So, there’s yet another inquiry into housing affordability underway. This latest is called “The House of Representatives Standing Committee on Tax and Revenue inquiry into housing affordability and supply in Australia.” Chaired by NSW Liberal MP Mr Jason Falinski, it’s getting a few headlines with statements like ‘half the cost of new house and land packages consist of state and local government charges.’
That’s broadly
about right and as a result this latest inquiry is garnering attention in some
quarters. The debate will flare up again, as will many of the ill-conceived and
doomed-to-fail proposals to address the problem of Australia’s worsening
affordability. Academics, planners, bureaucrats, think tanks and industry
groups will all pile on – and nothing will change.
There
is nothing new in any of this. Indeed, to reflect on how long we’ve known about
the problems and done nothing about it, is downright depressing. I was once actively
involved with the debate and wrote a detailed report for the Property Council back
in 2007 called “Boulevard of Broken Dreams.” I’ve still got a copy on my
website here. In it I wrote:
“Australia is now ranked amongst the least affordable nations in the world
when it comes to home ownership. While much media and political attention is
focused on the role of housing interest rates, these do not explain the very
high costs of housing in Australia. The root cause of worsening housing
affordability lies squarely at the feet of various public policy settings,
identified in this discussion paper. If these policy settings continue on their
present path, there is no question that housing costs will continue to spiral
beyond reach of many Australians. As this happens, dependency on rental housing
will increase. Future generations of Australians will not be able to afford a
home of their own, and will increasingly be consigned to rental housing - and
rising rental costs. Home ownership will be in the hands of an increasingly
elite group of Australians: those wealthy enough to afford a home and those who
bought into the housing market before the affordability crisis reached a
tipping point. Housing standards will fall - due to price constraints - and new
homes will be built on smaller and smaller lots, with cheaper and cheaper
materials to stem the tide of ever increasing government and regulatory costs.
The signs of a deepening crisis are now evident, and industry groups are united
in voicing their concerns that present policy settings will only lead to a
worsening problem. Failure to act now will leave future generations of young
Australians a dismal legacy of housing stress - in a country which by any other
assessment should boast the highest standards of home ownership and
affordability.”
Despite Boulevard capturing a
wealth of media, industry and political attention at the time – even being
debated in Federal Parliament in the lead up to the November 2007 election
which saw Kevin Rudd elected as PM – things have gotten progressively worse in
the 15 years since. The three remedies called for back then were: to improve
development assessment processes, timing, certainty and costs; to ensure
adequate supplies of developable land to meet demand; and to fund infrastructure
not through up-front per lot levies which impact new housing most, but through infrastructure
debt and development bonds. Instead, development assessment processes have
become even more mired in asinine regulation, process and uncertainty; land
supply has become more constrained in the major centres where the most growth
is occurring; and infrastructure levies, costs and charges have escalated even further
in the hands of state and local governments, and now also utility companies.
Exacerbating things since 2007 have
been record levels of population growth through record high levels of immigration,
leading to little or no growth in real wages – a situation which some industry
groups are suggesting we should quickly return to after two years of Covid
slowed population growth to near zero and saw real wages grow for the first time
in many years.
The long term picture of housing affordability
since the 1970s has been spectacularly demonstrated in a series of animated
graphs in this
analysis. Thanks to Demographia author Wendell Cox for giving me the heads
up. It’s really very good and highly recommended analysis by a contributor who
goes anonymously by the name “Datamentary”. Great work Datamentary.
The bottom line of all this is that
affordability is now much worse for those trying to enter the market. For those
already in the market of course, no problem. Rising prices are good news. The
divide between wealthy haves and have nots widens with every price increase.
So where does this take us in, say,
another ten or 15 years? Will the penny drop that regulations and taxes are
making things worse, not better? Will we dial back our rate of population
growth and accept the need for working- and middle-class wages to show real
growth? I doubt it. If we haven’t learned by now, we aren’t about to. So, in
all likelihood, those with their feet already in the market will prosper on the
back of rising prices. Price growth will continue as demand outpaces supply,
and as supply is both constrained and then taxed by policies we created and
which we ought to have the wisdom and selflessness to change.
The growing equity of the housing “haves”
will allow them to purchase more second or even third properties – beating off
aspiring new home buyers at every turn. Renting will normalise for a greater
proportion of our population. “Build to rent” as an asset class will grow and
institutionalise the concentration of housing ownership in increasingly fewer
hands.
In time, the widening of the wealth
divide will reach a point where something will have to give. My bet is we will
see inheritance taxes (death duties) on the public agenda in a bid to
redistribute the concentrated wealth of property ownership. Negative gearing may
likewise be up for radical change.
This time it won’t just be proposed by
the usual cabal of leftist groups but will find much support amongst an
increasingly large proportion of our society with little prospect of getting
ahead either through wages growth or by participating in the property market. A
wide and growing disparity in wealth and the concentration of wealth in fewer
hands is – history tells us - usually fertile ground for radical, revolutionary
change. The non-owning class may so outnumber the property-owning class that
resistance could be overwhelmed.
I hope it doesn’t come to that. Inheritance
taxes are in my view morally wrong, especially in a society like Australia
which is supposed to embrace egalitarian values, and which until now hasn’t had
much of a class structure. But equally wrong on moral grounds is a society where
those benefitting from their vested interests cheer on rising housing prices at
every opportunity – ignoring the problems for younger families on working wages
- and one that fails to act on the underlying causes of the problem.
We reap as we sow.
