The housing market is not effectively closed to most young women and men by accident. House prices keep growing not so much by excess demand but because of the rewards we give investor buyers, the advantages in place for those already in the market and the tax and other advantages of owning a house, whether for one’s own family or as an investment. First home buyers will always be at the back of the queue while others have such advantages and they don’t.
Sooner or later, everyone seems to agree, there must be some reckoning between the steadily increasing price of land, which is making older people richer, and the ever-increasing gap between what young men and women, and young families, can afford to pay to get into the housing market. The doomsayers expect that if, or when the “tipping point” is reached, or “the crunch” comes, the result will be very unpleasant for many Australians, and perhaps for the commodity by which they have most estimated their wealth.
If it was as inevitable an outcome as conventional wisdom has suggested, it is surprising that the apocalypse has not yet occurred. The disparity between land and housing costs began to rise steadily four decades ago, after about four decades of land prices only a fraction of what they are, in real terms, today. Economists and social scientists began pointing to the problems being created, particularly by the rationing of land: families were finding it more and more difficult even to raise a deposit, let alone to persuade a lending institution that they could comfortably service a mortgage. The cost of getting into the housing market relative to average wages and salaries has more than doubled in real terms, even as job security has declined, as wages and salaries have flatlined, and the available land and housing is ever further and further from central business districts, easy commutes, and jobs.
Older people are parents and grandparents too and worry about how the next generations are ever going to get into the housing market. The inexorable increases in housing prices, well beyond inflation rates, are not necessarily their fault, and many people in older generations have been transferring some of their additional wealth to their descendants to help with deposits or the appearance of built-up savings. But it is hardly any surprise that higher house prices are very popular with those who find their equity increased, and that there is very little in the way of a political dividend for politicians, planners or bureaucrats who combine either to hold down house and land prices or even to encourage significant falls in land prices. Even those desperate to get into the market may quail at some interventions, given that it would suggest that their new investment is somehow less secure than it was.
Rising house prices are very popular with those who find their equity increased. There are few dividends for holding down house and land prices,
It has long been conventional middle-class wisdom in Australia that land is a very secure investment, one in which prices will rarely if ever fall. That is, of course, not so, and, sooner or later, those who speculate too much on this account are doomed for big losses, particularly if they do not progressively increase their equity. Yet in Australia, far more than in most other nations, there is an element of a social contract about holding up most housing prices, particularly at the middle and bottom, much as there are de jure or de facto bank deposit guarantees for the middle class. Government is committed to maintaining the “value” of city and suburban land for the benefit of the middle class. It pulls the levers to keep prices high, and to encourage demand if there is ever any risk of its declining. Those levers involve tax breaks for owning a house, for investing in more houses (through reverse gearing and such other schemes), and supposed subsidies for new house buyers (which inevitably drive up prices, mostly to the disadvantage of new home buyers themselves.
But the chief means by which government is propping up the housing market is by restricting the amount of land that is put on the market. When, as usual, government owns the land, and is at least a co-developer of it, it has a real conflict of interest in pretending that it is trying to help young Australians get into the housing market. It wants to maximise its take, and its profits, the more so when land, or house and land sales, go on to the bottom line of annual revenue. Restricting the amount of land available – and in many cases restricting the types of land that is available – drives up prices and profits – flooding the market with serviced land raises the risk of actual falls in the price of land. More measured releases, based on reasonable calculations of likely demand, will tend to keep prices down.
It is not only government that is benefiting, whether in Canberra or elsewhere around the nation, from artificial restrictions on the volume of land releases. Increasingly, government is co-developing with private sector partners, and, often using statutory agencies to play both sides of the market at once. (Whenever this happens, as integrity bodies around the nation have been noticing, one continually sees the same players in the market – at the one moment acting as agents of government land agencies, next as consultants about value and demand for the private sector, then next as developers in their own right, while putting on fresh hats as the occasion suggests. Some claim “success fees” from each other – invariably passed on to taxpayers; others are treated as having legitimate insider rights because they have proposed some obvious appropriation of public use to private wealth. In the very best jurisdictions, the whole merry-go-round is supervised by “independent” boards of land developers.
Withholding the supply of land to keep prices and profits up
Quite apart from the price premium caused by artificial restrictions on demand, the deformed development and marketing arrangements are transferring some of the increased land value to private developers – at a cost to new house and land buyers. It was once pretended – certainly in jurisdictions such as the ACT – that the housing development market was not about profiting from the sale of land, but from the sales of buildings on the land. This is no longer true, and no one pretends that it is. Indeed the ACT government fails to carry out its duties of preventing land-banking and property speculation by major developers – a process directly adding to costs.