The Answer to the Housing Crisis: It’s not Rocket (or even Economic?) Science

I laughed out loud when I read the final paragraph of “The Impossible Dream” by Ruth Williams in the Sunday Age.

Question: “What is the solution to the housing affordability problem?”

Answer: “Cheaper houses”.

The full paragraph reads:

”Ultimately, the solution to the housing affordability problem is cheaper houses,” Eslake says. ”We have a belief in this country that governments must always try to keep house prices going up. It’s time we questioned that.”

It isn’t rocket science. Hell, it’s hardly even economic science.

But that may be the point. Economic science – and political science too it would seem – has worked on the idea that rising property prices are a good thing for the economy. The Age has been running something of a campaign lately to help our economists and politicians see that this is not necessarily so. It is self-evidently a bad thing for first home buyers, and it is even becoming evident that it really doesn’t profit home owners either – since they have to live somewhere it is capital that is never realised.

We are really facing a crisis here in this country in the area of housing. I feel it acutely because I am one of those caught in the rental market with no way out into the home ownership market. The fact is that currently the median house price is eight times the median annual salary in this country, and the estimation is that we are about 202,000 houses short for our population.

So you may not have a degree in economics or be a town planner or a Canberra politician, but you don’t need any of that to know the answer to the problem of housing affordability. The answer is cheaper housing.

Advertisements

7 Comments

Filed under Uncategorized

7 responses to “The Answer to the Housing Crisis: It’s not Rocket (or even Economic?) Science

  1. Louise

    Well, cheaper houses will happen (or at least the prices will remain fairly stagnant as incomes continue to increas – hopefully) if more houses are built. There is an actual lack of like, actual houses.

    Economics is pretty absurd if we keep thinking merely in terms of Tokens and not Things. So, it’s more a question of the houses themselves than the money, strictly speaking.

    All our guvvermints: local, state and federal, throughout every part of the country need to get serious about this. What about reducing land tax? And abolishing sales tax etc? Releasing more land for development?

  2. matthias

    Here here Louise. WE also need to be encouraging people to move to regional cities eg Geelong,Ballarat,bendigo,ALBURY-WODONGA ,Murray Bridge,Bunbury, etc.
    The problem is that there is fear that the land development will go unhindered,but it would assist in lowering house prices and making housing again affordable to all Australians.( Land tax is still a big killer of any initiative here in Victoria despite Mr Brumby saying to the contrary that it is not)
    My brother is associated with the Institute of Social research where the academic quoted in this article is based ,and has also worked with the homeless and he has said that we will become a two tiered society based on homeownership or not.

  3. Peregrinus

    All true. But of course we should also question the need for universal, or near-universal, home ownership. One of the things that drives prices up is high demand – the other being low supply – and demand is high if everybody is encouraged – by social values, by conventional wisdom, by the tax system – to believe that owning their own home is (a) necessary, (b) virtuous or (c) both.

    It’s entirely possible to imagine a world in which most people are decently housed in accommodation which they rent, and in fact such a world would have a lot of advantages. Flexibility, for one thing – it’s a lot easier to move homes to be closer to the school you want, or the job you have or hope to get, or the neighbourhood you enjoy – if you don’t have to pay tens of thousands of dollars of stamp duty, agents’ fees and the like for the privilege. Or to move to a larger or smaller home to reflect the changing needs of your family. Or whatever.

    We have a tax system that strongly encourages people to invest their savings in their own residence, and keep them there for as long as possible. Thus investors are competing with people who simply want to buy accommodation. And, since investors typically have more buying power, they tend to wind that competition. (I mean investors not in the sense of people buying a home which they will rent out, but of people buying a home which they will live in but which is larger/more expensive than they actually need.)

    The result is the phenomenon where the average new Aussie house is the largest in the world, and is sold to the only market which can afford it, the couple in their fifties whose children have either left home, or will shortly do so. House sizes are rising while household sizes are shrinking; it is any wonder that housing is becoming unaffordable? We are building houses for people who (a) have lots of money, and (b) have been conditioned to invest it in their home. We need to build houses for people who need homes, and to devise structures – like, you know, a thriving good-quality rental market – for making those houses accessible to them.

  4. Louise

    It’s entirely possible to imagine a world in which most people are decently housed in accommodation which they rent, and in fact such a world would have a lot of advantages.

    We certainly need good rental properties, as there is always a need for such accommodation, but I think home ownership is generally the most stable situation for families. I don’t think a large number of rental properties is a good idea at all.

    “The best defense of the fmaily is the home and the best defense of the home is the homestead.”
    ~ Fr Vincent McNabb OP (contemporary and friend of Chesterton and Belloc).

  5. Peregrinus

    Home ownership is hardly the most stable situation for families if people cannot afford to buy homes in which they and their families can be decently housed – which is exactly David’s situation.

    Housing yourself and your family decently is quite a different objective from investing in an appreciating asset, or building up a store of wealth which can on death be left to the next generation. But home ownership, and our attitude to it, and the structures by which we deliver it, combines the two. The result is that people whose income is limited, and who can afford only to pursue the first objective, are outbid.

    Somebody whose priority is to house their family and who does not want, at present (or perhaps ever) to invest in long-term appreciating assets needs a housing market in which they can affordably, reliably and decently house themselves and their family. They shouldn’t have to buy a house to do that, any more than they should have to buy a train in order to get to work each day.

  6. Louise

    Pere I acknowledged that a good rental market (for the tenants, I mean) was important.

    Home ownership is hardly the most stable situation for families if people cannot afford to buy homes in which they and their families can be decently housed – which is exactly David’s situation.

    No kidding, Pere, but I’m saying that housing should be affordable and that a large number of families who desire simply to own their own home and for whom it is attainable is the best situation.

    I think it’s appalling that David’s family are not in a position to buy their own home and I think it’s because the economy is inherently mad.

    I ought to point out in any case that rents are very high indeed and hardly affordable for many families as it is. So no great benefit there.

    We pay around $200 pw in minimum mortgage repayments (more by choice), but would have to spend at least $300 (closer to $400) per week for a family home in this area. I’m only talking about 3 BR homes too, btw. Our own home is 4 BR and 2 bathroom with 2 living areas. We were just blessed to get into the market at the right time. Otherwise we’d now be paying exhorbitant money out on rent.

  7. Louise

    In short, more houses are needed, so that supply begins to exceed demand a little. Then the prices will stagnate/stabilise and people will have some chance of affording a home or even just getting into one. The rental markets are extremely tight in some parts of the country.