Tag: housing affordability

Posted on

Dad’s Army fumbles housing affordability | Macrobusiness

By Leith van Onselen — Published with kind permission from Macrobusiness.

Broken Window

After his shoddy effort yesterday defending Australia’s giant superannuation rort, Dad’s Army’s Robert Gottliebsen (“Gotti”), has backed Treasurer Hockey’s proposal to allow young home buyers to raid their superannuation accounts to purchase their first home:

Joe Hockey’s idea to allow first home buyers to use their superannuation to break into the housing market is not stupid…

Most young people in Australia are finding it impossible to gain a first home… we are watching a fundamental shift in the Australian landscape with huge implications for the intergenerational problem…

[Last weekend]…I found myself in the company of a typical first home buyer in today’s market… They can just manage a house or larger apartment but they are saddled with a huge mortgage…

So why would we not say to that couple: “you can invest up to $50,000 of your superannuation in your first home…

A whole generation of Australians could retire without a house because they are unable to get into the market…

A question, Gotti: What do you think the extra demand from first home buyers (FHBs) accessing their super would do to house prices? That’s right, it would raise them, making the scheme self-defeating, much like FHB grants did.

Meanwhile, young people’s retirement nest eggs would be put at risk, potentially increasing their reliance on the Aged Pension (increasing the burden on future taxpayers).

Thankfully, Business Spectator’s young gun, Callam Pickering, understands these issues, penning the following rebuke today:

Australia’s approach to housing is full of misguided policies and dumb ideas…

Australian housing policy can best be viewed as a remarkably successful anti-Robin Hood scheme. We take from the poor (usually those under 40) and give it to the wealthy (often but not always ‘baby boomers’).

Over the years we have introduced all sorts of dodgy schemes to continue this rort…

Allowing younger Australians to use their superannuation for a housing deposit would have a similar effect to the FHOG… It certainly did nothing to boost home ownership…

Exactly. How about policy address the root causes of unaffordable housing – tax lurks, supply constraints, loose capital rules, and over-investment by super funds – rather than applying a band aid solution that will impoverish young people further and fill the coffers of Gotti’s rent-class?

Colin’s Comment: In 1850 Frédéric Bastiat wrote an essay Ce qu’on voit et ce qu’on ne voit pas (That Which Is Seen and That Which Is Unseen) which describes the common mistake of politicians, economists and the general public when devising or assessing economic policy. They focus on the immediate, visible benefit and fail to consider the unseen, hidden costs.

Here is a simple video by Sam Selikoff that explains Bastiat’s Broken Window fallacy:

Posted on

Australia’s housing affordability crisis

This private submission by Michael Dromgool to Australia’s Housing Affordability Inquiry identifies supply restrictions as the key cause of the current housing affordability crisis:

Traditionally the flexible forces of demand and supply in the property market self-managed the development of land for housing. Development occurred in locations where and when demand was sufficient to warrant it, with a process that was responsive to demand.

…Now fast-forward to the present day. The government has shut off the supply of land on the city fringe to limit the city to its present size, abolishing a free market system in favour of a centrally-directed scheme that severely distorts the property market…..Smart growth is a deliberate policy to make land more expensive, to increase the city’s population density and force more people into apartments, not the detached houses that most people actually prefer to live in….

Economists and politicians in Australia confidently attribute the decline in housing affordability to strong demand driven by economic and population growth, conveniently neglecting the supply side of the equation…..

Many cities in the United States, such as Atlanta, still use responsive planning. In 1981 more people lived in Melbourne than Atlanta and in both cities the median house cost less than three years of median income in that city to purchase. Over 30 years demand from economic and population growth in Atlanta was stronger than Melbourne, it grew much faster and Atlanta’s population was nearly 50% greater than Melbourne’s by 2011 and the median house price there was $129,400, 2.3 times the median income of $55,800. Yet in Melbourne the median house price reached $565,000, nine times the median income of $63,100. The government tries to convince us that houses are expensive due to high demand, yet they are actually cheaper in a city where demand is substantially stronger. The state government of Georgia drew no arbitrary boundary around the city of Atlanta and consequently it expanded outwards onto greenfield land. In Australian cities, homes are expensive because the land is expensive.

Posted on

Australia: Sydney is reaching a liveability crisis

Professor Percy Allan kindly sent me a copy a report, to which he contributed, on living conditions in Sydney — prepared by the Urban Taskforce. Here are some interesting excerpts:

Over the next 20 years Sydney will need at least 600,000 new homes located in infill sites and in greenfield sites on the fringes of the metropolitan area. But Sydney has not built sufficient homes over recent years with its current production only half that of Victoria on a per capita basis. Already the average house cost in Sydney is one of the highest in the world and this is impacting on affordability for many families. The Sydney median house is $100,000 more expensive than the equivalent in Melbourne. The average weekly earnings of a first homebuyer can afford a mortgage of $331,000 while the average house price in Sydney is $563,300. The lack of housing supply has led to an increase in rents by 40% over the last 5 years…….

Conclusion

Local government has aggravated Sydney’s housing crisis by:
• Not rezoning sufficient land for affordable multiple dwellings,
• Not adopting clear consistent plans and regulations to guide permissible development,
• Not ensuring individual development assessments are independent of political and vested interests,
• Not spending enough on capital works thereby creating a large backlog of unsatisfactory community infrastructure,
• Using depreciation provisions and reserves for non-capital purposes,
• Under-borrowing for infrastructure enhancements thereby forcing new homebuyers to contribute disproportionately towards this end,
• Not sharing the cost of greenfield infrastructure with existing communities that inherited free public assets from previous generations, and
• Not sharing or outsourcing activities that would benefit from economies of scale and scope nor focusing on specific place management to better respond to community needs at a street level.

Posted on

Australia: Negative gearing and its impact on the housing market | RP Data Research Blog

Cameron Kusher extends the following argument in favor of negative gearing:

Many in favour of removing negative gearing from property say that it should occur due to the fact that housing is an unproductive asset class. My argument is that given that housing provides shelter, if investors don’t purchase these assets, it would then be the responsibility of the Government to provide this shelter. Ultimately, that would mean that anyone that pays taxes would be funding housing for those who can’t afford it themselves.

What happened to individuals being responsible for their own housing? A large part of rental demand is due to poor housing affordability. If we made housing more affordable, the rental market would shrink.

Kusher highlights that in September 1985 the government quarantined negative gearing interest expenses on new transactions.

The reason why negative gearing was reinstated in September 1987 was that it was proclaimed that rents rose sharply on the back of a fall in housing market investment.

The following chart shows that rental growth accelerated between September 1985 and September 1987:
Rental Growth

But no explanation is given for the earlier peak in rental growth rates — 13% in 1982 — prior to restrictions on negative gearing.

And what is not mentioned is that interest rates were rising. Standard variable bank mortgage rates peaked at 15.5% in 1986/1987. That would account for any decline in new housing investment, even though this is not evident from investor finance commitments.

via Negative gearing and its impact on the housing market | RP Data Research Blog.

Posted on

Australia: Housing affordability still poor

Interesting article by Leith van Onselen on Australian housing affordability.

Today it takes “380 weeks on the average wage (just over seven year’s income) to buy a typical house. This is down from around 430 weeks average wages (just over eight year’s income) required to buy a home in 2008 and 2010.”

Good news. But compare that to less than 250 weeks in 1995 — and less than 200 weeks in 1987.

In 1960, it took homebuyers just 7500 hours [188 weeks on the average wage] to pay off the average mortgage.

via Housing affordability improves but still poor | | MacroBusiness.

Posted on

Abundance of land, shortage of housing | Institute of Economic Affairs

Kristian Niemietz looks at how housing costs in the UK have exploded in recent decades. Real-terms house prices in 2011 were more than two-and-a-half-times higher than in 1975, with rent levels following suit. In the USA, Germany and Switzerland, real-terms house prices are still close to their 1975 levels.

· Housing affordability measures show housing to be unaffordable in every single one of the 33 regions in the UK.

· The main difference between the UK and its north-western European neighbours is not in demographics, but in completion rates of new dwellings.

· Empirical evidence from around the world shows that planning restrictions are the key determinant of housing costs.

via Abundance of land, shortage of housing | Institute of Economic Affairs.

Powered by WordPress / WordPress Maintenance By WPSmart