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/)
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Bob’s contribution to the Australian community has been reflected in a wide range of appointments including National President of the Housing Industry Association, Co-Founder and Inaugural President of Independent Contractors of Australia, Director of The Centre for Independent Studies, and Senator for South Australia.
Thanks for the shout-out Bob!
Heritage overlay that restricts building up in urban centres doesn’t help either.
State Governments and local councils understand that by keeping land prices high they can continue to fund expensive infrastructure programs that keep voters happy. The moment of Dan Andrews’ fiscal undoing actually came in 2018/19 when house prices took a dive after the banking royal commission and stamp duty revenue suddenly fell below forecast when a massive state election had been won off the back of big infrastructure promises.
Yes, follow the money (see my reply to Kenelm’s question).
Bob, do you think State Governments know the hardship they cause in this regard? If not, shocking. If yes, speculate for us about what reasons would they have to restrict supply so tightly?
I once asked a former cabinet minister why the government didn’t release more land to keep up with demand for housing. He replied, “We needed the money”. It is also well-documented how politicians themselves hop onto the property-owning bandwagon with numerous ‘investment properties’ of their own. Keen to maintain their wealth, they support urban planning laws which keep their investment property values high.
High land prices mean high taxes and high rates. There is absolutely no incentive for government at any level to reduce the price of land. It is a huge part of thier tax base.
Abolishing or severly reducing the tax and compliance cost of land development and increasing the amount available would slash house and land prices. It would also slash government revenue and no government wants to reduce spending or the size of the burgeoning public service. look what the voters did to Campbell Newman….
That may be true Mark, but we cannot continue to deny the rising generation a home of their own merely to satisfy the ideological fantasies of urban planners and the financial concerns of State Treasury officials. One of the more pernicious aspects of high land prices ie high mortgages, is the forced misallocation of capital and family income into mortgage payments instead of higher standards of living, assets, goods, travel, children’s education, appliances or even foregone income to spend more time at home.
In creating the conditions for home ownership to become the privilege of the few rather the rightful expectation of the many, governments have produced intergenerational inequity and breached the moral contract between generations. In human affairs this imprecise, and at times neglected, moral contract between generations dictates that we should leave things better than we found them. When it comes to home ownership, however, this contract has been breached. In making home ownership that much harder for the next generation we have denied them more than a home, we have denied them the security and benefits that go with home ownership and the opportunity to build wealth that will provide them with options in later life.
Bob, what astounds me also, is that land prices in some regional areas are not that far behind some urban centres.
In Wagga Wagga, NSW, newly-developed small acreage lots are priced anywhere from $400-700,000. Yet, an hour out of Brisbane in some small towns, it is available for around $300,000.
The philosophy of moving to the regions because land was so much more affordable as well as the fact you would have little to no travel time, is clearly out the door.