PurposeThe purpose of this paper is to identify changes in bank lending criteria due to the global financial crisis (GFC) and to explore the associated impacts on new housing supply in Queensland, Australia.Design/methodology/approachThis research involves a survey of each of Australia's big four banks, as well as two prominent arrangers of development finance. Data on key lending criteria were collected: pre GFC, during the GFC, and GFC recovery stage.FindingsThe GFC has resulted in a retraction of funds available for residential development. The few institutions lending are filtering out only the best credit risks by way of constrictive loan covenants including: low loan to value ratios, high cash equity requirements, regional “no go” zones, and demonstrated borrower track record. The ability of developers to proceed with new housing developments is being constrained by their inability to obtain sufficient finance.Research limitations/implicationsThis research uses survey data, together with an understanding of the project finance process to extrapolate impacts on the residential development industry across Queensland. No regional or sub‐market analysis is included. Future research will include subsequent surveys to track any loosening of credit policies over time and sub‐market sector analysis.Practical implicationsThe inability to obtain project finance is identified as a key constraint to new housing supply. This research will inform policy makers and provide important quantitative evidence of the importance of availability of development finance in the housing supply chain.Originality/valueThere is very little academic research on development funding. This research is unique in linking bank lending criteria to new housing supply and demonstrating the impact on the development industry.
| CRICOS Provider 00111D | swinburne.edu.au 'De-risking development of medium density housing to improve housing affordability and boost supply' by Andrea Sharam, Lyndall Bryant, Tom Alves De-risking development of medium density housing to improve housing affordability and boost supply
Purpose – The purpose of this paper is to identify the financial barriers to the supply of affordable apartments in Australia and examine whether demand aggregation and “deliberative development” (self-build) can form a new affordable housing “structure of provision”. Design/methodology/approach – Market design, an offshoot of game theory, is used to analyse the existing apartment development model, with “deliberative development” proposed as an innovative alternative. Semi-structured interviews with residential development financiers are used to evaluate whether deliberative development could obtain the requisite development finance. Findings – This investigation into the financial barriers of a deliberative development model suggests that, while there are hurdles, these can be addressed if key risks in the exchange process can be mitigated. Hence, affordability can be enhanced by “deliberative development” replacing the existing speculative development model. Research limitations/implications – Market design is a new innovative theoretical approach to understand the supply of housing, offering practical solutions to affordable apartment supply in Australia. Originality/value – This research identifies financial barriers to the supply of affordable apartments; introduces theoretical understandings gained from market design as an innovative solution; and provides evidence that a new structure of building provision based on “deliberative development” could become a key means of achieving more affordable and better designed apartments.
In market economies the built environment is largely the product of private sector property development. Property development is a high-risk entrepreneurial activity executing expensive projects with long gestation periods in an uncertain environment and into an uncertain future. Risk lies at the core of development: the developer manages the multiple risks of development and it is the capital injection and financing that is placed at risk. From the developer's perspective the search for development capital is a quest: to access more finance, over a longer term, with fewer conditions and at lower rates. From the supply angle, capital of various sources-banks, insurance companies, superannuation funds, accumulated firm profits, retail investors and private equity-is always seeking above market returns for limited risk. Property development presents one potentially lucrative, but risky, investment opportunity. Competition for returns on capital produces a continual dynamic evolution of methods for funding property developments. And thus the relationship between capital and development and the outcomes for the built environment are in a restless continual evolution. Little is documented about the ways development is financed in Australia and even less of the consequences for cities. Using publicly available data sources and examples of different development financing from Australian practice, this paper argues that different methods of financing development have different outcomes and consequences for the built environment. This paper also presents an agenda for further research into these themes. Purpose This paper argues that different methods of financing development have different outcomes and consequences for the built environment. Development finance is not an indifferent agent in shaping cities: this paper proposes that in different stages of the economic cycle, the availability of finance (or lack thereof) can determine which types and scale of developments can proceed and which do not. Our purpose is not to deliver a comprehensive account of the different sources and forms of finance available in Australia and how those different forms and sources have shaped Australian cities: that formidable empirical undertaking is beyond the scope of one paper. As we indicate, this is not documented in the literature. Moreover, the situation is a dynamic one changing over time. Such a study is needed for a better understanding of the forces which shape Australian cities. Our argument is made by a small number of illustrations of different development financing from Australian practice. We utilise a variety of publicly available data sources (often plagued by inconsistent or incorrect use of financial terminology); scholarly literature where available; and our experience of and liaison with the development and finance industries including 15 years experience in these industries and over 15 years of guest lectures from the development finance sub-sector. The paper begins with a brief overview of development and of finance...
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