Victoria’s great white elephant stomps on housing

Just so stupid.

With state governments handing down budgets this week, it’s worth remembering that Victoria is completely stuffed.

And one of the most stupid things the government has done in recent times (and I could give you a list) is the Suburban Rail Loop (SRL).

The cost of the SRL is now racing towards $60bn, but who knows where it’s going to end up.

It’s a colossal waste of money.

According to the Victorian Parliamentary Budget Office (PBO), the first two phases of the SRL (60 km) will provide social benefits worth only $0.60 to $0.70 for every dollar spent.

Spend a dollar to make 60 cents. Smart.

An investigation by the Australian National Audit Office (ANAO), which is responsible for ensuring that all federal government funds are spent legally, also discovered that the business case used to request $11.5 billion in federal funding for the SRL’s first stage contained information gaps and used spurious methods to quantify the SRL’s benefits.

The ANAO found that the project’s first stage (SRL East) did “not present a reasonable investment”.

Yup. It’s all money that could have been better spent elsewhere. Like on building the new homes we desperately need.

Oh no, wait, apparently the SRL is a housing project. The biggest housing project in the country. And here I was thinking it was a train line.

“The Suburban Rail Loop is Australia’s largest housing project”, Victorian Treasurer Jaclyn Symes proclaimed.

“With Melbourne expected to reach the size of London by the 2050s, it will deliver 70,000 more homes on the doorstep of healthcare, education precincts and jobs”.

Gawd knows where she’s getting that 70,000 figure from. The 2021 business case said it would be 25,000 homes, but even that seemed like a fantasy.

Because the SRL is rapidly destroying the housing market.

And that’s because the value capture methodology the government is using involves taxing developers building along the train line to capture their ‘increased profits’.

That’s ok in theory, but how is it going to play out.

The Victorian government plans to raise $11.5 billion to fund the first stage of the SRL via “value capture” levies on the 70,000 apartments expected to be built along the corridor.

$11.5 billion divided by 70,000 equates to around $165,000 per unit. However, commercial properties and car parks would also be levied, suggesting the cost might be closer to $100,000 per apartment.

And that’s assuming that magical 70,000 number. If it’s only 25,000 then you have to triple it.

And the idea is that developers will pass these costs on, but they’re not selling into a market that will pay any cost for a unit.

The price a developer can get for new stock is completely constrained by the market.

And right now, there are thousands of projects across the country suffering from a viability gap – there’s a gap between what an apartment will sell for, and what it costs to build.

The numbers already don’t stack up.

Add another $100K to $300K to the purchase price through state taxes, and you don’t have a viability gap, you have a viability chasm.

So it just doesn’t add up.

It never has.

And the Victorian government is trying to dig its way out of a whole, with property taxes that are never going to be paid because the new homes will never be built.

What a mess.

JG.