Remember when we used to point the finger at immigrants for causing spiralling property prices, but then we shut the borders for over a year and prices still rose 16 per cent nationally – the fastest rise in at least a quarter of a century? Yeah, me too.
Truth is, untangling precisely which factor has driven escalating Australian home values is hard to do. But if you take a step back, I think we can all agree: demand has outstripped supply. Only, nobody is stepping back. And nobody, it seems, can even agree on this one iron-clad law of supply and demand.
From my observations, combatants in the housing affordability debate usually fall broadly into one of two camps. On the supply side, they predominantly blame restrictive planning laws, regulations and excessive developer charges. On the demand side, they emphasise the role of tax breaks in encouraging speculative investment in property and ultra-low interest rates for facilitating higher borrowing.
And while no side can seem to see it – let alone admit it – their ideologies are showing.
On the supply side – and we must count the property industry, some economists and Coalition MP Jason Falinski, who has set up a new inquiry into housing supply – there is a foundational belief in the wonder of free markets and a general suspicion of government interventions. If only, they say, participants were liberated from harmful rules and regulations, the market could unleash enough supply to match demand, curbing price rises.
On the demand side – into which I lump most housing academics and social and community housing advocates – there appears a common belief in the power of government to step in and change the size and shape of demand for housing, by changing tax rules and (sometimes) curbing immigration.
Having watched this debate unfold for almost two decades, I fall into the “porque no los dos?” camp. Why not both? And so do many economists, although they each have their individual leanings.
In economics, price inflation can occur as a result of either “cost push” or “demand pull” forces. Cost-push factors can include increased developer charges, for example, while demand-pull forces could include things like more generous tax settings. What ultimately determines price is the “elasticity” with which both sides of the equation can respond.
Unfortunately, when it comes to housing prices, we’re in a double bind in this regard. Not only is supply relatively inelastic (it takes some time to build new stock), so is demand (everyone needs a place to live).
Of course, for policymakers looking to stabilise prices, neither side of the equation is completely inelastic. We can make it easier to build properties and we can influence the amount of money people want to throw at housing.
We can do both. We just aren’t – at least not currently.
The good news is the first step to fixing a problem is to admit you have it. And increasingly, this is something both sides do agree on.
In a paper titled Housing: Taming the Elephant in the Economy, released last month, six housing academics who largely fall into the “demand” camp highlight the alarming statistic that property ownership rates for Australians aged under 35 have halved since 1995. “A system that raises housing costs for all Australians, that raises instability and lowers productivity, does not serve the nation well,” they say.
Their paper contains a list of high-level demands, including a royal commission into housing, the restoration of a cabinet-rank housing minister, a permanent housing committee to sit within the national cabinet, a Commonwealth national housing strategy, a beefed-up national housing agency, a redirection of stimulus money towards social housing, and an expansion of the Reserve Bank’s mandate to include “maintaining a more price stable and well-functioning housing market”.
I’d support all of those, including the royal commission. But Falinski baulks at the idea, telling me: “The last thing Australia needs is another royal commission.”
But, again, he also vehemently agrees more action is needed. “I think the problem’s now become so acute that it has to be fixed. There is now a core group of people who are saying, ‘Look, we can’t just ignore the facts any longer.’ ”
Which seems like progress, only the facts – as ever – are far from settled, with Falinski insisting: “Everyone focuses on negative gearing and capital gains tax, but the 800-pound gorilla in the room is supply.”
OK, says one of the demand-side academics, Hal Pawson, from the City Futures Research Centre. Maybe it’s not a royal commission, after all, but a high-level Treasury review, of the ilk of the Ken Henry tax review. “It needs to be reviewed by a body with some independence from government,” Pawson says.
So, I texted Henry to see if he’s up for it. He replied: “Jess. Sure. I’d chair such a review. The question is whether we have a government with the courage to commission it. Ken.”
Call it an elephant, or call it a gorilla, what’s crystal-clear is that Australia’s growing housing affordability crisis is wreaking havoc on the quality of life of all Australians and it needs to be stopped.
Article Source: www.brisbanetimes.com.au
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