In a conversation with Phil Rowland, CBRE Pacific’s Chief Executive Officer, Property Council of Australia Chief Executive Zorbas provided his insights into the property sector’s most pressing issues as well as current and future trends across the residential and commercial sectors and the journey to net zero.
Below is an excerpt of that interview, which you can listen to in full here.
PR:
Well, look, there’s plenty of ground for us to cover today, Mike, but I did want to start with the broader picture. You know, you’ve come into your role during a fairly tumultuous period in the world economy, and of course for the property industry in Australia, which does actually present some very real headaches. You know, revitalising our CBDs, adapting to the way people work, and of course, adjusting to this higher interest rate environment that we’re finding ourselves in. Not to mention what you just referenced there, housing shortages and of course maintaining capital flows into Australia. And of course, it’s easy to highlight all the challenges and of course easy to get into a bit of a slump if you believe everything that you read. But I did want to get your perspective. What’s your world view if you will. When you think about the future and you think about what we have to navigate, how well positioned do you think Australia is?
MZ:
Very well positioned, very positive on Australia in the medium and long term as I think history would show us we should be. We’ve got huge people capability here in the country and great leadership across industry. There are skills gaps, which we can talk about a little later and we need to address those. But in the scheme of the world, one of the reasons that Australia has always done so well and weathered many storms, I think more ably than others, and it’s quite possible there is a storm coming, but it hopefully will be relatively brief and less impactful for us is because, you know, we do have great talent here and we do have incredible natural resources and we work well to activate those in unison.
PR:
So I think something really important, what I would sort of term comparative advantages of Australia when we think about how we play on the world stage, you know, you referenced obviously natural resources and talent. Are there any sort of comparative advantages, particularly as we think about a period that we’ve been through and going through that stand out for you in Australia?
MZ:
Well, we’ve got very strong institutions here and we’ve got very transparent methodologies of welcoming in foreign investment. And in fact, it’s been the history of Australia for 70 years. And one of the reasons we’ve come out of global recessions better than others and in a more advantageous position than many other global economies is because we’ve had a great deal of reliance on super easy to invest in systems, you know, be they REITs or other vehicles in this country, we’re a known quantity, a stable democracy. And you know, generally speaking, over time we haven’t changed our rules too quickly or made ourselves repellent to overseas investment. That is the challenge, by the way, as we enter a potential downturn here, is how do we keep that welcome mat out? How do we make sure that investors of this country feel like they can pin their ears back and with confidence, go, ‘This is the set of rules that I’m investing within and these are the returns that I can expect’. Because that’s the way to get our cities built faster, is to really take advantage of that 70 years of very positive foreign capital that has built those big capital and regional cities.
PR:
Yes, well I think that’s imperative, Mike. You know, when we think about future, there is a natural advantage to Australia on the world stage. I mean, the capital flows that you talk about are going to be critical for us to achieve what we want to achieve in the future. And combining that with the talent flow that you referenced earlier through migration, but they’re both going to be really important, I suppose, channels for us to be able to capture what we need to capture. Mike, one of the last times that we caught up was at the Property Leaders Summit in Canberra. And of course the topic that dominated the conversation was housing. And rightfully so. We have an acute shortage. We’ve got a vacancy rate that is now the lowest on record – sub-one percent. If we look at apartment demand, the loan is 570,000 over the next three years in our main cities with supply only running at about 55,000 a year.
Right. So, we’ve got a challenge. And of course this has obvious knock-on effects into our society and of course this is exasperating our inflation challenge. First and foremost, the question I wanted to ask you on housing is, it’s clearly not a one dimensional challenge, right? We can’t think about housing as being one type. We need different types across the whole housing continuum. We need it in many different places. Can you elaborate a little bit more on the needs? You know, as you were consulting with industry and with government, what types of housing does Australia need? Where is it needed most and when does it need to be delivered?
MZ:
Fantastic question and a broad one. I think for me, if I look at the fundamental stats, and you framed it very nicely, we’re about 1.3 million homes behind where we need to be taking some of the research that was done recently by an ex-RBA economist. And that gap is set to grow across the spectrum. And the Federal Government in particular has taken a strong line on addressing that gap, I think with affordable and social housing. But there is something like 280 or 290 billion worth of social housing and key worker housing, if you like, needed over the next 20 years. And that is a phenomenal number next to a Federal Budget of about 600 to 700 billion dollars in a hot year. So bridging that gap requires all of industry and all of government. It requires state and territory actors in particular to set themselves very strong housing targets that are quite public and that they are accountable for.
And that’s what’s been missing over the past 20 years in the buildup of those deficits on housing supply. You rightly identify apartment supply in particular, which is really where you’ve seen that unhealthy 1% vacancy, healthy vacancy in the apartment market is about 3%. That’s where we need to get back to. You won’t get back there unless we’ve got far faster planning regimes and you’ve got far more encouragement. And there are a couple of ways you can do that, but we won’t bore our listeners with that. They know what they are in terms of encouraging investment into renting stock, and that’s about not changing taxes, negative gearing, CGT settings. And that’s also about not rent capping, right? Because what do we need right now when all this supply is so low, we need the maximum number of people coming into these private supply pipelines and injecting their hard-earned cash in so that we can drive down the overall cost of renting and buying by increasing supply. And it’s as fundamental and as basic as that.