We don’t need more dwellings in Australia

There are few real estate activities more depressing than observing a media debate about housing affordability.

It’s a downer because it’s clear from the rhetoric that this nation is unlikely to ever achieve any kind of resolution of the issue.

There are four reasons: (1) the politicians don’t understand it and/or are unwilling to do what’s needed; (2) industry people who do understand it champion their vested interests rather than the national interest; (3) everyone else has their heads full of misinformation, political agendas and unhelpful emotion; and (4) most discussions focus on Sydney prices and ignore the realities in other parts of Australia.

The outcome is mishmash of misconceptions, myths and outright lies. Nothing useful is ever achieved.

A recent discussion of ABS TV program The Drum was representative of how bad it gets. None of the people at the discussion table had any knowledge on the issue and simply indulged their prejudices and personal agendas. One spectacular twit claimed no one can get into the housing market any more because you need a $200,000 deposit to buy a typical house. Not even in Sydney is that remotely close to the truth.

The so-called affordability crisis is never far from the headlines and it stepped up in prominence this week with Federal Treasurer Scott Morrison declaring he was serious about fixing the problem. But of course he wasn’t serious at all. He essentially dumped the problem at the feet of state governments, with a generalised assertion that taking steps to increase dwelling supply will make everything better.

That’s one of the subject’s biggest furphies – a simplistic policy of lifting supply won’t force down prices unless the idea is to deliberately generate a major oversupply. One thing Morrison got right was his statement that you won’t fix the problem by crashing the market.

As a general observation, we don’t need more dwellings in Australia. We’re already building far too many apartments, which will result in falling values, but only in specific areas such as the inner-city unit markets of Melbourne, Brisbane and Perth, as well as surfside Gold Coast. This runs contrary to the statement by Malcolm Turnbull this week that “we simply haven’t been building enough dwellings” – which shows how little he understands about the situation.

Federal Labor responded with its standard party line that restricting tax benefits for investors will make housing affordable again – despite the assertion by leader Bill Shorten that his policy won’t cause house values to decline (so therefore how will it make housing more affordable?). And that, sadly, is the extent of his understanding of the issue.

There followed lots of finger-pointing, with each level of government blaming another level of government for the perceived problems, and each side of politics scapegoating their opponents.

Industry lobby groups leapt at the opportunity to advance their pet causes. Master Builders Australia agreed, naturally, that a big lift in new home construction would be the solution, but argued that politicians needed to make changes to make it really attractive for developers and builders. The Urban Taskforce declared that developers would be happy to build lots of affordable homes, just so long as government handed them plenty of financial incentives. 

As I’ve often commented, the biggest noise in real estate is always the voice of vested interest.

Even in Perth, where there is vast oversupply and high vacancies right across the metropolitan area, the Urban Development Institute of Australia urged the WA State Government to take steps to increase housing supply. 

To paraphrase Shakespeare, they were all tales told by idiots, full of sound and fury, signifying nothing.

The problem is that none of solutions put forward will make the required difference. They’re all targeting the wrong villains.

Everyone has a theory on who’s to blame for rising prices: some say foreign investors, others claim Australian investors, a few proclaim it’s first-home buyers pumped up by government incentives and still others, including former federal minister Bob Carr, reckon it’s the high level of overseas migration into Australia.

Who’s right? Well, none of them. The real culprits are never mentioned.

The biggest single force in driving house prices comprises the market sector known as next-time buyers –i.e. home-buyers other than first-home buyers. Numerically they’re the biggest chunk of the market and they’re aspirational. They have the financial capacity and ambition to pay top dollar to secure the property they’re obsessing over.

Investors, generally, don’t do that and first-timers can’t afford to.

But there’s an even bigger villain, one the politicians never mention while they’re busy pointing their fingers in various other directions - because the biggest problems are caused by the politicians themselves.

The value of homes in Australia is under-pinned by their replacement cost – i.e. the high cost of creating new house-and-land packages, the biggest chunk of which comprises taxes, fees and charges from all three levels of government.

As long as local, state and federal governments treat the housing industry as a beloved cash cow, housing will remain pricey in this country. Most of the state budgets handed down this year made the problem worse by adding to housing costs. 

You can build as many new houses as you like, but developers can’t sell them for $250,000 if they cost $400,000 to create.

Federal politicians recently conducted an inquiry into the affordability issue, which took a lot of time, cost of lot of money and achieved absolutely nothing. The Federal Government made a show of clamping down on foreigners illegally buying mansions, but that has changed nothing for first-home buyers 

Last year another inquiry was initiated by the House of Representatives economics committee but, according to reports this week, that has lapsed through lack of energy.

So where are we after all that “sound and fury”? Exactly the same place we were before Scott Morrison stepped up to the microphone – nowhere closer to any solutions.

Terry Ryder is the founder of hotspotting.com.au. You can email him or follow him on Twitter.