Following a price rise this year in housing of some 5 per cent, there is plenty of uninformed comment in the media about interest rates, housing bubbles and the need for the care in further lowering interest rates. We even have ACOSS writing in the SMH about the need for subsidies to be on new and not used housing.
It makes sense to be wary of further interest rate cuts but not because housing is becoming overheated. Prices of new houses in Australia are at least one quarter above their market rate because government planning restraints prevent the vast acreage of land that is involved in farming around major metropolises from being converted to housing blocks. As with everything else, a shortage means prices rise but with housing land rationed the antidote of new supply infusions is missing.
These restraints on land availability are justified on several bases. Among them is that we need the land for farming etc and that we are running out of open space – issues of no relevance anywhere especially in Australia where far less than one per cent, even in Victoria, is urbanised. We also see elitist ideological passions for imposing preferred inner city lifestyles on the lumpenproletariat even if this means very high housing costs. Sometimes this is associated with furphies that claim the costs of sprawl are paid by the community when there are no such costs on the collective.
Then there is the self-interest horse. Existing home owners do not want to see places built nearby that have not had to incur the regulatory induced scarcity tax. And land developers, who have outlayed major sums and lobbied furiously for approval to build, do not want to see their businesses undermined by a flood of new blocks.
Of course there are other dimensions of importance. These include a sub-optimal home building industry and higher costs generally that reduce the competitiveness of cities with restraints (and account for the relative success of Texas and the south in attracting US population and jobs compared with California and the north east)
Politicians usually rail against red tape causing all this delay in expanding housing land availability but once in office they realise that removing the red tape means losers as well as winners. The former are far more concentrated, while the latter are blissfully unaware that the reason they cannot afford a house is because of the alliance of agitators and property developers acting through the government.
And so, in Victoria, the Liberal Government has permitted only about half as much land to “released” from other activities for home building as its socialist predecessor. Subdued economic conditions made hardly a dent in the cost of an approved building block.
Here is my piece on the issue from the Herald Sun today.