Housing Affordability: It’s Supply Stupid

Federal Treasurer Scott Morrison gave a speech on Monday this week to the Urban Development Institute commenting on the growing problem in Australia of housing affordability. This was a refreshing speech because it rightly pointed out what free market advocates have been stating for years with regards to the housing market. It’s not a demand side issue, it’s a supply side issue. Specifically it is the fact that the supply of housing in Australia mostly in the major cities of Sydney and Melbourne has been restricted ever since urban planning laws began to roll out across the country in the early 1990s.

Morrison stated in his speech the key policies currently driving up the cost of housing: “complex land planning and development regulation; insufficient land release; the planning, cost and availability of infrastructure provision; transaction and betterment taxes, public attitudes towards urban infill; and, for Sydney in particular, physical geographic constraints”. But he was aware that there could be not much done at a federal level so instead called on state governments to address these issues.

The Labor Opposition in their response chose to completely dismiss all of Morrison’s analysis. Bill Shorten decided to whip out the class war rhetoric with a bizarre tirade stating that ‘it isn’t right that when you stand on the balcony of a harbour side mansion, that you lecture Australians, just get-rich parents, getting a home deposit in Australia is a lot harder than it looks,’ which was not what Morrison was saying at all. Their housing spokesperson Jenny Macklin stated that government should adopt Labor’s policy of rolling back negative gearing and capital gains taxes concessions. The logic implicit in Labor’s policy is that there is no supply issue at all, it’s just that all of the housing is being bought up and hoarded by those evil rich people with all these tax concessions. This logic can easily be debunked by the fact that rents have risen by the same rate. The Greens policy also completely misses the issue, only promising Labor’s policies plus more money for homelessness and rent assistance.

The most sensible voice in federal politics on the key cause of Australia’s housing affordability crises is outgoing Family First Senator Bob Day who has spent his entire working life in the housing industry and has written extensively on it. In a book chapter titled ‘Do we want cheaper housing or nicer streets?’ Day not only identifies the cause being state government’s restriction on the supply of land but also the rationale behind it. It seemed from mainly a green ideological agenda against what they called urban sprawl which is building outside a city boundary and in favour of a policy of urban densification. It was argued this policy would be better for the environment, air would be clear due to less motor vehicle use and better protection of biodiversity and agriculture land. But the reality of such a restriction in the supply of land is that it has seen property prices sky rocket as state governments do not release land fast enough to keep up with demand. Day rightly calls for the removal of urban growth boundaries so that market forces can lead to home ownership once again becoming a realizable dream.

A policy of urban densification has also failed because not only have cities been restricted from growing outwards but restricted from growing upwards. New housing developments in the inner cities and suburbs are stifled by zoning laws and local government planning authorities. These restrictions are due to the lobby of NIMBYs (not in my backyard) who believe that just because they own a home in an area of development they are entitled to tell others what they can do with their own land. NIMBYs object to further development because they are worried either of their suburbs’ population growing, they are worried their property view might be blocked or the value of their property could be reduced. Sorry but simply because you are a property owner in a certain area does not mean you get to restrict what happens on property you don’t own; you are not entitled to a nice view of outside your property nor are you entitled to see the value of your home increase. These NIMBYs who are often people of the left would be better to think of the less fortunate in our society that they claim to care about who can’t afford to own a home and allow more houses to be developed so others can have the same privilege they have. Local councils are often dominated by left wing politicians so planning restrictions on these grounds are all too common. Australia has no natural shortage of land, we are the same size geographically as the United States yet have only 10% of their population yet we are in this crises.

It is great that a senior member of the federal government has diagnosed the cause of housing unaffordability in Australia. However, this was only a speech. Scott Morrison does not plan on taking any further action beyond raising the issue with the states at the next meeting with state minsters. Ministers Alan Tudge and Christian Porter have also made great speeches on welfare reform but have not proposed any legislate changes (or at least ones that can get through the Senate). Politicians can make great speeches but it is actions that count, the solution to the current housing crises in not a complex one. It only requires governments letting the free market house more people, more affordably and standing up to the vested interests of existing homeowners.

http://www.abc.net.au/news/2016-10-24/morrison-calls-for-removal-of-red-tape-to-improve-housing-supply/7958608

http://www.skynews.com.au/news/top-stories/2016/10/24/morrison-to-tackle–unaffordable–housing.html

http://www.theaustralian.com.au/national-affairs/alan-tudge-to-tighten-rules-on-welfare-benefits/news-story/ec88b8ee46abfec27a7fc6b9d296e892

http://greens.org.au/sites/greens.org.au/files/Aust%20Greens%20Policy%20Platform%202016.pdf

Turning Left or Right, Connor Court Publishing 2013