basis. The research examines the dynamics impacting the sector, including economic conditions, population growth, development activity, trend data, regulatory changes and policy implications. These industry activity fundamentals inform the RDI, which determines whether the industry is operating in a strong, moderate or weak market, relative to recent and longer term history.

Executive Summary Executive Summary

RDI: Key findings

• The Residential Development Index has

increased slightly to 101.5 in June 2018,

up from 100.6 in June 2017. This figure is

consistent with the ten-year average of

101.7.

• The ‘purchasing power’ component of the

RDI is at its lowest level over the past ten

years. This is considered to be the result of

weak wage growth, the increasing cost of

living and tighter bank lending standards

resulting from the Financial Services Royal

Commission.

• The data indicates two clear trends over

the financial year 17/18 in the sector:

a strong first half of FY17/18 driven

by historically high population and

employment growth, followed by a weak

second half due to a range of policy and

regulatory changes impacting both supply

and demand.

• While building approvals for apartments

increased by 25.10 per cent overall in

metropolitan Melbourne in FY17/18, the

market has slowed considerably in the last

quarter. This is evidenced by the fall of

70.19 per cent from Q3 to Q4 of FY17/18 in

building approvals for apartments in Inner

Melbourne.

• This significant reduction in the second

half of FY17/18 was driven by a range of

disincentives for investment behaviour in

apartments such as the removal of off-the-

plan stamp duty concession for investment

properties, the Australian Prudential

Regulation Authority requirement that

loans for investment properties should not

exceed 30 per cent of new home loans, and

the tightening of bank lending standards

for property investment associated with

the Financial Services Royal Commission.

• In recent years investors have been vital

to ensuring the viability of apartment

developments and supporting this product

for owner-occupiers. As investors retreat

from this product, we expect to see flow

on effects to the rental market and the

declining availability of apartment rental

stock.

• We anticipate the decline in apartment

building approvals to continue into

FY18/19, negatively impacting on

development activity, the jobs pipeline and

housing supply.

• The data also indicates the demand

for apartments is shifting from Inner

Melbourne to Middle Melbourne. This

suggests the apartment market is maturing

and finding more balance between high

density inner city apartment developments

and smaller scale infill developments

in established, middle ring suburbs. An

increase to infrastructure investment in

Middle Melbourne is required to support

this housing and population growth.

• The demand and supply gap has narrowed

in FY17/18. While the net supply of

dwellings appears to match demand, there

remains an undersupply of 5,500 dwellings

available for occupation.

• The industry is still experiencing the

residual dwelling supply shortfall that

occurred in FY15/16 and FY16/17, therefore

it is vital supply keeps pace with the

current demand and continues to the

bridge the supply shortfall of previous

years.

• A review of infrastructure provision in

Melbourne’s growth areas reveals that

many recently released PSP areas lack

key infrastructure. Analysis of eleven

PSPs recently gazetted or the subject

of a planning scheme amendment in the

Northern Growth Corridor, South Eastern

Growth Corridor, and Western Growth

Corridor revealed only one is serviced by

a current train station and three include a

proposed train station, three do not have

access to a current or future freeway, and

five do not include a major activity centre.

• Overall regional areas performed well

in FY17/18 recording an increase of 20

per cent in building approvals, however

Latrobe continued to experience negative

building approval growth in FY17/18.

The reduction can largely be attributed

to the closure of the Hazelwood Power

Station resulting in uncertainty regarding

employment in the area. This reinforces

the need for greater investment and jobs

in regional areas to facilitate continued

decentralisation.


Trends by Region

Victoria and Melbourne

• Total building approvals in the Melbourne Statistical Division (Melbourne SD) increased by 14.60 per

cent in FY17/18 when compared to FY16/17 data and 11.90 per cent on FY15/16 data.

• The City of Melbourne and all of the growth corridor Local Government Areas (LGAs) led total

building approvals in FY17/18.

• Apartment approvals increased by 25.10 per cent throughout Melbourne SD, recovering from

negative growth in FY16/17.

• Overall, houses continue to be in favour, leading building approvals over apartments and

townhouses in the Melbourne SD.

Inner Melbourne

• Total building approvals in Inner Melbourne FY17/18 outperformed FY16/17 by 27.46 per cent and

FY15/16 by 2.60 per cent.

• Apartment approvals were up 26.73 per cent in FY17/18 when compared to FY16/17 and 3.20 per

cent on FY15/16. This was driven by four or more storey approvals.

• The suburb of Melbourne more than doubled its approvals from FY16/17 to FY17/18, whilst

Maribyrnong and Port Phillip have recovered from a poor FY16/17.

• Total building approvals in Stonnington reduced by 22 per cent in FY17/18. This is the second

financial year that the LGA has dropped in building approvals.

Middle Melbourne

• Total building approvals in Middle Melbourne FY17/18 outperformed FY16/17 by 9.74 per cent and

FY15/16 by 6.40 per cent.

• Semi-detached townhouse approvals grew by 14.72 per cent in FY17/18 upon FY16/17 data.

Apartment building approvals also grew during the same period, rebounding from a week FY15/16

and FY16/17 period.

• Monash has in FY17/18 outperformed FY16/17 by 126 per cent and FY15/16 by 111 per cent. This has

been driven by three storey or more apartment developments.

• Apartment activity weakened in FY17/18 in Boroondara (driven by strong cooling off in the

Hawthorn area), Hobsons Bay (around Newport) and Moonee Valley.

• Building approvals for new detached houses

in regional areas is approaching that of

Melbourne’s growth areas at almost 14,000

for FY17/18 compared with almost 20,000 in

Melbourne’s growth areas.

• The residential development sector is a

significant driver of the Victorian economy.

In FY16/17 the construction of new dwellings

made a contribution to the Victorian

economy of more than $20 billion. This

contribution is expected to increase to over

$22.9 billion in FY17/18.

• The residential development sector

sustained over 162,000 jobs in Victoria in

FY16/17. This figure includes jobs sustained

directly in the sector as well as in support

industries such as property and business

services, financial services, transport and

distribution, manufacturing and other

sectors. This is expected to increase to

almost 185,000 full time, part time and

casual jobs across the Victorian economy in

FY17/18.

• Future threats to the sector include weak

wage growth and increased housing costs,

a reduction in the availability and volume

of finance for purchasers and delays in

infrastructure servicing in Melbourne’s

growth areas. These threats are combined

with an unstable regulatory environment

including uncertainty associated with the

impacts of the Financial Services Royal

Commission.

• Overall, the residential development sector

fundamentals remain strong and Victoria is

experiencing continued employment growth

which is reflected in the high employment

to population ratio of 62.4 per cent. The

enterprising and adaptive nature of the

development sector is a key strength as we

enter a new period of urban renewal and the

evolution of Middle Melbourne.

• State and local governments need to take

their responsibilities seriously and unlock

the planning and development approval

processes to ensure that the development

industry can deliver the strong pipeline of

new housing, jobs and economic value to

develop Victoria in a positive way for future

generations.

Executive Summary


Trends by Region

Outer ring of Melbourne

• Total building approvals in FY17/18 increased by 6.33 per cent on FY16/17 data, and by 3.60 per cent

on FY15/16 data.

• Townhouses continued their strong year on year growth, up 5.88 per cent on FY16/17.

• Houses still remained the highest property type to be approved, narrowly topping townhouses

2,037 to 1,926.

• Frankston and Nillumbik both experienced a reduction in total building approvals by over 40 per

cent in FY17/18 compared with FY16/17.

Melbourne growth areas

• Total building approvals in FY17/18 have increased by 13.83 per cent on FY16/17 data, and by 26.60

per cent on FY15/16 data.

• Housing approvals have driven this, up 15.32 per cent on FY16/17 data.

• Apartment approvals dropped by 34.05 per cent, although only represent 1.23 percent of total

building approvals in growth areas.

• All LGA’s grew in total building approvals throughout Melbourne growth areas, although Whittlesea

only grew by 1 per cent on a very weak FY16/17.

Regional areas

• Regional total building approvals grew in FY17/18 by 20.39 per cent on FY16/17 data and 12.90 per

cent on FY15/16.

• Apartment approvals still make up a very small percentage of total approvals, however are

demonstrating a positive shift in their suitability in regional areas.

• Latrobe continued to experience negative building approval growth in FY17/18. The closure of the

Hazelwood Power Station has contributed uncertainty regardning employment in the area.

Building Approvals by Region

Victoria and Melbourne

Inner Melbourne

Victoria Total Building Approvals FY16/17 FY17/18 FYoY Growth

Houses 35,867 39,551 10.27%

Semi-detached, row or terrace houses, 11,393 13,504 18.53%

townhouses - Total

Flats, units or apartments - 17,828 22,266 24.89%Total including those attached to a house

Flats, units or apartments - 15,821 20,677 30.69%Four Levels +

TOTAL 65,088 75,321 15.72%


Houses 474 445 -6.12%

Semi-detached, row or terrace houses, 526 900 71.10%

townhouses - Total



TOTAL 10,556 13,455 27.46%


Houses 4,581 4,062 -11.33%


townhouses - Total



TOTAL 17,042 18,702 9.74%

Middle Melbourne


Building Approvals by Region

Outer ring of Melbourne


Houses 2,130 2,037 -4.37%


townhouses - Total

Flats, units or apartments - 917 1,211 32.06%Total including those attached to a house

Flats, units or apartments - 658 1,110 68.69%Four Levels +

TOTAL 4,866 5,174 6.33%


Houses 17,005 19,611 15.32%


townhouses - Total

Flats, units or apartments - 417 275 -34.05%Total including those attached to a house

Flats, units or apartments - 343 227 -33.82%Four Levels +

TOTAL 19,612 22,325 13.83%


Houses 11,677 13,396 14.72%


townhouses - Total

Flats, units or apartments - 211 608 188.15%Total including those attached to a house

Flats, units or apartments - 82 419 410.98%Four Levels +

TOTAL 13,012 15,65 20.39%

Melbourne growth areas

Regional areas

Residential Development Index (RDI)

In this section What is The Residential Development Index? 12

Current Residential Development Index Rating 13

Drivers of the Residential Development Index 14


The Residential Development Index (RDI) has been developed using three underlying inputs including

demand, capacity to purchase and supply relative to demand. Based on historical data, an RDI of above

102 depicts a market that is either operating in line with medium term trends or relative strength.

What is the Residential Development Index?

Purchasing power

Supply

Demand

50%

10%

40%RDI =

weighted averageof 3 components

RDI scores Above 103 = strong market 100 to 103 = moderate market Below 100 = weak market

RDI input

Demand (weighted at 40%)• Considers population growth in Victoria• Calculated as annual per cent growth over 12

months to June as an index

• Index = [annual per cent change + 1] x 100.

Purchasing power (weighted at 50%)This component considers employment growth in Victoria and the relative purchasing power by those who are employed by considering wage growth relative to inflation. The sub component of the index is calculated using two factors:

• Input 1: Employment. Calculated as annual per cent growth over 12 months to June 18 as an index.

• Input 2: Relative Wage Growth. Calculated as the growth of wages over the year, compared to CPI as a ratio. Index = [Wage / CPI] x 100.

Both inputs are averaged to create an index, which is weighted at 50 per cent.

Supply (weighted at 10%)• Considers building approvals relative to

estimated household formation to indicate relative levels of supply.

• Household formation is calculated as [population growth/the assumed average household size in Victoria at the time RDI is measured].

• A loading of 20 per cent is applied to account for the fact that not all building approvals yield net additional supply.

• This component is weighted at 10 per cent of the overall index due to the higher level of variability in supply that has been observed over time.

1. The index has increased slightly in June

2018 to 101.5 up from 100.6 in June 2017,

this is in line with the 10 year average of

101.7.

2. The index was at its lowest point in

June 2009 (99.5) when employment

growth (purchasing power) and

population (demand) were all relatively

consistent but supply (building

approvals) was notably low.

3. The RDI remains above average as

at June 2018. Positive drivers include

continued population growth (driving

demand) and continued employment

growth. Relative supply has also

increased compared to demand,

however it should be noted that this

variability is subject to significant

volatility.

4. The primary constraint on the

performance of the RDI at present is

low rates of real wage growth. This

component reduced the purchasing

power sub index from 101.2 in June

2017 to 99.9 in June 2018. This sub

component is now at its lowest level

over the past 10 years, since the RDI has

been analysed.

Current Residential Development Index

(RDI) Rating

Each input is calculated on an annual basis at a point

in time subject to the availability of data. It should be

noted that employment and building approvals data

is available with limited lags whereas estimates of

population have approximately a six month lag.

CURRENT RDI RATING = 101.5

Based on the last ten years of analysis between June 2008 and June 2018:

80.0

85.0

90.0

95.0

100.0

105.0

110.0

IND

EX

Residential Development Index (RDI)

0.020.040.060.080.0100.0120.0140.0160.0180.0

98

100

102

104

106

108

110

SUPP

LY

DEM

AND

, PP,

IND

EX

RDI and its components

Demand Purchasing powerIndex of residential activity Supply


There are a number of issues emerging in the Victorian economy that are likely to continue to have an

impact on the drivers of the RDI over time.

Weak wage growth

While population growth has continued to remain strong, the relative growth in wages compared to

inflation has continued to weaken and this factor is continuing to act as a drag on the RDI. Weak wage

growth will continue to hamper price escalation for established and new properties in the market.

Over the year to June 2018 wages increased by only 2.3 per cent in Victoria, compared to inflation

of 2.5 per cent. The continual weakness in wage growth will act to moderate expectations of future

income growth in Victoria’s workforce. This will in turn constrain confidence of those considering the

purchase of a home.

Source: Australian Bureau of Statistics, 2018

Drivers of the RDI

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Wages & CPI

Wage Cost Index CPI


Drivers of the RDI

Rising cost of living

Low wage growth is further exacerbated by rapidly escalating non-discretionary household costs such as

utility bills and childcare.

Victorians have faced the following price increases over the eight years to June 2018 based on ABS CPI

data:

• Overall, utility costs have increased by 67 per cent which includes gas bills that have increased by 71

per cent and electricity bills by 70 per cent.

• Childcare costs up 93 per cent.

• Property and rates charges have increased by 67 per cent.

Employment growth

From a positive perspective, employment growth remains strong which is reflected in recent data

released by the ABS for August 2018 showing Victoria’s unemployment rate has declined to 4.8 per cent.

The Victorian State Budget released in May anticipated employment growth to remain reasonably strong

for the foreseeable future, with employment growth of around 1.8 to 2 per cent in the forecast period to

FY21/22.

The strength of Victoria’s employment market is reflected in the high employment to population ratio

which has reached 62.4 per cent in Victoria relative to a national average of 62.1 per cent.

58.559.059.560.060.561.061.562.062.563.0

0500

1,0001,5002,0002,5003,0003,500

Jul-2006 Jul-2008 Jul-2010 Jul-2012 Jul-2014 Jul-2016 Jul-2018Em

plym

ent 0

00's

Employment to Population Ratio

Employment 000's


Demand and Supply Gap

In this section Current Demand and Supply Gap 17

The RDI estimates the housing demand and supply gap for Victoria and regions including Melbourne statistical divisions and regional Victoria.

What does the RDI tell us about demand and supply right now?

• As predicted in the March 2018 RDI update, the supply of dwellings in FY17/18 is far more in balance

with demand compared with previous years. A small surplus in the net supply of dwellings is due to

an increase in building approvals.

• However, when the yield of dwellings to building approvals is considered, there remains an

estimated undersupply of dwellings available for permanent occupation. On this measure, there is

an undersupply of 5,600 dwellings in FY17/18.

What does the RDI tell us about the past three years?

• There has been an estimated undersupply of net dwellings in Victoria of 5,100 and 7,100 dwellings in

FY15/16 and FY16/17 respectively.

• There has been an even greater estimated undersupply of dwellings available to occupy over the

past two financial years of between 12,500 and 14,250 dwellings.

• The DSG average of the past three years is moderated by the narrowing of the DSG in FY17/18:

- DSG all dwellings: -3,200

- DSG dwellings available to occupy: -10,800

Assumptions

• The estimates are theoretical in nature and based on a series of assumed parameters including:

- An average household size of 2.6

- Actual building approvals to June 2018

- Population growth in FY17/18 remaining at levels similar to current trends

Definitions:Dwellings not available for occupation: Include holiday homes and other vacant homes not provided to

the market for permanent accomodation.

Dwellings available for occupation: Calculated as the estimated net supply of dwellings minus dwellings

not available for occupation.

Current Demand and Supply Gap


Current estimates of DSG in Victoria

Year end FY15/16 FY16/17 FY17/18* Average

Supply estimate

Building approvals 67,895 65,112 75,104

Assumed DBA yield total 0.78 0.78 0.78

Assumed DBA yield dwellings available for occupation 0.67 0.67 0.67

Estimated net supply of total dwellings 52,958 50,787 58,581

Estimated supply of dwellings available for occupation 45,490 43,625 50,320

Demand estimate

Population growth 150,850 150,476 145,444

Household size 2.6 2.6 2.6

Household growth 58,019 57,875 55,940

DSG all dwellings -5,061 -7,088 2,641 -3,169

DSG dwellings available to occupy -12,530 -14,250 -5,620 -10,800

Source: ABS building approvals (8731.0) and ABS demographic statistics (3101.0)

Current Demand and Supply Gap

Residential Development by Region

In this section Inner Melbourne 20

Middle Melbourne 21

Outer Melbourne 22

Melbourne’s Growth Areas 23

Regional Areas 24

Spotlight : Building Approvals Q3 – Q4 FY17/18 26

Abbreviations: DSG Demand and Supply Gap

DBA Yield Estimated yield of dwellings to building approvals (used to forecast supply)


Inner Melbourne

Overall performance in Melbourne’s inner ring has been relatively strong despite a decline in apartment approvals in Q4 of FY17/18.

• Total building approvals for the inner ring region of Melbourne are significantly above the FY16/17 period.

• Apartment building approvals were 12,110 in FY17/18, 2,554 above FY16/17 whilst semi-detached, terrace and townhouses increased from 526 to 900 building approvals over the same period.

• Houses were the only housing type that dropped off in the inner ring, down 29 approvals to 445.

Hot spots• From a locational perspective the Brunswick-Coburg region and the City of Yarra are performing

well.• The City of Melbourne has had strong building approvals in all traditional locations including

Melbourne, Southbank and West Melbourne.• The suburb of Melbourne in particular has more than doubled in total building approvals from

FY16/17 to FY17/18 with 3,742 approvals. Essendon-Aberfeldie and Abbotsford have also increased their apartment and semi-detached market share increasing by 1.2 per cent and 2.3 per cent respectively to FY17/18.

• Maribyrnong and Port Phillip have both recouped on their largely weak FY16/17, and have experienced year on year building approval growth of 50 per cent and 27 per cent respectively.

Suburbs that are weak • The only LGA within the inner region to experience negative growth in total building approvals has

been Stonnington, down 22 per cent over the last financial year. • The broader area of Essendon has dropped its ‘other’ market share by 1.1 per cent, this is largely due

to a drop of market share in Moonee Ponds by 2.5 per cent. Moonee Ponds has had 155 approvals for apartments and townhouses in FY17/18 compared to 793 in the previous financial year.

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

FY15/16 FY16/17 FY17/18

Build

ing

appr

oval

s

Building Approvals - Inner Ring

Houses

Semi-detached, row or terrace houses, townhouses - Total

Flats units or apartments - Total including those attached to a house-60% -40% -20% 0% 20% 40% 60% 80%

Yarra (C)

Stonnington (C)

Port Phillip (C)

Melbourne (C)

Maribyrnong (C)

Year on Year growth in total building approvals

Total YoY Building Approval Growth - Inner Ring

FY16/17 Growth FY17/18 GrowthSource: Australian Bureau of Statistics, 2018

Middle Melbourne

Apartment approvals lead the way in Melbourne’s middle ring in FY17/18.

• Total building approvals for the middle ring of Melbourne were 18,702 over the FY17/18 financial year, up from the result in FY16/17 of 17,042. Houses were the only type of property to reduce in building approvals, down 519 to 4,062 in FY17/18.

• Apartment building approvals have increased significantly to 8,062 in FY17/18 after decreasing between FY15/16 and FY16/17.

• Semi-detached townhouse development is also particularly strong with 6,578 approvals in FY17/18, compared to 5,734 units in FY16/17.

Hot spots• Monash has experienced very strong building approval growth throughout FY17/18 in comparison

to FY16/17. Housing approvals were slightly reduced, however apartment and townhouse approvals increased by 240 per cent to 2,354 approvals.

• After a relatively moderate FY16/17 Bayside has experienced a growth in building approvals of 37 per cent in FY17/18. This has been driven by apartment and townhouse building approvals increasing from 572 to 993 over this period.

• Building approval growth has continued in Glen Eira, which can be linked to the Residential Growth Zones in the area and supportive planning policy around Caulfield racecourse and the Caulfield activity centre.

Suburbs / LGA’s that are weak • The only LGA within the inner region to experience negative growth in total building approvals has

been Stonnington, down 22 per cent over the last financial year. • The broader area of Essendon has dropped its ‘other’ market share by 1.1 per cent, this is largely due

to a drop of market share in Moonee Ponds by 2.5 per cent. Moonee Ponds has had 155 approvals for apartments and townhouses in FY17/18 compared to 793 in the previous financial year.


0

2,000

4,000

6,000

8,000

10,000

FY15/16 FY16/17 FY17/18Build

ing

appr

oval

s

Building Approvals - Middle Ring

Houses


Flats units or apartments - Total including those attached to a house

-100% -50% 0% 50% 100% 150%

Monash (C)

Moonee Valley (C)

Kingston (C)

Hobsons Bay (C)

Glen Eira (C)

Boroondara (C)

Bayside (C)


Total YoY Building Approval Growth - Middle Ring

FY16/17 Growth FY17/18 Growth


Outer Melbourne

Melbourne’s outer ring has exhibited a mix of trends throughout FY17/18.

• Total building approvals for the outer ring region of Melbourne grew slightly between FY17/18 in comparison to FY16/17. The total increase of 308 approvals represents a 6 per cent growth in the area.

• Apartments experienced the strongest growth in building approvals, increasing to 1,211 over FY17/18, up a total of 294 from the previous financial year.

• Total house building approvals dropped slightly to 2,037 in FY17/18, representing a 4.4 per cent reduction.

Hot spots• There are mixed results with some LGA’s increasing their total building approvals in comparison to the

previous financial year. However other LGA’s including Greater Dandenong are experiencing stagnant approval growth.

• Building approval growth is strongest in Maroondah. This is led by apartment and townhouse approvals in Ringwood, in which 575 buildings were approved in FY17/18, compared to 85 in the previous financial year.

• Doncaster apartment and townhouse approvals were the driver behind strong building approval growth in Manningham up to 539 from 234 in FY17/18.

Suburbs / LGA’s that are weak • The apartment market is still maturing in many parts of Melbourne’s established outer ring so results

are quite inconsistent. • Frankston and Nillumbik have both experienced strong negative growth in building approvals, both

down by over 40 per cent on the previous financial year. All suburbs within Nillumbik reduced in total building approvals which wad led in Eltham, in which there were 39 total approvals, down 59 from the previous financial year.


0

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1,000

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FY15/16 FY16/17 FY17/18

Build

ing

appr

oval

s

Building Approvals - Outer Ring

Houses


Flats units or apartments - Total including those attached to a house-100% -50% 0% 50% 100% 150%

Nillumbik (S)

Maroondah (C)

Manningham (C)

Knox (C)

Greater Dandenong (C)

Frankston (C)


Total YoY Building Approval Growth - Outer Ring


Melbourne’s Growth Areas

Melbourne’s growth areas experienced continued growth in semi-detached, row of terrace houses in FY17/18.

• The volume of building approvals in Melbourne growth area LGA’s equated to 19,611 in FY17/18 up from 17,055 and 15,463 in FY16/17 and FY15/16 respectively.

• Building approvals for semi-detached, row or terrace houses including townhouses have continued to grow in FY17/18 to 2,439, up from 2,190 and 1,809 in FY16/17 and FY15/16 respectively.

• Total building approval for apartments have fallen below the results of the last two financial years to 275.

Hot spotsAll LGA’s are performing well but key hotspots include: • Wollert and Wallan in the Whittlesea corridor lead the recovery of the area with year on year building

growth of 15.9 per cent and 8 per cent respectively in FY17/18. • Mickleham in the Hume corridor experienced total year on year building approval growth of 86 per

cent throughout FY17/18 with 1,665 approvals. Housing approvals accounted for 99.5 per cent of this.• Bunyip and Koo Wee Rup, albeit small parts of the Cardinia corridor have experienced very strong

growth of 89.5 per cent and 123.4 per cent respectively. Beaconsfield / Officer had the most building approvals registered within the area of 1,064.

• Rockbank / Mount Cottrell accounted for 28 per cent of building approvals in the Melton corridor with 768 building approvals throughout FY17/18.

• Wyndham has experienced the strongest growth with key areas including Tarneit, Truganina, Wyndham Vale, Point Cook East and South and Werribee West witnessing over 5,00 lots receive building approval throughout FY17/18.

Suburbs / LGA’s that are weak or moderating• There are no LGA’s / suburbs where building approval has reduced in FY17/18. Whittlesea approvals

however only grew by 1 per cent upon a considerably weak year in FY16/17. It was expected that this situation may have been stronger with the opening of the Mernda rail link planned for 2019 (opened August 2018).


0

5,000

10,000

15,000

20,000

25,000

FY15/16 FY16/17 FY17/18Build

ing

appr

oval

s

Building Approvals - Growth Area

Houses



-20% -10% 0% 10% 20% 30%

Wyndham (C)

Whittlesea (C)

Melton (C)

Hume (C)

Cardinia (S)

Casey (C)


Total YoY building approval growth – Growth Areas



Regional Areas

Overall approvals increased by 20 per cent in Melbourne’s regional areas in FY17/18.

• Building approvals across all building types increased in regional areas, representing a total increase

of 20.4 per cent.

• Total apartment approvals have almost tripled over the past financial year to 608. Whilst these make

up a small percentage of total approvals, there is a noticeable shift in their suitability and preference

in regional areas.

• On a percentage basis, semi-detached and townhouse approvals increased significantly, by 47.70

percent. Houses remain the dominant housing type, with 13,396 approved over FY17/18, an increase

of 1,719 on the previous financial year.

Hot spotsThe majority of major regional centres are performing well.

• Ballarat’s building approval growth was led in Delacombe and Alfredton, an increase of 102.3 per

cent and 16.1 per cent respectively. Both suburbs include large masterplanned developments which

has spurred on this growth.

• All suburbs within the Surf Coast region have experienced growth in total building approvals.

Torquay led the growth with 34.4 per cent growth in housing approvals and 115.8 per cent growth in

apartment and townhouse approvals.

• Greater Geelong has shown strong growth throughout FY17/18, after a dormant FY16/17 period.

The suburb of Geelong fuelled this growth, with a strong shift towards higher density development.

Townhouse and apartment building approvals together rose from 7 to 365 in FY17/18.

• Greater Bendigo also experienced a stronger preference towards higher density development, with

314 townhouse/apartment building approvals reflecting 300 per cent growth in FY17/18 to FY16/17.

Areas that are weak or moderating• Latrobe has experienced significant reductions in total building approval through FY16/17 and

FY17/18.

• The reduction can largely be attributed to the closure of the Hazelwood Power Station and the

resulting uncertainty regarding employment in the area. This reinforces the need for greater

investment and jobs in regional areas to facilitate decentralisation.

Regional Areas


0

5,000

10,000

15,000

FY15/16 FY16/17 FY17/18

Build

ing

appr

oval

s

Building Approvals - Regional Victoria

Houses



-40% -20% 0% 20% 40% 60% 80% 100%

Wodonga (C)Surf Coast (S)

Mornington Peninsula (S)Macedon Ranges (S)

Latrobe (C) (Vic.)Greater Geelong (C)Greater Bendigo (C)

Bass Coast (S)Ballarat (C)


Total YoY Building Approval Growth - Regional Victoria



SPOTLIGHT: Sharp decline in apartment approvals in inner Melbourne

Inner and Middle Ring Building Approvals Q3 – Q4 FY17/18

Inner Ring• Apartment approvals fell significantly from Q3 to Q4 FY17/18. The drop from 4,173 in Q3 to 1,244 in

Q4 reflected negative growth of 70.19 per cent.• This significant drop demonstrates the weakening demand for inner city apartments, driven by a

range of disincentives for investment behaviour in the product.• The reduction in apartment approvals within the quarter may reflect the strong correction that the

inner apartment market will continue to experience within the coming months.• Semi-detached / townhouse approvals grew 28.23 per cent in Q4 when compared to Q3 FY17/18, up

a total of 70.• Houses grew by 1.43 per cent in the quarter and do not represent any significant part of total

building approvals in the area.

Middle Ring• The middle ring displayed strong overall building approval results, up from 3,716 in Q3 FY17/18 to

4,656 in Q4 FY17/18.• Semi-detached/ townhouse approvals were up 31.26 per cent in the quarter, and apartments were

up 41.48 per cent. Middle ring, medium – high density development continues to be in favour with residential developers.

• Houses in the middle ring reduced by 3.04 per cent to a total of 1,020. Houses are the lowest housing type for total building approvals in Middle ring Melbourne.


0

500

1,000

1,500

2,000

2,500

March Q 2018 June Q 2018

Build

ing

appr

oval

s

Building approvals - Middle Ring

Houses



0500

1,0001,5002,0002,5003,0003,5004,0004,500


Build

ing

appr

oval

s

Building approvals - Inner Ring

Houses



SPOTLIGHT:

Outer Ring and Regional Building Approvals Q3 – Q4 FY17/18

Outer Ring• All housing type building approvals have increased within the last quarter of outer ring Melbourne.• Houses grew by 10.14 per cent to 532 approvals.• Townhouses and apartments provided very strong building approval growth, up 61.95 per cent and

83.02 per cent respectively within the Q3 – Q4 FY17/18.• Semi detached / townhouse approvals led the housing types with 549 approvals.• The strong activity in the outer ring demonstrates a shift in suitability for higher density

development in these areas, and will typically allow for a more affordable product to be marketed when compared to similar products within closer proximity to the Melbourne CBD.

Regional Victoria• Building approval data for the last quarter of FY17/18 showed a mixture of performances across

building housing types.• Houses grew in Q4 FY17/18 by 13.79 per cent to 3,648. Apartment approvals also grew, up a

significant 83.24 per cent in Q4 in comparison to Q3 FY17/18.• Semi detached / townhouse approvals reduced from 551 to 368 over the same quarterly period,

representing negative growth of 33.21 per cent.

Growth Areas• Growth areas have demonstrated small quarterly growth in houses and townhouses, and a

reduction in apartments. The data is relatively minor in change compared to other target areas.


0

100

200

300

400

500

600

March Q 2018 June Q 2018Bu

ildin

g ap

prov

als

Building approvals - Outer Ring

Houses



0500

1,0001,5002,0002,5003,0003,5004,000


Build

ing

appr

oval

s

Building approvals - Regional Victoria

Houses




Future Drivers of Activity

In this section UDIA Victoria Member Sales Data 29

Home Loan Approvals of Dwellings in Victoria 30

Changes to Policy and Regulation 31

Purchasing Power 32

UDIA Victoria Member Sales Data

Indicators of future activity and other potential policy and regulatory drivers were assessed to identify potential constraints on the market in FY18/19 and beyond. Recent Sales DataSales data from UDIA Victoria members shows the following trends in Melbourne and Geelong:• In the 12 months to August 2018 sales from the example developer fell from 2,712 in September 2017

to 1,567 in August 2018. This represents a 42.22 per cent fall in sales across Melbourne & Geelong.

Melbourne’s Growth Corridors• Sales in Melbourne’s Growth Corridors declined significantly between September and December

2017 – down 1,247 or 52.66 per cent. • Recent sales data in 2018 show sales rates have stabilised, however they remain significantly below

levels reported in 2017.

Greater Geelong• Greater Geelong has also experienced a 12 month fall in sales in this example, down from 344 in

September 2017 to 245 in August 2018, a 28.87 percent decline.• Sales over the past 12 months peaked in November 2017 at 498. The following two months saw

sales drop by 41.57 per cent and 21.65 per cent respectively. • Sales in Greater Geelong in this example have fluctuated since the sudden fall in December 2017,

and have reduced by a total of 15.80 per cent over this time.• Sales are down by 25.08 per cent over the past six months, with July 2018 the lowest sales month

of the 12 month period, at 171. Sales in August 2018 grew to 245, still below the 12 month average of 293 sales per month.

-

500

1,000

1,500

2,000

2,500

UDIA Member - Sale DataMelbourne Growth Corridors

Melbourne Growth Corridors 12 Month Average

-

100

200

300

400

500

600

UDIA Member - Sales DataGreater Geelong

Greater Geelong 12 Month Average


Home Loan Approvals of Dwellings in Victoria

Home loan approvals is an important leading indicator of activity in the residential construction sector. This data indicates the following:

Home Loan Approvals of New Dwellings• Monthly approvals have declined in the past two months. ABS data shows June 2018 and July 2018

decreasing by 9.23 per cent and 8.14 per cent respectively.• Approvals of finance for new dwellings in July 2018 were 813, 66 under the two year average.• It is typical for finance approval numbers to drop off in the Christmas/ New Year period, as shown

in the data. The recovery since January 2018 has not been as strong as the recovery from January 2017.

• Current approval volumes data is down by 26.89 per cent on the two year peak in November 2017.

Home Loan Approvals of Established Dwellings• Over the past two years, approvals volumes of established dwellings has been relatively consistent

with approvals of new dwelling, also significantly reducing in January.• The last month however has seen 3.62 per cent growth on June 2018 data.• July 2018 approvals data is now 3.46 per cent above the two year average of 12,903.

0200400600800

10001200

VIC - Purchase of New Dwellings

Monthly Purchase Data of New Dwellings Two Year Average

10000110001200013000140001500016000

VIC - Purchase of Established Dwellings

Monthly Purchase Data of Established Dwellings Two Year Average


Changes to Policy and Regulation

A range of recent changes to policy and regulation are directly impacting on the ability of Australian and overseas buyers to acquire finance for residential products. These are set out below.

• Introduction of the Annual Vacancy Fee for foreign investors.• Restriction of lending to foreign property buyers without a domestic income.• Banks adopting stricter lending policies which reduced the level of construction financing.• APRA placed limits on interest-only loans with a loan-to-value ratio above 80 per cent. This

primarily impacts on investment loans as these are more commonly interest-only loans.• APRA issued instructions to Authorised Deposit-taking Institutions to limit their exposure to

interest-only loans to 30 per cent of new residential loans.• Where developers are selling under a New Dwelling Exemption Certificate, a 50 per cent cap on the

sale of new apartments to foreign investors was introduced in the 2017 Federal Budget.

Timeline of regulatory changes

May-16: Big four banks cease to facilitate foreign lending

Sep-16: Banks’ internal policy changes

Mar-17: Limitations on interest-only lending loan-to value rations

Jul-17: Increase in basel Tier 1 capital requirements

May-17: Introduction of the annual vacancy fee for foreign investors

Mar-17: Tightening of interest-only lending restrictions

May-17: Limitations to foreign investor purchasers in new developments

2016 2017


Purchasing Power

Tightening of Lending Regulations

A recent submission by APRA to the Financial Services Commission raised concern in regard to borrower living expenses assumed by Australian Deposit Taking Institutions (ADIs) in assessing applications for home loans. The submission commented that ADIs typically use a benchmark to provide a floor where borrower declared estimates appear low. The most common benchmark for this floor is the Household Expenditure Measure (HEM). The submission added, that as currently calibrated, HEM is based on a relatively low estimate of borrower living expenses, suggesting that there is a risk of significant under-estimation of expenses. APRA stated that it expects ADIs to use the greater of a borrower’s declared living expenses or an appropriately scaled version of the HEM.

Research from investment bank UBS found that if the tightening of lending standards recommended in APRA’s submission are adopted, the increase in living expense benchmarks could cut credit availability by 21 to 41 per cent, depending on the borrowers’ incomes.

According to UBS, about three-quarters of all home loans are assessed against the “basic” HEM benchmark. UBS stated that this benchmark assumes only a very modest or frugal level of household expenditure. When UBS re-ran the major banks’ home loan calculators using a higher-living expense assumption they found that the borrowing limit fell sharply - by 30 to 40 per cent in many cases.

It is not yet clear how APRA’s submission will directly impact borrowing limits. Example impacts on borrowing limits calculated by UBS based on a higher ‘lavish living standard assumption’ are listed in the table below.

KEY POINTS• APRA has provided a submission

to the Financial Services Royal

Commission that recommends that

banks focus more closely on living

expenses for borrowers.

• In research prepared by UBS,

the implications of the APRA

submission suggest that some

applicants could face a reduction

in borrowing capacity by up to 40

per cent.

Gross Basic Living Basic Borrowing Lavish Living Lavish BorrowingIncome Expenses Limit Expenses Limit

$80,000 $32,400 $337,985 $50,000 $195,912

$100,000 $32,400 $484,315 $58,320 $327,000

$125,000 $32,400 $643,892 $68,320 $465,615

$150,000 $32,400 $817,340 $78,320 $538,622

$200,000 $32,400 $1,144,225 $88,320 $792,804

$500,000 $32,400 $3,141,171 $108,320 $2,472,763

Services and Infrastructure in Melbourne’s Growth Areas

In this section Precinct Structure Plan Matrix Explanation 34

Case Study 1: Northern Growth Corridor 35

Case Study 2: South Eastern Growth Corridor 36

Case Study 3: Western Growth Corridor 37


Precinct Structure Plan Analysis

Overview The timely delivery of services and infrastructure in Melbourne’s growth areas is important to support the effective delivery of land supply and to reduce housing costs for the purchases of house and land packages.

Development in Melbourne’s growth corridors is guided by Precinct Structure Plans (PSPs) which are enshrined in the relevant planning scheme. This section of the report assesses PSPs which are currently the subject of a Planning Scheme Amendment or that have recently been gazetted. Specifically, the proximity of residential areas to existing and proposed public transport (particularly rail), access to freeway networks, and access to employment precincts and activity centres has been assessed. The timely provision of key infrastructure will directly impact on a PSP areas’ ability to adequately meet the needs of a growing population.

The table below outlines the methodology used to assess the PSPs applying to the case study areas in the following pages.

Multi-criteria assessment

Explanation Current Proposed

Road Access

Freeways Current access Government has funded access to a freeway to a freeway within 5-10 years

Major Road Current access to a Government has funded access duplications highway or duplicated road to a highway or duplicated road within 5-10 years

Public Rail Electrified or regular V-Line Government funded electrifiedTransport service, operating within or regular V-Line service, 20 minute intervals at operating within 20 minute peak hour. intervals at peak hour or service proposed in growth corridor plan

Regular bus service Peak hour service, N/A connecting to rail minimum of every station 20 minutes

Hospital Access to a major regional N/A hospital within 10km

Primary / Secondary Existing primary or School funded for delivery School secondary school within the next 3 years.

Hospital / Secondary School

Case Study 1: Northern Growth Corridor

Key Findings:• The Northern Growth Corridor is serviced by the existing

Hume freeway and the electrified rail to Craigieburn. • Craigieburn Station is the closest station to the area,

however this does not service the need for public transport further north such as in the Beveridge area. These areas will be reliant on relatively infrequent bus services.

• The Lancefield Road PSP is highly reliant on access to Sunbury Activity Centre and services, such as train station, hospital and schools. There is an opportunity for a future rail link within the PSP however there is currently no announced plans or funding for this.

• Craigieburn West will be highly reliant on the access to Craigieburn Activity Centre and services, however these are a reasonable distance away.

• The Wollert PSP was gazetted in February 2017 and has good access to freeways and arterial roads, however the area requires better access to public transport given there are no bus routes in the local area and the closest train station is approximately five kilometres away.

Northern Growth Wollert Beveridge Lancefield Road CraigieburnCorridor North West West Road Access Freeways Hume Freeway Hume Freeway N/A Hume

Major Road Craigieburn Road Old Sydney Road Lancefield Road Mickleham Road & duplications Craigieburn Road

Public Rail Craigieburn Station N/A Sunbury Station Craigieburn Station Transport – approximately – approximately – approximately 5km west 7km south west 8km south east Regular bus N/A Bus services along Bus services along N/A service connecting Lithgow Street to The Hermitage St to rail station Craigieburn Station to Sunbury Station Hospital / Hospital N/A N/A Sunbury Day N/ASecondary HospitalSchool Primary / - Mount Ridley N/A - Goonawarra - Mickleham Secondary School College Primary School Primary School - Craigieburn - Sunbury - Craigieburn Secondary College Secondary School Secondary School Planned population/Size of PSP 1,434 hectares 1,277 hectares 1,095 hectares / 564 hectares 22,000 people


DANDENONG

Existing urban area

Growth Corridor

Urban Growth Boundary (UGB)

Outer Melbourne Ring

Regional Rail Link

7Growth corridor plans |

neighbourhood or group of neighbourhoods. they are generally produced by the Growth areas authority (Gaa) in partnership with the relevant local council.

psps fill in the detail of the broader picture presented by the Growth corridor plans. they set the pattern for neighbourhood development and ensure that individual developments, which may occur over a number of years, effectively fit together to create an attractive, convenient and sustainable local community.

1.1 Beyond the Growth Corridor Plans - Precinct Structure Plansthe Growth corridor plans provide a broad land use framework that will guide the future planning and development of new precincts. the diagram on page 8 demonstrates how the Growth corridor plans fit into the overall development planning process.

Before development can commence, detailed planning for each precinct must occur in the form of individual precinct structure plans (psps), which must be ‘generally in accordance’ with the Growth corridor plans.

a psp is a consultative process and allows all stakeholders the opportunity to participate in the detailed planning of a precinct.

Unlike the broad strategic view adopted by the Growth corridor plans, psps are much more detailed planning documents that guide development in a


Case Study 2: South Eastern Growth Corridor

Key Findings:• The South Eastern Growth Corridor is serviced by the existing

M1 Monash Freeway and the electrified rail to Pakenham.• The Officer PSP was completed in December 2011. The area has

good access via the Monash Freeway, arterial roads such as the Princes Highway, and Officer Station is located within the PSP area.

• The McPherson PSP is located on the eastern end of the Urban Growth Boundary, and currently very few services exist to allow for connection to services and activity centres.

• The Minta Farm PSP borders the M1 Freeway, allowing for excellent access to the Melbourne CBD. It is also a short distance from Beaconsfield Station and Casey Hospital, demonstrating that the area will be well connected to services.

• Pakenham East PSP will be highly reliant on the Pakenham activity centre for access to most services including a train station. However, the PSP includes plans for multiple schools and a local town centre.

• The Government and Victorian Opposition have committed to improved rail services in the Cranbourne/Clyde corridor, however the timing of service improvements is unclear.

South Eastern Officer McPherson Minta Farm Pakenham East Growth Corridor Road Access Freeways Monash Freeway Monash Freeway Monash Freeway Monash Freeway

Major Road Princes Highway Ballarato Road Soldiers Road Princes Highway duplications & Pound Road

Public Rail Officer Station N/A Beaconsfield Pakenham StationTransport within the PSP area Station approx approx 11km west 3km north east Regular bus Bus services along N/A Bus services along N/A service connecting Soldiers Road to Soldiers Road to to rail station Beaconsfield Station Beaconsfield Station Hospital / Hospital Casey Hospital N/A Casey Hospital N/ASecondary School Primary / N/A Secondary school

Planned population/Size of PSP 1,021 Hectares / 952 Hectares / 285 Hectares 630 Hectares

28,300 people 28,300 people


DANDENONG

Existing urban area

Growth Corridor



Regional Rail Link








- Officer Secondary College -Berwick Grammar School

- St Catherine’s Catholic Primary School- St Francis Xavier College, Berwick & Beaconsfield Campus’

- Two Government Primary Schools- Non –government primary school-Government Secondary School

Case Study 3: Western Growth Corridor

Key Findings:• The Western Growth Corridor is serviced by the existing

M1 Princes Freeway and the electrified rail to Werribee. • The Westbrook PSP was completed in July 2014 and

now a small residential development has occurred within the area. The area is reliant on services within the Manor Lakes PSP area, such as access to Wyndham Vale Station and schools.

• The Werribee Junction PSP area is at the most southern point of the Urban Growth Boundary in the Western Growth Corridor, however it retains good access to the Princes Freeway. The PSP is in the earliest stages of development therefore the area has limited existing services and the Werribee Activity Centre is currently the main link to services.

• The Kororit PSP was recently completed in February 2018. The area is forecast to support over 25,000 people with approximately 9,200 dwellings planned. The area will be reliant on the Rockbank Station for public transport access as there currently not insufficient bus services.

Western Growth Corridor Westbrook Werribee Junction Kororoit Road Access Freeways N/A Princes Freeway Western Freeway

Major Road Ballan Road Browns Road Taylors Road duplications

Public Rail Wyndham Vale Station N/A Rockbank StationTransport – approx 5km - approximately 5km south east south Regular bus Bus services along N/A N/A service connecting Lithgow Street to to rail station Craigieburn Station Hospital / Hospital N/A N/A N/A Secondary School Primary / Manor Lakes College N/A Rockbank Primary Secondary School School Planned population/Size of PSP 591 Hectares / 1,111 Hectares 925 Hectares / 16,315 people 25,875 people


DANDENONG

Existing urban area

Growth Corridor



Regional Rail Link









Economic Trends and Impacts of The Residential Development Sector

In this section Contribution to the Victorian Economy - Employment 39

Contribution to the Victorian Economy -

EmploymentBased on the economic value add measure, the new residential construction sector had a total contribution to the Victorian economy of around $20 billion in FY16-17. This is equivalent to just under five per cent of the Victorian economy and implies that one in every $20 of activity is driven by the sector. Based on current trends, in FY17-18 it is expected this contribution will grow to $22.9 billion.

ABS building approval data (value estimates) and associated infrastructure spending for new residential projects in Victoria were used to calculate the estimated economic activity and employment generation. ABS and budget forecasts were used to estimate the contribution of the sector in FY17-18..Economic contribution is a measure comprising all market related expenditure generated by a specified industry or an activity. Economic contribution studies do not consider the substitution impacts to other industries (i.e. what might happen to expenditures if the specific industry or activity were lost). As such economic contribution is a gross measure rather than a net measure.

To estimate economic contribution an input/output approach was used to calculate the direct and indirect (wider) economic impacts. REMPLAN¹ was engaged to develop input/output multipliers that reflect the specific characteristics of the Victorian economy.

Three common indicators of an industry or economic size or value are:

• Gross industry output – Market value of goods and services produced, often measured by turnover/revenue. Gross output is also referred to as ‘gross economic contribution’ or ‘gross expenditure’

• Value added (Gross State/Regional Product) – Market value of goods and services produced, after deducting the cost of goods and services used.

• Jobs – Number of jobs generated by an industry or attraction. ¹ REMPLAN modelling provides the ability to calculate the value of gross regional product and to assess likely economic

impacts of proposed changes. REMPLAN can foster an understanding of the interdependent nature of the local economy.

Table 1: Expenditure ($m) FY15-16 FY16-17 FY17-18 (forecast)

Expenditure ($m) $19,698 $20,050 $22,874

Table 2: Economic value add ($m) FY15-16 FY16-17 FY17-18 (forecast)

Direct value add ($m) $4,594 $4,010 $4,575

Indirect value add ($m) $18,861 $17,002 $19,397

Total value add ($m) $23,452 $21,012 $23,972



Employment

Key Points

• The residential development sector is a significant driver of the Victorian economy. In FY16/17 the construction of new dwellings made a contribution to the Victorian economy of more than $20 billion. This contribution is expected to increase to over $22.9 billion in 2017-18.

• The residential development sector sustained over 162,000 jobs in Victoria in FY16/17. This figure includes jobs sustained directly in the sector as well as in support industries such as property and business services, financial services, transport and distribution, manufacturing and other sectors.

• It is important to note that these estimates of impact and revenue do not include the contribution that the residential development sector makes to the Victorian Government’s own source tax collections. State taxes including stamp duty and land tax are supported by the sector. While off-the-plan stamp duty concessions will apply to first home buyers and those residing in new properties, it is important to note that developers fund large stamp duty and land tax collections as part of the land acquisition and development process.

• Other charges including open space contributions and developer levies also provide State and Local Government with a

Table 3: Jobs (full time, part time and casual) FY15-16 FY16-17 FY17-18 (forecast)

Direct jobs creation 46,508 40,701 46,434Indirect jobs creation 136,479 121,301 138,387

Total jobs 182,987 162,002 184,8202


Employment

diversity of revenue streams to fund capital projects and services. Based on the expenditure estimates and the contribution this expenditure makes to the economy, it is possible to estimate the number of jobs sustained by the construction of new dwellings. Employment multipliers developed by REMPLAN, estimate the average number of jobs sustained for every million dollars of expenditure.

Job creation numbers reflect the current structure of the economy and predicts the number of full time, part time and casual jobs created. Direct jobs are those created in the residential construction industry in either residential building construction (for building approvals) or heavy and civil engineering construction (additional infrastructure spend).

Indirect job creation occurs across the economy is different industries that are supported by new residential construction.

Industries supported by new residential construction include: • other construction,• manufacturing,• professional, • scientific and technical services, • transport, • postal, • warehousing,• retail, and • wholesale trade.

Table 3 reveals that up to 162,000 jobs were sustained in Victoria by the construction of new residential dwellings directly and indirectly across all sectors. This figure is expected to have grown to nearly 185,000 jobs in FY17/18.

Summary In FY17/18 it is expected that the construction of residential dwellings and the associated infrastructure requirements will have generated approximately $22.9 billion in economic activity in Victoria.This activity and contribution will support almost 185,000 full time, part time and casual jobs across the Victorian economy.


Methodology and Assumptions

In this section Data Sources and Glossary 43

Geographical Study Areas 44


Data Sources and Glossary

Abbreviations

ABS Australian Bureau of StatisticsEY Ernst & YoungLGA Local Government AreaUDIA Urban Development Institute of AustraliaVIF Victoria in FutureDSG Demand and Supply GapRDI Residential Development IndexDBA yield Estimated yield of dwellings to building approvals (used to forecast supply)Census Census of population and housingDTF Department of Treasury and Finance (Victoria)DELWP Department of Environment, Land, Water, and Planning (Victoria)

State Budget Budget Papers released by DTF

Data and Information Sources

In completing components of this report

we have utilised existing sources of data

including the following:

• Australian Bureau of Statistics

• Victoria In Future 2016

• DTF Budget Papers including forecasts

of population and employment

Study Areas and Usage of Data

For the building approvals analysis we have made the following assumptions:

1. Each geographical catchment has been referenced against defined LGA’s.

2. For the Melbourne geographical catchments (also shown on the following page’s map):

• Inner Ring // This term throughout the Report refers to Melbourne’s inner ring LGA’s

(<10km from CBD). LGA’s within inner ring Melbourne include; Melbourne, Port Phillip, Yarra,

Maribyrnong and Stonnington.

• Middle Ring // This term throughout the Report refers to Melbourne’s middle ring LGA’s (10-

20 kms from CBD). LGA’s analysed within middle ring Melbourne include; Moreland, Darebin,

Banyule, Boroondara, Glen Eira, Manningham, Whitehorse, Monash, Bayside, Kingston, Moonee

Valley, Brimbank and Hobsons Bay.

• Outer Ring // This term throughout the Report refers to Melbourne’s established outer ring

LGA’s (>20kms from CBD). LGA’s analysed within outer ring Melbourne include; Nillumbik,

Maroondah, Knox, Greater Dandenong and Frankston.

• Growth Areas // This term throughout the Report refers to the defined Melbourne growth

areas. LGA’s analysed within Melbourne growth areas include; Hume, Whittlesea, Mitchell, Casey,

Cardinia, Melton and Wyndham.

• Regional Victoria // This term throughout the Report refers to parts of Victoria excluding

metropolitan Melbourne.


MelbourneMaribyrnong

Brimbank

Wyndham

Melton

Hume

Whittlesea

Manningham

Moreland

Darebin

Banyule

BoroondaraWhitehorse

Monash

Kingston

Bayside

Moonee Valley

Stonnington

Port Phillip

Greater Dangenong

Frankston

MorningtonPeninsula

GreaterGeelong

MacedonRanges

Hobsons Bay

Yarra

Geographical Study Areas

Geographical study areas utilised in report

Inner Ring

Middle Ring

Outer Ring

Growth Area

Nilumbik

Maroondah

Knox

FrenchIsland

Casey

Cardinia

YarraRanges

Baw Bw

BassCoast


Demand and Supply Gap

Summary of Approach

As discussed in the previous iterations of the RDI, there are no regularly updated estimates of net dwelling supply released annually in Victoria. In addition, population forecasts and expected household formation (demand) should be assessed to confirm current trends on an ongoing basis. Estimates of a demand supply gap are made based on a series of assumptions. The following steps are undertaken in calculating a current and future DSG in Victoria:

Update to underlying demand:• Estimate household demand between 2016 and 2018 using demand drivers including population

growth and estimated household sizes.

Supply:• Calculate the historical growth in supply of dwellings using census data on actual supply of

dwellings including the supply of dwellings available for occupation.• Compare the historical supply of dwellings (including occupied and unoccupied dwellings) with

building approvals to allow for the calculation of an average ratio of supply to building approvals.• Utilise the historical DBA yield over the assessment period to forecast current and future levels of

supply based on current trends in building approvals.

Demand and Supply Gap:• Compare the estimated supply of dwellings (including dwellings available for occupation) with

forecasts of demand based on household formation.• The variation between Demand and Supply = the DSG (undersupply or oversupply).

Summary of methodology

• Calculate current and forecast household formation as a measure of demand

• Household formation driven by assumed population growth / changes to household sizes

• Utilise current building approvals as a measure of supply• Calculate supply estimate whereby supply = Building

Approvals * DBA yield for occupied and total dwellings

• Demand and supply gap calculated based on estimated variation for assessment period

Demand

Supply

Demand and supply gap

| Residential Development Index48VICTORIA

URBAN DEVELOPMENT INSTITUTE OF AUSTRALIA (VIC)

udiavic.com.au+61 3 9832 9600 [email protected]

Level 4, 437 St Kilda Road, Melbourne VIC 3004

Disclaimer: The material contained within this report has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice. Please refer to your advisors for specific advice.pocketrocketdesigns.com

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