Foreign investors are the perfect housing affordability policy scapegoats because they don’t vote: Terry Ryder
They say that when you point the finger of blame at someone, three fingers are pointing back at you. This is a particularly apt analogy for posturing politicians who are directing accusatory digits in various directions on the issue of housing affordability.
The Federal Government has scapegoated foreign investors. The Federal Opposition has targeted negatively-geared Australian investors. Both are wrong and both know it. Politicians know that the people most responsible for fuelling high housing costs are the pollies themselves.
That’s why their response to this issue is the classic tactic, made famous by Yes Minister, of holding lengthy inquiries, punctuated with frequent press conferences, while declining to take effective action, other than to blame unpopular minorities. Foreign investors are the perfect scapegoats because they don’t vote.
Both foreign investors and negatively-geared Australian investors are small minorities in the real estate market and have little or no influence on the high costs of housing in this country. You could exterminate both species today and housing would still cost the same tomorrow.
The fundamental issue is the hideously high cost of creating residential land and building dwellings. And much of the blame for that rests at the feet of politicians at all levels of government.
So while politicians are busily pointing the affordability finger of blame at others, they might want to consider the high cost of producing home sites as a relevant issue, with themselves as the major problem.
In our major cities, housing blocks have become smaller over time but the cost keeps rising. In Sydney, according to one set of recent figures, the median price for a home site is $410,000, up 20% in the past year. Melbourne’s median has risen 23.5%. In Perth, you pay $300,000 for a housing block.
The average situation across the capital cities is a 466m2 block priced at $265,000.
Another set of figures came recently from the Urban Development Institute of Australia. Its State of the Land report earlier this month found that in 2010 a typical Sydney block was 524m2 costing $293,250. Today the size has shrunk to 454m2 but the cost has jumped 50% to $440,725.
That’s the cost people face before building a house.
Over 40% of the cost of new dwellings is the taxes and charges imposed by various levels of government. Numerous studies have been done on this issue and they all arrive at pretty much the same result.
It means that a house-and-land package priced at $500,000 could be sold for $300,000 if you removed all the politicians’ imposts that inflate the cost.
You can be sure that politicians won’t discuss this, not while they can grandstand about clamping down on allegedly rich investors who allegedly sort the tax system, while continuing to milk their favourite cash cow, the real estate industry.
Here’s an example of how government behaviour causes high land prices. In Canberra, the ACT Government drip-feeds land to the market in a way that ensures there’s always a shortage and prices are kept high.
A recent auction of new blocks in Throsby resulted in the successful bidders paying, on average, $108,000 above the reserve prices. One 540m2 block sold for $536,500. Nine blocks of just 315m2 each sold for between $340,000 and $356,000.
The Canberra Times reported: “The ACT Government’s method of releasing small parcels of around 100 blocks at auction has been strongly criticised by advocates of affordable housing who say it artificially inflates prices, pushing land out of the reach of all but the well-off.”
This Canberra situation is a microcosm of a national problem, where the high cost of land underpins all affordability issues.
Similar things happen in Darwin. In Darwin’s residential market there are big spikes in sales whenever a rare release of residential land takes place.
New development suburbs such as Muirhead in Darwin, and Zuccoli and Johnston in nearby Palmerston, have project releases which create sales spikes which distort the overall figures. For example, total residential sales in Muirhead have been 44, 16, 22, 155, 10, 4, 32, 131, 17 and 82 in consecutive quarters over the past three years.
This is an unnatural sales pattern causes by staged releases in new projects. Releases of new product are rare and sought-after. The authorities drip-feed homes to the market, keeping prices high.
In capital cities like Brisbane, Adelaide and Hobart, you can find plenty of suburbs where median prices of established housing are in the $300,000s and sometimes in the $200,000s. But you can’t in Canberra or Darwin. There are no cheap suburbs in these cities because of government manipulation of housing supply.
The developer lobby argues that similar things happen in the larger cities as well, hence the high cost of land in Sydney, Melbourne and Perth, although the method is different. The groups that represent builders and developers argue that the core issue in the affordability debate is limited land supply.
Harley Dale, chief economist at the Housing Industry Association, has urged the Federal Government to show more leadership on housing supply and policy reform. Rather than tinkering with h policies, they should focus on increasing supply, he says.
Of course, it’s not quite as simple as increasing the supply of available land and all problems will be solved. Nor do I agree with the developer lobby’s favourite mantra that we have a major dwelling shortage.
We’re actually facing the opposite problem, a significant oversupply, in some sectors - the inner-city apartment markets. But we do have a shortage of affordable houses on land, created by limited supply, bureaucracy and politicians’ taxes and charges.
Terry Ryder is the founder of hotspotting.com.au
hotspotting@gmail.com