What’s driving house prices?
Well we know that there’s some artificial scarcity driven by the rationing of land for housing is an important contributor. For instance Canberra has lots of land, but very high house prices (and pretty cruddy little blocks on the outer edges) and its hard to believe strangled land release policies are doing this. I’ve seen allegations the truth of which I don’t know that this scarcity is partly to appease the Greens.
But Sydney? Well, yes there’s a land release problem there too. But I’ve always assumed it must be a small part of the problem. And the PC report on first home ownership highlighted land release but seemed to suggest there were no miracles available from that. Not so according to a highly informative but politically partisan website (deomographia) that Access Economics got a lot of publicity for quoting today.
How’s this for a comparison:
Lets compare Houston, USA and Sydney, Australia. Expressed in local currencies, the median household incomes for both cities were, during 2004 (in local currencies) $50,400 and $57,100, with median house prices of $138,350 and $505,000 respectively. So it would take 8.8 years of median household income for a Sydneyite to purchase a median priced home, but just 2.7 years of median household income for an Houstonian.
Expressed another way, if the Sydneyite on the median household income, was to get the same deal as her counterpart in Houston, she should only be required to pay 2.7 times her household income of $57,100 – that is $154,170 ($57,100 x 2.7), some $350,830 ($505,000 – $154,170) less than she is currently forced to pay.
I don’t know much about this, but it seems like a big deal in influencing our lives. And there seem to be real paradoxes. Demographia’s opposition to “Smart Growth” policies in favour of urban consolidation would in all likelihood increase urban sprawl. Whether that’s good or bad, that’s what we have in a place like Brisbane. But Brisbane and L are some of the sprawliest cities in the world (on a different scale obviously) yet they have some of the relatively highest house prices. Brisbane is said to have just passed Melbourne in its median house prices (which given Brisbane’s substantially lower wages is quite something). Yet its’ surrounded by sprawl.
Can any commenters offer wise counsel on these matters?