As readers of an earlier post will know, I’ve become interested in the arguments that suggest that greater deregulation of land usage could improve land usage and in the process lower house prices to the great benefit of those trying to buy their way into the market.
Here’s the resulting column. It’s rather less assertive than Michael Duffy’s column on a similar theme.
Brisbane house prices
Brisbane and Houston don’t have a lot in common right now. Let’s just say that Houston is windy one day, cataclysmic the next. But here’s another big difference between the two cities. House prices.
Though some studies give the mantle to Melbourne or even Canberra, one measure released last month had Brisbane as Australia’s second most expensive city behind Sydney of course.
Most of us like higher house prices, because most of us have a stake in our own home. We feel wealthier but are we? Of course as prices rise the amount you’ll get for selling your home rises. But you still need a home. And it will cost more too! (In fact the cost of turning over equivalent houses actually rises because stamp duty increases by at least as much as price increases but usually more as stamp duty is ‘progressive’, with rates going up as prices rise.)
Of course if you scale down your housing needs say you’re an ’empty nester’ and your kids have moved out, you can move to cheaper digs. Voila: extra cash!
But pity those in the opposite position typically gen X and Y’ers scrounging and scraping for a deposit worrying about prices racing away from them. They’re not so happy.
The Prime Minister says he’s relaxed and comfortable, his views captured by that old song “It’s a not so bad, it’s a nice place. Ah-shuddupa-you-face”.
As he points out, home ownership rates are still at 70 percent roughly where they’ve been for ages. But looking behind that figure two things are going on. Young people are taking much longer to get into their first home, but because our population is ageing there are relatively fewer younger people about!
From 1990 to 2001, the share of people under 24 who’d bought their first home fell by a third from 15 to 10 percent. Some are giving up the fight and the benefits that come with it from the social benefits of stronger communities to the economic benefits of higher savings as people repay their mortgage.
Understand who wins and loses and you begin to understand the underlying politics. Understand more still if we can see how people’s economic commonsense sometimes leads them astray.
Home-owners (including investors) are a majority. They’re also ‘insiders’ with an interest (or a perceived interest) in rising prices. And politicians help them out.
With ‘negative gearing’ and capital gains tax concessions, investors really do win though less than they think. Their main gain has come as prices adjusted to new tax breaks. Now they wear the risk that prices will fall back if the tax breaks are ever removed.
And though most homeowners feel rising prices make them wealthier, for many the best that can be said is that they’ve got a hedge against the house-price inflation raging around them.
And has it ever struck you as odd that Australia’s most decentralised capital city in Australia’s most decentralised state has such high residential land prices?
An American consultancy Demographia has analysed housing affordability across what you could call the Pacific Anglosphere USA, New Zealand, Canada and Australia. They produce some amazing comparisons.
For instance expressed in local currencies, the median household incomes for Houston Texas and Brisbane during 2004 were almost identical at around $50,000 US and Australian dollars respectively.
However median house prices were US$138,000 in Houston and A$300,000 in Brisbane. And Houston’s population is around twice the whole of South East Queensland’s, or it will be when people return home after Hurricane Rita.
Demographia argues that ‘smart growth’ zoning policies are to blame. Houston doesn’t have them, letting land develop without zoning. In ‘smart growth’ cities like Brisbane government planners use zoning to increase population densities in well serviced inner city areas in an attempt to reduce infrastructure costs.
[NB – on reading this column NZ anti-‘smart growth’ activist Hugh Pavlich, has written to me stating that “our research indicates that increased density increases infrastructure costs. Partly because upping capacity and upgrades costs so much in built up areas. In fact, quietly lowering the density over time, should help the aging infrastructure to cope better and longer. “]
Rationing space like this is not so good for outsiders trying to buy in. But constraining urban sprawl plays well politically and it supports house prices for the majority of voters in state and council elections.
Certainly previous attempts at urban engineering have led to spectacular social, economic and aesthetic disasters, not least the high rise housing commission flats that blight Australia’s larger cities.
People justify ‘artificial land scarcity’ as a defence against urban sprawl. Fair enough. But South East Queensland seems to be arranging the worst of all worlds for itself. With a relatively small population and snarling, sprawling suburbia 100 kilometres to its North and its South, Brisbane has the eleventh worst housing affordability in Demographia’s Pacific Anglosphere.
And what’s being done about it? The recently released regional and infrastructure plans for South East Queensland withheld eighty percent of the region’s land from housing including the hinterland of the Sunshine and Gold Coast.
If you own your own home that should make you more relaxed and comfortable. And it will help keep Government infrastructure costs down. So everyone’s a winner.
Well everyone except those ‘outsiders’ still saving for a deposit that is.