How the Housing Crisis Hurts Everyone

Frontier Centre, Housing Affordability, Uncategorized, Worth A Look

Australia has proved incapable of responding to the crisis in housing affordability. We are trapped like rabbits in a spotlight. The broad dimensions of the problem are well known. House prices boomed 150 per cent in the eight years to 2004, and after the current pause are predicted to rise again in the coming year. Earlier this week the Herald published one expert’s prediction that if wages and mortgages keep rising at recent rates, by 2016 many Australians will have no money to put food on the table.

Many older people in Sydney have been pleased to see the value of their houses increase in the past decade. But with this has come the realisation that their children might never own their own homes, or, if they do, will have to work far harder than any previous generation to do so. In 2005 the then Reserve Bank governor, Ian Macfarlane, told Federal Parliament’s economics committee that Sydney housing was so expensive “that it is in the interests of people, particularly a lot of young people, to go elsewhere to where their lifestyle is more affordable”.

Many of those who managed to buy a house are struggling to maintain family life as both parents go to work to repay the mortgage. For some, the battle is just too hard. The number of writs for repossession of NSW properties doubled from 2005 to last year. With mortgage repayments taking up a far larger proportion of household incomes than in the past, it is disturbing to imagine how many more families will have to sell their homes the next time interest rates go up.

A curiosity of the situation is that even though housing is very much a state issue, voters tend to look to the Federal Government for solutions. The affordability crisis is probably one reason for voter discontent with John Howard. Many years ago the Federal Government introduced a First Home Owners Scheme to address the affordability concerns of the young. The scheme may well have provided the Government with political benefits, but it did little to improve affordability. This week the Leader of the Opposition, Kevin Rudd, released a discussion paper announcing plans for a national summit on housing affordability, with a suggestion for first home savings accounts that would provide tax concessions on money used for a home deposit. The problem with all these schemes is that if you give a group of people more money to buy houses, they will naturally spend it on competing with each other and the costs of housing will go up further. Indeed, a major contributor to the current situation is the capacity of most people to pay more, due to the move of women into the paid workforce and lower interest rates over the past decade. No one wants to reverse either of those developments. So what is to be done?

THE crisis affects different groups differently. It is not society’s problem if people have difficulty buying property in Mosman or Lindfield. But it is society’s problem if nurses can’t afford to live near hospitals and people on average incomes can’t afford to live in average suburbs.

To the extent there is a solution to the affordability crisis, it lies in a suite of responses to help those most affected. One is land supply. The federal Treasury has pointed out that releasing more land on the city’s fringes isn’t a complete solution to the problem, and would have little effect on rising prices around the Sydney CBD. But it would benefit many people, because Australia has a shortfall of some 30,000 new dwellings each year. Reducing the high levies and other charges on new houses would have a similar effect. These costs were once absorbed by government from general revenue and by borrowing, and it is a massive piece of inter-generational inequity that they are now imposed on new home buyers.

The State Government assures us that plenty of land is available on the city’s fringes. But it has been saying this for years. There is too little land available, and what is available is too expensive because of government charges.

Making more cheap land available on the fringes would also relieve the pressure for people to live in flats. Research by Patrick Troy of the Australian National University shows 85 per cent of people living in flats would rather live in freestanding homes. So they are denied the lifestyle that Australians have traditionally had, and which most of us ought still have an opportunity to enjoy.

This leaves one more factor to be addressed, which is the exuberant lending practices of banks, building societies and in particular other financial institutions. Credit is now so easy to obtain that the temptation to borrow too much is hard for many to resist. Taking out a long-term loan involves some relatively complex decisions, and some people are incapable of making them properly. This explains a lot of the hardship homeowners are now experiencing. Is it too much to ask lenders to return some way to the days when to get a home loan you had to have a deposit, and demonstrate the ability to save and the capacity to repay your mortgage without undue hardship?