Global housing consultancy, Demographia, has confirmed what Australians always knew. Our house prices are extremely high and there is no relief in sight.
In 2016, out of 406 world cities surveyed for housing prices in relation to incomes, Australia is the leader with four cities the top 11 and 8 of the top 20 most highly priced housing markets.
Sydney comes second (after Hong Kong) where it takes 12.2 times the median household income to buy the median priced house. Sydney’s median priced house now costs north of a million dollars. Melbourne, where the median house costs 9.5 times the median income, comes eleventh.
Adelaide and Brisbane are not that much more affordable.
We have a very low cost house building industry and the land developers are also highly competitive.
A fully finished new house (three bedrooms, two garages) costs as little as $150,000. Preparation of the land with sewerage, local roads, water and other utilities costs around $70,000 per block. The land itself is mainly used for agriculture and is intrinsically worth maybe $2,000 a block. Yet that new house in western Sydney costs upward of $700,000.
We don’t have the excuse for our high prices that Hong Kong has with its land shortage – even Sydney hemmed in by national parks has enough land on the outskirts in the county of Cumberland alone to allow an 50 per cent increase the housing stock. Nor do we have the same population growth pressures on supply of cities like Houston, Dallas and Atlanta. Not only do those cities have faster growing populations than Australian cities but their house prices relative to incomes are a quarter to a third of Sydney’s.
The data also contradicts the notion that it is Chinese investors boosting prices. If that were the case the policy response would be to free up the land but in any case the foreign investment is inner city, not the outer suburbs.
Some expenses that turn a western Sydney house/land package costing $250,000 into a house that sells at $700,000 are due to taxes. But these are mainly attempts by the government to grab some of the price inflation resulting from the shortage of new blocks that their policies create.
Our high cost housing position is earned in the regulatory department. In this we are the world champions. The Victorian planning authority has identified over 600 separate approval decisions for a new house in Melbourne. And that excludes the all-important strangulation of the first stage planning permission, the “release” of land to allow it to be built upon.
The new NSW Premier, Ms Berejiklian, has said the most effective way of tackling housing affordability is to increase supply. But that does not mean relief is on the way. Every Minister after Bob Carr (whose Malthusian no-child policy led to a massive shrinkage of new house building) has said the same thing – including the present Victorian Opposition leader Matthew Guy, when he was the Minister in charge.
The fact is that governments have agreed to an ever-growing set of regulations covering everything from phony endangered species to requirements for set-asides for child care, community centres and so on. These compound the shortage of land created by refusals to allow development outside of some designated growth corridors, which means rationing of land available for housing. That rationing’s end product is housing that is increasingly out of the budget reach of younger buyers.
Ministers who seek to increase housing supply are doubtless well meaning. But they inherit a set of laws and a bureaucracy wedded to these and to imposing their own preferred housing development pattern onto the community as a whole. Until this is tackled root and branch we will not see affordable housing in Australian cities.