Eight housing affordability myths debunked: CIS
A new Centre for Independent Studies report, Eight Housing Affordability Myths, has sought to debunk key claims relating to the major drivers in the long-term price growth.
- Myth: Lower interest rates make housing more affordable
- Myth: House prices are a speculative ‘bubble’
- Myth: The supply of land is fixed
- Myth: Housing is an unproductive asset
- Myth: Australians invest too much in housing
- Myth: Foreign investors are responsible for rising house prices
- Myth: Domestic investors/negative gearing/capital gains tax concessions are responsible for rising house prices
- Myth: House prices are fuelled by a credit ‘bubble’/excessive leverage
Source: Centre for Independent Studies report, 'Eight Housing Affordability Myths'
The reported noted the debate over housing affordability was typically conducted in zero-sum terms.
"First home buyers are pitted against investors and incumbent property owners, baby boomers against younger age groups," it noted.
The implicit assumption is that there is fixed housing stock to be carved up among these competing interests.
"In principle, the housing market should be able to accommodate increasing demand without upward pressure on prices," Dr Stephen Kirchner suggested.
But he concluded the supply side of the housing market had been taxed and regulated to the point that supply has not been able to keep pace with demand, leading to higher house prices. Rising real house prices have become a secular phenomenon, with the cyclical variation in house prices taking place around this rising trend.
"Each of the housing affordability myths reviewed and debunked here serves to distract public policy from an increased focus on improving housing supply. He concludes many of the policies pursued by Australian governments in the name of housing affordability, such as first home buyer grants and concessions, increase demand for housing, while failing to tackle regulatory and cost barriers to housing supply."
The report noted new land supply had declined by an average 21% across Australia’s five largest capital cities in the past decade, pushing prices up by an average 148% to $504 per square metre.
"This report seeks to tackle these myths in an effort to improve the quality of public debate about housing affordability," Dr Stephen Kirchner said, adding housing affordability is a relative rather than an absolute concept.
He also suggest it was also meaningless to assert that house prices are driven by ‘speculation’.
"Few people buy or invest in housing with the expectation of making a capital loss.
"In that sense, every decision to buy (or not to buy) property is speculative.
"As Ludwig von Mises observed, ‘Every action is a speculation, i.e., guided by a definite opinion concerning the uncertain conditions of the future.’
"The belief that housing markets are driven by ‘speculation’ misunderstands the role of speculation in an economy and encourages the pursuit of demand-suppression and diversion policies on the basis that prices are disconnected from fundamentals."
The report by Dr Stephen Kirchner noted home ownership had eased from 71% of households in 1995 to 67% in 2012.
Dr Stephen Kirchner, a research fellow at The Centre for Independent Studies and senior fellow with the Fraser Institute, also posted a YouTube video.
Bob Day, Saul Eslake, and Cameron Kusher helped guide his thinking.
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