Saturday, December 7, 2024

Faulty Towers

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Queen Anne House
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Full House?

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Housing Affordability

Home Policy Spotlight Housing Affordability

Talkin’ About My Generation (Part 2)

(For Part 1, click here)

At a recent Senate Estimates hearing, Greens Treasury Spokesman Senator Nick McKim asked outgoing RBA Governor Philip Lowe, “On the supply/demand issue, are you aware of the work of economist Cameron Murray stating, at current rate of sales, there are twelve years of vacant land in Australia already zoned as residential?”

This question goes to the very heart of the problem – a total lack of understanding of how markets (in this case, housing) work.

There may well be twelve years supply of vacant land at current prices – over $400,000 per allotment.

If that is the criteria, then why not double the price and there’ll be 24 years supply!

If, however, land prices were what they should be – $100,000 per allotment – and there is no reason they should not be that price, how many years supply would there be?

I suspect it would be all sold in twelve months, not twelve years.

Recent tokenistic rezoning and land releases by some state governments – to great media fanfare – will no more make land affordable than the discovery of a new diamond mine will make diamonds more affordable.

The land development industry of course welcomes the new lode because they know how to manipulate and drip-feed finished allotments (like diamonds) to the market, keeping prices sky high.

So why does this zoned residential land cost upwards of two million dollars a hectare, when adjacent, agricultural land costs less than a tenth of that?

Government zoning anomoly. Adjacent agricultural land is normally valued less than 10% residential land.

The reason is that whenever there is money to be made, opportunities to do business with governments present themselves – particularly in tightly controlled markets like land. Relationships between businesspeople and governments is as old as regulation itself.

What gives these relationships real potency is called the ‘Baptists and Bootleggers’ phenomenon.

The term ‘Baptists & Bootleggers’ was coined during the 1920s Prohibition era in America. Makers of illegal liquor – ‘Bootleggers’ – made donations to elected officials (and to the ‘Baptists’ campaign to have alcohol banned) in order to maintain the ban. That led to sky high prices for their product. Members of Congress justified prohibition by publicly supporting the moral cause of the Baptists.

These days we call those Bootleggers ‘rent-seekers’.

Over the past 100 years, rent-seekers have perfected their dark art of extracting money from taxpayers and consumers.

They are everywhere – energy, superannuation, higher education, land development, indigenous groups, public transport, manufacturing – you name it. They are a scourge. They tarnish the political process, distort the market and in the case of so-called ‘renewable energy’, distort the entire economy.

Renewable energy rent-seekers have leapt onto the climate change bandwagon and are raking in billions of dollars gaming the system, raising energy prices, impoverishing consumers, destroying jobs, and fleecing taxpayers.

Along with unions and superfunds, pharmaceuticals and health, universities and higher education, these Australian oligarchs have limitless amounts of money to both shore up their own positions and resist anyone who might try to challenge them.

Previously, entrepreneurs went to the marketplace to make their fortunes. Today the public purse is the mother lode.

When the NDIS was announced in 2012, it was forecast to cost $14bn a year. In April 2022, actuary firm Taylor Fry estimated that by 2030 the cost will blow out to $64bn a year– a $50bn a year increase.

How did this happen in such a short period of time? Simple – professionalised politics and sophisticated rent-seeking.

So, back to land development. MPs receive donations from rent-seeking property developers. MPs then publicly support urban planners who rail against the so-called evils of urban sprawl. That leads to restrictions on urban growth which force people into high density housing developments in the inner suburbs – a classic example of the Baptists and the Bootleggers phenomenon at work.

It is also well-known that MPs themselves hop onto the property-owning bandwagon with numerous ‘investment properties’ of their own. Keen to maintain their wealth, they publicly support urban planning laws.  Let’s call it ‘the monetisation of urban planning’.

The problem is, of course, that the younger generation of home buyers end up paying for all this. They are forced into overpriced apartments and prevented from achieving their primary ambition – a free-standing family home of their own.

Bootleggers have stolen both their wealth and their future.

For land to become affordable, the government should – as was the case with older suburbs – allow the development of basic serviced allotments – water, sewerage, electricity, stormwater, bitumen roads, street lighting and street signage. Additional services and amenities – lakes, entrance walls, palm trees, bike trails, etc – can be optional extras if the developer wishes to provide them and home buyers are willing to pay for them.

The government should also abolish up-front infrastructure charges and so-called ‘developer contributions’ imposed by local and state government departments. All infrastructure services should be paid for through the rates system – pay ‘as’ you use, not ‘before’ you use.

Talkin’ About My Generation (Part 1)

In his excellent Liberty Itch post Golden Years last week, Max Payne writes, “By the time today’s young people are finally ready (or allowed) to retire, they may find they face a double challenge. First, their superannuation funds might have been ransacked by previous generations; second, the availability of quality care may be limited due to the challenge of delivering high-standard care without a large tax-base – especially in times of slowing productivity.”

In their hit song My Generation, English rock band The Who – Pete Townshend on guitar, Roger Daltrey on vocals, John Entwistle on bass, and Keith Moon on drugs – err, I mean drums – sang, “…things they do look awful cold …. hope I die before I get old.”

It is reported that German economists are baffled by reports from Australia that rising house prices are deemed to be ‘good news’. In Germany, inflation in house prices – like inflation in energy prices or food prices – is considered to be just the opposite.

“How can it be good news?”, they ask, “when it takes two incomes to support a mortgage when previously young couples could buy a home and raise a family on one income? Or that homebuyers will pay many hundreds of thousands of dollars more in mortgage payments and government taxes and charges than would otherwise be the case?”

Why has housing become so expensive in Australia? Motor vehicles, whitegoods, kitchen appliances, widescreen TV sets, personal computers and mobile phones are consumed in abundance around the world, yet prices remain low. Why is a house, which like other manufactured goods is made from readily accessible components, so much more expensive than other consumer products?

No doubt demand stimulators like high immigration, low interest rates, capital gains concessions, negative gearing and first home buyer grants have increased demand for housing. However, increases in demand do not, of themselves, cause prices to rise. The exponential increases in demand for mobile phones, laptops and digital TVs did not lead to increases in their prices. In fact, the opposite occurred – prices fell – in some cases by more than half, due to increases in supply. The 1950s and ‘60s population explosion – the ‘baby boomer’ generation – likewise saw massive increases in demand for housing, yet house prices remained stable during that time because supply was able to keep up with demand.

So, what has gone wrong in recent years?

As most people know, over the past 20 years or so the actual cost of building a new house in Australia has roughly kept pace with inflation. Land prices, on the other hand, have skyrocketed.

By restricting the amount of land available on the urban fringe, state governments have sent the price of entry-level housing through the roof.

Land is the problem.

On the fringes of our cities there is more than an adequate supply of cheap, unzoned land.

Cheap land attracts not only home buyers but commercial interests as well, leading to more employment opportunities.

So why are houses and commercial developments not being built on this cheap land?

In short, manipulation of zoning laws.

(For Part 2, click https://libertyitch.com/2023/08/22/talkin-about-my-generation-part-2/)