I have never particularly liked the whole left-right political divide; possibly because I never felt I fit in it. As a gladiator cum slave, I just did not know where I fit. It seemed to me a dated oversimplification of multiple issues and multiple values.
The whole construct dates back to a simpler yet more complex time when, during the French Revolution, those who sat to the right of the King in the National Assembly were his supporters and those who sat on the left of the King were the revolutionaries or “innovators”. History will remind us what happened, to whom, by whom and how.
The world and political thinking has evolved since the 1780s. Nowadays, it is generally considered that the left are those who believe it is the role of the state to solve community and national problems whereas the right believes that it is the role of the state to create the conditions for civil society and citizens to solve community and national problems. Central management vs local management. Standardised programs vs customised programs. Big government vs small government.
Most political parties generally sit in the middle with governments forming on the margin to the left or right of centre. And before readers jump in on the current centre left and further left structure currently in Australia, I reiterate the generally descriptor.
At the core of left side thinking seems a belief in the ability of (wo)man to control things that probably can’t be controlled. And attempted control is effected by a belief in the superiority of central knowledge held by technocrats and experts. It is also a belief in the superior morality of those same technocrats and experts. It is a belief that centralisation and operation by these learned experts and technocrats can solve all societal ills and lead us all to utopia. It is the same thinking that brought us famines caused by Soviet and Chinese central planning, the wars and deaths from eugenics and the South Australian economy.
By its very nature, the management of society by experts and technocrats requires political and economic control, which is why it always leads to larger government, despotism and totalitarianism. Reference the USSR, North Korea and Venezuela, countries which have generous natural resources, yet their citizens starve(d). And every single time when the plans and policies of the central committees fail and cause mayhem, the philosophical apologists always claim that the plans and policies were not implemented correctly or purely enough, and the only way things can work is through further centralisation, further confiscation and even great government expansion.
This leads to the housing affordability discussion that keeps humming along.
Every market intervention that has been implemented intended to address this so called issue has made things worse, yet more interventions are proposed. Every proposal is foolproof, yet it is usually the case that the only fool is the proponent.
Earlier this week, in attempting to prove that prior performance is sometimes a predictor of future performance, the NSW Labor opposition stepped onto the stage pledging that:
Every residential development built on state-owned land under a NSW Labor government will have 25 per cent of its dwellings designated affordable housing.
For privately-owned land rezoned for development, 15 per cent of homes would be designated affordable housing.
There you go. That will fix it. No soup for you. NEXT!
Let just go through some of the detail.
With regard to the 25% affordable housing on government owned land, that program has an existing name. It’s called public housing. More interesting is that the NSW opposition leader is proposing that the government go into the property development business to rent/sell the remaining 75% of housing built on government land at market rates. Good one Luke. Any other capital intensive, high risk businesses you propose the NSW Government get into?
With regard to the 15% affordable housing on newly rezoned private land, well, where to begin. A property develop generally looks for a total return across a project not property by property. Therefore, if the developer is forced to under price 15% of properties, then the other 85% of properties will have to increase in price to generate the whole of project return necessary to cover costs, risks and return on capital. Classic government – we have to reduce prices to increase prices.
Further, because the 15% that is deemed to be “affordable”, that means that there will be excess demand consistent with pricing something below market. This will then require rationing, which in turn means that politicians and bureacrats (bigger government anyone?) gets to decide who gets access to this “affordable housing” and on what terms. Lovely conditions for corruption and misallocation.
The thing about the housing bubble is that the true culprit has not been named – and it is not the foreign buyer or the investor. The true culprit is the Reserve Bank of Australia which has lowered interest rates too much for too long. Run your own DCF and see what happens to the NPV when the discount rate is reduced.
If Government really wanted to deal with housing affordability, they should use their influence to increase interest rates. The Secretary of the Treasury is a member of the RBA board. Just ask him to move a motion at the next meeting.
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