Affordable housing crisis II

Following on from my previous post, there were some stories in the weekend papers about the housing affordability crisis – such as this one in The Courier Mail saying “housing affordability in southeast Queensland could be squeezed to crushing point“, and this in The Australian saying “Sydney and the boom states of Queensland and West Australia facing crippling house and land shortages that could make it impossible for many people to buy homes.”

Both stories are based on a study commissioned by the Residential Development Council, which is “the Property Council of Australia’s specialist industry forum for Australia’s leading residential developers.” By astonishing coincidence, this study commissioned by property developers says that the housing affordability problem is due to not enough land being released for development, along with the taxes placed on the sale of real estate, such as Stamp Duty. Even more amazingly, there is no mention (in the media coverage at least) of how tax breaks for investors might also have a part to play in driving up prices.

Some various quotes in this version of the story in the Gold Coast Bulletin confuse me a bit more. According to the newspaper coverage, the property developers’ report warns of a disastrous shortfall in available housing lots. A property analyst says “”We need to explore new areas of potential development. The canefields are a prime example.” Yet the President of the Real Estate Industry of Queensland (REIQ) says “the developers own vast tracts of land”, the problem being “they can’t develop until the infrastructure gets to the land”, which sounds more like their problem being the timing for the release of residential land (and perhaps who pays for the infrastructure), rather than being unable to slice up more agricultural or bush land for housing developments.

Of course, the laws of supply and demand operate as much in the real estate market as in any other market, but I think the real problem – in most areas at least – is not that there isn’t a big enough supply of houses available, but that the market is grossly distorted by tax concessions such as negative gearing and the big capital gains tax discount, which means people buying real estate for investment are pricing out people trying to buy a home. The high purchase prices also lead to higher payments for renters.

In the article in The Australian, the NSW Planning Minister Frank Sartor states that there is actually a surplus of lots available to developers, but there is weak demand. I don’t know the NSW housing market, so I’ll have to take him at his word, but I presume he would know the figures. Frank Sartor is hardly known as anti-development.

If the housing market and most housing policy wasn’t geared so much towards people trying to make money out of real estate through capital gains and instead was focused more on ensuring people could afford a home, then the supply and demand factors would not be so distorted. Mind you, so many people have now arranged their financial affairs around real estate, as well as borrowing large amounts on the equity of their house/s, that it would be very difficult to take out all the distortions like negative gearing without causing a lot upheaval and hardship.

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  1. As part of an outer-Sydneyite family which has just spent a week trying to find a house to rent in Brisbane with the intention of buying in 6-12 months, I can say it was one of the most demoralising experiences I’ve had for a long time. There isn’t much hope when you are told you are just one of ten to twenty applicants for a house.

    Apart from the shortage of rental houses (most of the houses we were shown at up to $450 a week were absolute dumps – I am sure one or two should have been condemned as uninhabitable), the rudeness of real estate agents was appalling – we were made to feel as though we were some kind of parasites, certainly there was no attempt at treating us like ‘paying customers’. I shudder to think about how people who have a lower income are treated and the difficulties they must experience

    We fell in love with Brisbane and truly wanted to make it our home but can’t see how this is possible now.

  2. The talk is always about “the price of a house.” This covers up the facts of house pricing. Builders are advertising homes for $4000 to $6000 per sq. That means a house of 20 squares costs between $80,000 and $120,000 to build. What costs the other $150.000 to $300,000 (and more,more,more)is the land. Land of course has no cost of production. Its value is a community created value determined by location, size and services available. Which is what you pay for when you buy land. But why do we pay this to a “private” owner? This is a community value and should be paid to the community, preferably in the form of rent. Certainly such a system would reduce the gigantic cost of land. There is certainly no shortage of land – only restrictions placed by politicians and “price” demanded by “owners.”

  3. The only solution is a long-term, slow and well signalled reduction in distortions to the housing market, allowing over a period of ten to fifteen years investors to move their money to somewhere more productive.

    There will still be a profitable rental market, it would just reflect reality rather than some artificial bubble.

  4. Reality always gets in the road of what is ideal,but,maybe it is the lack of insights that are the problemThis place I live in is a dump falling apart,the owner and and I know agreement.If the owners are honest and its still a dump,they know that,they just need the money.First sentence again.With developers and builders they are subject to competition,including from builders who will work next to homebuilders,as owner builders.The role of private ownership of land is certainly detrimental,but,they may have sympathy…to turn this into something that works is another matter.Could developers invest in owner builders rather than all that happens now1?Are builders happy no one finds it easy to buy their work? Is it greed driving everyone,or just taking advantage of market conditions,whilst others maybe doing it to them.Why isnt it possible for stamp duty to be paid in increments,and some swapped for voluntary work,i.e.,join the emergency services,hospital volunteers, library assistant..or trade in being volunteers for enterprise,and have them pay government,and other creditors.Apprentices doing real work from day one.Schools and students adopting a dump and renovating,free,as learning,local sponsorship,rentors,volunteer exchange time..see if owners need volunteers or set up stuff for renters.Trade off increasing house value for attempts to lower rents to community approved renters,who are also community minded.What the real estate agents can do is liase with owners and ask them about perhaps variation on rent if owners and renters can agree,it may not be a complete swap it could be,both renters and owners have friends and associates who could help each in other out.With computers today little seems to be done like this..It doesnt require a marriage it only requires the co ordination of common sense.Not exclusion.

  5. There could be a solution in placing a real differentiation in treatment of people buying a house for their own use and people buying a house for investment –

  6. It drives me crazily how eagerly mainstream media of every colour quotes real estate sources whenever they talking about renting and housing affordability.

    Down here in Sydney, we are getting spruiked regularly in all papers and mainstream news that “rents are going to rise 20%”, but surprise surprise there is very little evidence that rises will ne anywhere near that much.

    It’s just bizarre, we wouldn’t look to a nuclear power plant for quotes on why Australia has to go nuclear, and yet there is no hesitation on turning to industry sources about renting.

    Not surprisingly, this same source has difficulty talking about housing affordability, beyond recommending even more ways to maximise profit and the expense of the small primary industries that operate in Great Sydney, and supply something like 80% of Asian vegetables for the city. Sigh.

  7. Put an end to this liberalist structure. Time will come due to the increasing pool of homeless people. What with employment going overseas, local jobs going to imports and costs always going up as wages goes down. Who will win in the end? The communists, or fascists?

  8. I am quite sure that a couple of real estate agents in the suburb I live in have purposely inflated the cost of housing. The real estate agent that I eventually bought my house through was not noticably cheaper and they didn’t state themselves as an interested party on the contract as the other agents did.

  9. it has taken aprox 190 years for a dwelling to go from a govt grant to apox 80 thousand dollars .
    it has taken less than 10 years for the same dwelling to go from 80k to 450k.
    because of greed .
    anyone who thinks that the building and real estate wont go into meltdown soon is only fooling themselves.

  10. So Red whats the problem with that meltdown – the sooner the better and the whole thing will correct itslef.

  11. Housing has been cheaper in Brisbane than in the southern and western states for a very long time.

    When the additional demand forces housing prices up, the problem will be at least partially self-rectifying.

    In recent years, we’ve kept hearing that housing prices and interest rates are unaffordable. Here is at least part of the reality.

    A lot of young people spend huge sums of money on overseas trips and don’t marry until they’re in their thirties.

    Then they want to whinge and complain about interest rates, which are actually relatively low compared with the 17-1/2 percent we were paying in the mid-1980s – also expecting the federal government to pay their child care costs.

    Among the less well-educated, there are young people who’ve been working piecemeal casual jobs because of the high rates of unemployment – with no job security – and, of course, no housing affordability.

    I think property developers hang on to undeveloped land until they can command a very high price for it – i.e. if there are massive land releases at any given time, the land prices will be lower.

    There are certainly plenty of greedy investors in the marketplace. If we look in our own local areas, we can see this for ourselves.

    As for Peter Beattie’s idea that we may not remove any trees from our properties, I have these questions:

    Is he going to pay for the damage to housing foundations, paving, driveways, pipes and rooves???

    Will the Councils and insurance companies be chasing him for the costs???


    You raise some excellent points.

    BTW, did you know that there are in excess of 100,000 homeless people currently living on the streets of Paris?

  12. The month of Sundays Party,The A.L.P. has now discovered essential workers in Sydney,nurses,police etc.,just are finding it all to difficult to find housing.Makes me wonder if they really want to win elections.Most working people,and those of us who are offended by the ALP have already seen the sunken ship of housing disappear..who are they kidding just firing a cannon at the Feds.It is so safe to criticise on this basis now,that Police and others have conditions deemable as unsafe..because of personal problems,and not necessarily the occupations.Showing there hopelessness again, The Bloody Hopeless ALP. The swine that wears the pearls.

  13. Tax breaks for investors aren’t the issue. If they WERE the issue we would have an over-supply of rental properties, not the shortage that is currently in existence.

    The true issue is the First Home Buyers Grant. Economists all would know that as soon as you create an incentive to enter a market, it creates pricing bubbles.

    The first few buyers got a great deal but as thousands and thousands of FHBs were moving into the market for the first time, the market leapt astronomically. The amount of people getting loans and pushing money into the economy jumped, causing inflation to rise.

    The rise in inflation causes the Reserve Bank to push up interest rates.

    Now, who’s to blame for the rising interest rates…?

    And, why hasn’t anyone in opposition been pushing this line? It’s economics.

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