Affordable housing crisis IV

There has been another flurry of stories this week about the continuing deterioration in housing affordability. Ron Silberberg from the Housing Industry Association said “this is a national crisis that requires a national response if a whole generation is not to be shut out of home ownership.” I’ve been calling for this repeatedly for years, as have many others from across the spectrum who work in the housing area.

My hometown newspaper, the Courier-Mail, has another story today about the problem. It quotes the Residential Development Council executive director Ross Elliott warning that virtually an entire generation will be unable to access home ownership. “Unless they get an inheritance or win lotto, Generation Y are basically going to be a rental generation.”

Our political system seems to be sleepwalking into a situation where the structural flaws in our housing markets are so deep that we will have an entrenched and very wide wealth divide which will become almost impossible to bridge.

There are various efforts being made to address aspects of the problem at the local government level in some areas, such as this recent proposal from Brisbane City Council, one and the Queensland Deputy Premier has just flagged some actions which might address bits of the problem.

This is not just a problem for the capital cities of course. Indeed, in some regional areas it is even worse. This story from last year says that just eight per cent of the housing stock in the northern Queensland city Mackay can be purchased by average income earners.
However, until we get a comprehensive national strategy which deals with the full range of options, and a federal government willing to take some responsibility for driving it, I doubt we’ll achieve much more than some relief at the edges while the problem deteriorates further. It’s possible the looming election may prompt the major parties to finally give the issue some serious attention, although it may also be that the looming election makes them want to keep it quietly in the too hard basket for that little bit longer. Given that this problem has been obvious and become ever more serious for at least the last five years, we may well be waiting a while yet.

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6 Comments

  1. I cannot stand the Silberberg of this world, his association always have to be the warners of the dangers of this or that to the housing problem.And they create as many problems as they solve,but someone else will pay for that.Sure the march of being concerned and sustainable a-marches in the same breathe,but organizations like his are part of the treadmill of the so-called economic cycle.Don Chipp simple belief in keeping the housing industry going was fine as ideal,but there is a shortage of mansions for the top end of incomes,all doing well from the new human and world sensitivities.Again the Mule Howard as PM has spruiked how well we are doing as a nation,but the obvious test is bods in buildings.The Immaculate Conception of we were all born yesterday about housing finance government and services really means there are multiple keys the inhabitor of buildings have to use to open a door.The knob comes with the inspection by snob about job and what percentage of a two-bob as currency and time it will take before the local mobs turn you into a gormless gob.Meaning… the already established want the new inhabitors to live in perpetual fear of their power,influence money prestige fame wealth and debt.This failing of a generation excludes all other generations,but ,mind your own business and claim one for the sake of your own service.You are a dunce if you are unemployed and as every bricklayer will tell you, its hard work, stupid, get your degree first!?Then there are green slips,paper,crisis in skills and the usual blah,blah,blah the perfume of human concern is underwhelming.

  2. Major tax reform is needed in order to deflate Australia’s real estate bubble. Measures such as negative gearing and capital gains tax concessions should be abolished immediately. The Productivity Commission and RBA have both warned that such measures are distorting the property market, but the major parties refuse to touch the issue.

    Just in case the tax system isn’t inflating the real estate market enough, high immigration is further pumping demand. A number of economists have asserted that high immigration and the propensity of new arrivals to cluster in the capital cities is exacerbating the nation’s housing affordability problem. But once again, the major parties are silent.

  3. Dear Senator Bartlett,

    Please do not support anything that will require those of us who did not purchase a house for more than it is worth during the bubble to repay the debts of those who did.

    Please have the courage to stand up to the housing industry and suggest people simply not buy until the prices become rational.

    regards,

    Daniel

  4. I think there is a somewhat general consensus that all levels of government as well as the RB played a part in allowing property prices to spiral out of control.

    Ultimately, the problem is not one of purely supply side or demand side issues, but a combination of both. What we are currently experiencing at both federal and state level is petty blame games and “passing the buck”, when we need real solutions.

    So how do we begin to solve the problem. Firstly, we need to move away from the assumption that there is no real problem, and it’s simply the gen Y and their consumerist binge that is stopping them from affording a house. Affordability is at it’s lowest point in history in all capital cities across the country.

    At a federal level, negative gearing needs to be reviewed. Although it’s value has been somewhat diminished over recent years with the lowering of tax rates for middle and high income earners, it has provided a means of inequality in the housing market.

    The first solution is to abolish negative gearing and CGT concessions on “existing” residential homes. This would be non-retrospective, so current investors are not affected. We need to provide preferential treatment for investment in supply increasing “new”property. Possibly abolish CGT etc. You can see how this has a stimulus effect on the supply side, while providing a decreasing stimulus on the demand side for existing homes. So why decrease demand on existing stock? Quite simply, because investment in existing homes is a zero sum game(and I would argue a negative sum game)…You are just simply shifting money around, to the older generation(seller) , from the younger(buyer), who has to pay the money back, with interest. No money was created..(just transferred), but the banks, government and real estate agents are more than happy to take their cut of the higher prices.

    You can see the real estate agents at work with the current rental squeeze. This is not occurring because there is a shortage of investors in the market, but that there are a large proportion of people who would have purchased a home in the last 5-6 years who now are forced to rent. The investor who owns that home and is renting it to the same person who could own it themselves if prices were not so high.

    Of course, at the federal level there are the further issues of high levels of immigration to stop a wages and inflation blowout; how to decrease the financial burden of an ageing population that do have a net effect on housing.

    At the state and local level, the supply constraints, red tape and high development levies all add to the issue, and need to be addressed. The scope of the issue is to large to be addressed here.

    This is still a minority issue because it generally only affects younger people. However, there’s not doubt that if prices continue to rise beyond the reach of the average Australian, there will be a collective voice.

  5. I believe this problem is potentially one of the most devastating facing Australia. Whilst we may be enjoying low wage inflation at present, we are suffering from extremely high asset inflation, the effects of which can be just as detrimental.

    I agree with Daniel (11-6-07 8:49am) that the most effective course of action would be for people to stop borrowing excessive amounts of money to buy homes that they cannot afford. If enough people stop buying, prices will inevitably return to rational levels (i.e. the long-term historical trend of 2-4 times average wages, rather than the present 6-8 times). I also agree that, when the bubble eventually bursts, the taxpayer should not be required to bail out those who voluntarily placed themselves in excessive amounts of debt. Personally I don’t much like renting, but I know it would be completely irrational to place myself in crippling debt by buying a home at today’s severely over-inflated prices… so I wait.

    I agree with Peter J (13-6-07 9:38am) that we definitely must abolish negative gearing on existing homes, as it serves no useful purpose re housing supply.

    My attitude to negative gearing on new homes is much more equivocal but, on balance, I think there may be some merit in retaining it, to encourage investment in new housing stock.

    I also believe that negative gearing laws, if retained at all, should be limited to offsetting losses against gains from the same asset class only. i.e. Losses from residential property investment should only be allowed to be offset against income from residential property investment (e.g. not against salary).

    Lastly, I’m unconvinced that Australia has a serious housing supply problem. I have seen much anecdotal evidence of housing being held vacant for long periods by investor-owners (e.g. my own sibling) who are willing to hold out for higher returns than the market is currently willing to pay. End result is that someone stays homeless while a perfectly good home remains vacant.

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