Keeping housing affordability debate on track

There is certainly a very determined attempt being made around the globe by some of the more ideologically motivated commentators to create a mythology that the genesis of the financial crisis in the USA is somehow due to government measures promoting affordable housing for lower income earners (read: minority groups).

The Australian has carried another article trying to make this link, this time by the Director of the Adam Smith Institute in the UK.

This crisis was not caused by capitalism being fatally flawed. It was caused by politicians forcing the banks to give out bad loans, monetary authorities flooding the West with cheap credit and regulators being asleep at the wheel.  Indeed, one can date its origin precisely, to October 12, 1977, when US president Jimmy Carter signed the anti-redlining law. Before then, lenders generally denied loans to people in poor neighbourhoods, believing that the local mix of low incomes and a weak housing market would lead to many people defaulting. But the politicians – with good intent – wanted to make home ownership available to all Americans. So lenders were forced into giving out risky mortgages, what we call sub-prime loans.

The notion that lenders were forced to make sub-prime loans is simply not correct.  US based media monitoring website Media Matters has done a thorough debunking of those arguments. You can read the full thing here.

I mention this not because I’m in interested in how partisan US talking points spill over into the Australian media.  Rather, I am concerned that the long overdue debate we have finally started to have about how to sustainably address structural housing affordability problems in Australia does not get derailed by the same sort of shallow rhetoric.

Last Friday I attended a meeting in Canberra of housing organisations who have been working together on housing affordability issues for many years.  It is largely due to the work of these wide-ranging groups that the federal government pledged to develop a national affordable housing strategy and has already started to implement measures such as the National Rental Affordability Scheme (NRAS).

State and federal governments are meant to be on the cusp of signing off on a National Affordable Housing Agreement, with a CoAG meeting planned next month.  Whether it will all be ready by then is debatable, particularly given the current economic and budgetry uncertainty.  It won’t be the last word in housing affordability measures, but it will certainly set the framework for the next few years.

While we’re come a long way in a short time, given the previous federal government wouldn’t even put forward a comprehensive housing policy at all, the recent misguided expansion of the First Home Owners Grant (FHOG) under the guise of stimulating economic activity in the housing sector and maintaining artificially inflated housing prices makes me concerned that there still isn’t the political will to really tackle the structural underpinnings of the housing affordability problems in Australia.  The fact that many of the people who led the policy debate on the issue for so many years in Australia while there was zero political interest are not more closely involved in determining what happens now there is some policy action doesn’t fill me with confidence.  But as with any policy issue, people have to keep putting the arguments out there and looking for every opportunity – the current review of the tax system is one – to keep making their point.

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  1. It is quite simple really. I don’t understand why no one else has ever
    understood why housing is not easily affordable.

    Back around the late 1970s the Federal government forced the banks
    and other lenders to lend on both husband & wifes’ income rating.
    This was after pressure from the equal opportunity lobby.

    Now this looks fine of course at first glance, but no one thought to
    wonder why the banks were so reluctant. So it went ahead.

    The developers couldn’t believe what they saw coming.
    Lesson one of market behavior;
    If you put twice as much money into a market the price will rise to
    meet the amount of money available.

    Simple isn’t it ?
    Result, more elaborate houses, more expensive land, more women
    working longer, more women on IVF.
    Altogether a bad deal all round.

  2. A lot of people have made a very great effort to house themselves in spite of the “affordability” crisis, and in spite of the very high prices of Australian property. If now, you succeed in your bid to provide ” affordable” housing for people who hitherto have been unable to provide for themselves, or who have perhaps not made the required effort, what happens to the investment that the existing house or apartment owners have in their property?
    If say, house prices were to diminish by half, then most people paying off a mortgage would find themselves in negative equity. How would you propose to compensate them for their loss?

  3. The media is impotent when it comes to criticising the frst home buyers grant. Glad you are raising the issue Andrew. The grant simply fuels price rises because people realise they have more to spend. If people have less to spend, the market will adjust and prices will come down.

  4. It is estimated that housing in Australia as being five, some say 7, times overvalued!
    We for years have built with traditional early Australian houses, I remember the best and worst of those designs, the best had veranda, The sun was shaded from the house walls and they had a passage down the middle of the house, the doors both ends stood wide at night in summer. The roofs were high as was the ceiling.
    I’m asserting the elements of design for a hot day and frosty nights which are common.
    Perhaps costly cooling will at last overtake existing design, and return to criteria set years ago.

  5. here we go again
    in the 80s the market crashed and where did the ppl who had any money left invested, in property . well well well dosent the govt ever learn .look back and just see how much house prices have gone up since .

  6. I have never understood why people seek to make their first house a palace. In the 70s there was a rash of designs by AV Jennings, I think it was, which were designed to be gradually added onto in accord with the original design. The first configuration was one or possibly 2 bedroomed. A smaller loan was needed than that for a 4 bedroomer, with family room, “home theatre”, study etc etc.Then when the family had expanded in size or ambition, a fair bit of the original loan would have been paid off, and the next stage could be added, depending on the current needs. Now the market caters to those who must have everythign new and NOW. I know, I sound like an old codger – maybe because I am.

    We need a cultural shift in regard to credit cards, home loans and “no interest for 4 years” finance. I know the current school curriculum is overcrowded, but perhaps we need finance education as much as civics education, since irresponsible consumerism is more a threat to the nation than ignorance of Simpson and his donkey, the focus of a Howard-inspired blitz on the curriculum a few years ago.

  7. My confidence in banking and housing have been shattered by a number of matters outside my control,as years roll by and I see struggling parents and kids come and go.One thing about the American circumstances there is a sort of shiftiness that is the U.S.A. way of doing things.Even a young activist lawyer,same name as the Democrat hopeful, has been narrowed into to show a relationship between activism for low income people with a result that should of been expected,because of the impossibility of clients’ capacity to pay bills.With the Fannie May etc. being one of these defending institutions,the inference being obvious that,the Democrat hopeful was one of many that started a trend,by weaknesses in law ,subject to threatening lawful action. Nothing seems as simple to the reasoning,from afar and across time.That is,Obama may have been highly motivated and decisive then,but the Institutions carry more than one type of inflexibility as exchangers of money and values.His activism ,may have been frightening to the conservative nature of many citizens.Finding a weakness in the armory of institutions is what law maybe action supporting that.. is common.If actions or law use was incompatible with the spirit of the law,it would hardly be a fault of a young lawyer,but the critics of such,not motivated enough to stop him in his tracks.The same could readily apply to Australia,where an endless number of law reforms,haven’t made much difference to buying in.

  8. There is at least one poster here,who is making a claim about those who own houses,as having a higher right to houses maintaining their value.A market place view that suggest those with money deserve all the benefits because somehow Banks and other institutions have aligned the savings and income of such to be a more noteworthy harder working type.The self judgement is overwhelming.I see and know some hard working farmers who do physical work as well as the rest of it with not a great deal of education,but meeting the banks requirements,shocked by prices of houses.As someone that wants to build my own house,thus taking the evaluation into a different comparative reality,but seems more unlikely,I hope the person here I am refering to will see how limited his view is of reality is.I dont want to interfere with market values,I simply do not want them to dominate my life,that’s all.Say I am unreasonable,and I will say bluntly,I would like to ring your neck!?And then a step further into unreasonableness will be,and what sort of accent have you got!?And thanking Andrew for his tolerance,and maybe he should look after Number One firstly in this employment circumstance blowing in more rapidly by the hour.

  9. Increase of FHO Grant is bound to be inflationary.

    If the Aus economy falters and unemployment rockets, it may well end in tears for any new FHO when they find themselves in negative equity in 12 months. Then we will see some happy campers not.

    The decision to increase FHO was promoted by the recent (June 2008) SENATE report Housing Affordability:

    9.1 – increase the FHO Grant for new dwellings and lower it for buyers of existing dwellings (NB Senate recommended lower FHOG for existing homes)

    However, if none of the other recommendations of Senate report are taken on board, it will be business as usual: unaffordable housing + inflation + having wasted whatever extra was put up for the FHO Grant increase.

    Other points in the Senate report yet to be implemented include:

    4.1 – Treasury to publish estimates of taxation & related measures related to housing market
    4.2 – Tax System Review Panel consider implications for housing affordability and overall fairness of the tax system, eg
    a) tax discount for capital gains on investor housing.
    b) exemption from land taxation of owner-occupied housing.
    c) current negative gearing provisions.

  10. Found these two excerpts last week:
    1. 15Oct08 ABC News article – FHO Grant will not push house prices up
    2.16Oct08 A propertyinvesting website shows what one of our highly subsidized investors thinks about the increased FHO Grants:

    1. “Federal Housing Minister Jenny Macklin says changes to the first home buyers grant will not push up the cost of housing.

    The Federal Housing Minister, Jenny Macklin, says doubling the first home buyers grant will not push up the cost of housing.

    First home buyers will now receive $14,000 to buy an established home until the end of the financial year.” ($21,000 for new dwellings)

    2. Oink, Oink, it’s a mini-boom:

    “Prime Minister Rudd has just announced that the First Homebuyers Grant will increase to $21,000 for purchases of newly constructed property.

    Something of this magnitude is likely to cause a mini-boom in prices and will substantially fatten the pockets of savvy developers.

    If you want to be at the front of the queue of investors who can capitalise on this opportunity then make sure you are at my LAST Development MasterClass for 2008…. “

  11. Barry White:

    Yes, you seem to have hit the nail on the head.

    The more money there is, the more takers there are to grab it.

    In 1986, my husband and I switched from the Commonwealth Bank to Westpac because the former wouldn’t lend us any money based on the wife’s income.

    However, this changed fairly quickly when plenty of banking business disappeared elsewhere.


    Might I also add that a report on TV stated that the $14,000 First Homeowner’s Grant is also being made available to millionaires i.e. not income or assets tested.

    I’d also be interested in an answer relating to Kevin’s question on negative equity.

    Red Crab:

    I think what you say about investment in property is correct, but what is the alternative, if you want to avoid global financial engineers helping themselves to your nest egg at will?

    It seems to me that they wait until consumer confidence reaches a peak, before going in again for the kill.


    I think Queensland kids do receive some finance education in our high schools.

    The government needs to do something to stop the credit card/overlending agendas of financial institutions, and parents need to stop teaching their children to live on credit as well.

    I think a large percentage of Australians have very high expectations because they have had smaller families for close to 50 years, with many living on double incomes.

    There’s a constant competition between adults and between children, with many being far too spoilt.

    I think it was Joe Hockey who said that we all want more for our children than we had ourselves. I don’t think that kind of idea should continue.

    You are not an “old codger” – but a person who cares more about solving community issues than participating in the monumental greed which ends up bringing a community to its knees.

    We now have charities crying out for clothing, shoes, household goods and books through the local newspaper. I don’t even live in a lower socio-econom

  12. Can Alan Lewis and other interested parties here take a look at:
    as an interesting Australian forum on house prices — gathering news from around the world, screen-scraping vacancies and inventory from Australian property sites, discussion, etc. It may be the premier Australian housing discussion site by size and membership.

    One spin-off project has also been Dan’s, and another poster has created — highly reliable Australia-wide vacancy and other housing stats NOT sourced from the REIs.

    Sorry for the plug — just trying to build up the critical mass and create some synergies and get people networking more — and cross-linking sites — readers here may already be aware of this site, in which case apologies. (I wanted to send individual invites to people, but not possible to message in here.)


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