Infill vs Greenfield Developments

“They aren’t making any more of it!”

 

Greenfield sites are undeveloped, typically on the outskirts of the metropolitan area and are being rezoned to serve the growing demand for housing.

‘Urban sprawl’ refers to the growth and enlargement of the boundaries of the metropolitan area.

With a rapidly growing population, the demand for housing is also increasing. So more and more rural and semi-rural areas are being rezoned and developed into housing estates. The type of product on offer is typically house and land packages, and the target market is principally families.

The term ‘urban sprawl’ is often applied as a criticism. While housing is a basic need and the provision of building blocks a priority, it can be counterproductive if the quantity or quality of existing infrastructure makes it impossible to live the life that the residents seek. There must be adequate roads, transport options, schools, childminding facilities, shopping centres, and recreational amenities, to make it desirable and functional.

Land development is a costly exercise and is a contributor to the inelastic nature of land supply that inhibits the market mechanism. There are significant structural impediments that mean the price of land rarely goes down!

The boundaries of the Sydney metropolitan area have changed enormously over the years and will unquestionably do so again in the next decade and beyond.

Source: City of Cities – A Plan for Sydney’s Future, Department of Planning, 2005.

What the map tells us is that what was considered the ‘outskirts’ twenty years ago or less, is now well within the boundaries.

Choosing to invest in a greenfield site will typically mean constructing a house and land package.

Depending on the investor’s age and time frames (the gift of time) an outer metro location that provides space at a lower cost may be a strategic approach.

House and land in greenfield developments have numerous benefits:

Land content – land is at a premium and tends to only appreciate over time. In some states and locations, the land content will be the most substantial portion of the cost of the package. This a function of population-driven demand factors but also because development is an expensive exercise courtesy of infrastructure requirements ( roads, water sewerage, electricity connections) and the co-contributions and levies applied by local government bodies.

Master-planned estates– most developments are part of a master-planned estate that include the provision of amenities such as schools, childcare, open space, shops and transport hubs. Covenants protect the value of each owner’s property by stipulating design features that maintain the overall aesthetic of the estate.

Stamp duty is levied only on the land content, providing a saving on initial purchase costs.

Appeal to a family demographic- families tend to be stable and reliable long term tenants. Once their children are in schools and sporting clubs and have friends in the area, parents are less likely to move, and this cuts down on vacancy rates and new lease/renewal fees.

Freehold or Torrens Title – the titleholder owns the property to the exclusion of all others. You can make changes to the property as you want (subject to local government authority approval) without consulting or seeking permission from a body corporate.

There are no body corporate fees or by-laws – as above, maintenance of the property is the responsibility of the owner. There are no rules to abide by apart from those imposed generally on the community by government zoning restrictions.

 

Greenfield development is a response to the increased demand for housing by building out whereas infill sites, build up.

An infill development uses obsolete, under-utilised or undeveloped parcels of land in established, urban areas. It may involve renovating, expanding or re-purposing an existing building, knocking down an old house or two and building medium density or high rise properties. Typically the build type will be townhouses or apartments.

It means building up instead of out!

The advantages of infill development include:

More efficient use of available land –  As a medium or high-density measure, it provides more housing in areas of larger population and demand.

Efficient use of infrastructure – as the infrastructure is already in place (roads, schools, hospitals, etc.) more people use them, cutting down the per-person cost.

Gives residents proximity to the things that matter to them, including jobs and reduced travel time and expenses.

Less maintenance, the body corporate is responsible for external maintenance of the property and its amenities.

Preservation of open space, environmentally advantageous, reduces our environmental ‘footprint.’

Strong appeal to young professionals who value proximity over space and increasingly, to empty-nesters looking to downsize.

 

A note about gentrification:

Primarily, gentrification is the changing character of a neighbourhood through the influx of wealthier residents and businesses into once lower-income areas. Typically an inner-city phenomenon, it is characterised by changes in demographic metrics such as rising income, educational achievement, falling median ages, increasing population density and a preponderance of white-collar workers.

Research by the University of Queensland’s urban planning faculty states that contrary to long-held urban geography theories, the most intense urban renewal is happening in the three eastern seaboard states between 5-15kms of the CBD. In other words, the changes are rippling outwards.

Sydney, Melbourne and Brisbane all have suburbs in ‘middle ring’ areas that are rapidly gentrifying, and the map below shows the effect in Brisbane as an example:

 

Source: Gentrification no longer an ‘inner-city phenomenon’ in Aussie cities uq.edu.au/news 16 July 2020

 

Opportunity Cost

The real or opportunity cost 

 

is the 

 

alternative forgone.

 

As anyone knows we can’t have it all, there are trade-offs with any choice we make.

The real or opportunity cost of any choice is the value of the alternative forgone.

It’s true on a societal level and a personal one. We face limitations, both with our time and money.

Budget constraints force us to make choices about how we spend the limited income we have at our disposal. After we have paid taxes, we allocate our income and either spend it or save it.

If we can save, we can then choose what to do with the savings, but

 

an individual’s evaluation

of the allocation of their funds is

subjective and

will depend on their 

ATTITUDES

 

 

 

Do you remember when your parent used to say “because I said so!”? You knew there was more to the story, but you knew they just didn’t have the time or energy or will to explain why!

Take the now-defunct carbon tax as an example. Observing the debate it seemed to me that politicians typically lack sufficient skills to convince any kid they need to eat their greens, let alone the voting public that it needs to pay more for the things they buy!

Pollution is a negative externality; an undesirable by-product of another productive activity and is an example of market failure. It’s widely understood that the factors of production involved in producing an item determine its cost. What most people are not conscious of is the hidden costs, those that aren’t obvious, the costs that we all bear whether we buy the product or not. The most obvious example being pollution.

Price is a rationing device and the only way to make consumers bear the actual cost of a product, and perhaps change their consumption patterns, is to internalize or price the hidden costs, in other words, make them pay for it.

For those who have teenage children, how many times have you caught yourself saying things like, “wait till you’re paying the bills, then you’ll switch off the lights”!

True?

That’s because they don’t yet bear the cost, their usage of your electricity is not priced; it’s not internalized.

But at the same time, I do feel sorry for policymakers because there are no easy answers. Opportunity cost, the alternative foregone is never more apparent than when looking at the competing claims on the budget. Every budget decision means that some other wish has to be crossed off the list or at best trimmed back. There is also the unintended trade-offs that come with policy decisions.

Ever been to a dinner party or BBQ where someone pronounces with the enormous certainty that ignorance allows, “the government should just….”?

Similarly, those that claim housing affordability will be magically fixed by changing the tax rules around negative gearing don’t seem to have any inkling (or alternative suggestions for that matter) about how the public sector would provide all that rental accommodation in the absence of investor activity. They have even less appreciation of the private vs public efficiency trade-off or the likely effect on rent of an investor exodus from the housing market. One politician recently responded to the suggestion by saying “oh, it’s complicated”. Really?! They should be able to do better than that! They could:

Explain that tax breaks for investors encourage the supply of housing in an already constrained market more cost-effectively than the public sector could ever do and that it encourages a rapidly aging population to invest for the future and reduce the burden on the future public purse.

Explain that housing starts are a leading indicator of economic activity and therefore, jobs and the multiplier effect of house construction is huge. Building new properties has a ripple effect on consumption that is hard to replicate.

Explain that the new driver of growth and therefore jobs are population growth and the houses and infrastructure and services they will demand, all 32,000,000 of us by 2033. That’s less than 13 years from now! Incentivizing the simple ‘changing of hands’ in the property investment market may be a lot less socially beneficial than encouraging new construction.

But then things are never that simple….