Housing Affordability — Corey White’s Roadmap To Paradise Ep 3
A few months ago, I was given the opportunity to lament the current state of our housing policy, and talk about possible reforms that would assist in making housing more affordable, for an ABC documentary with Corey White — called Corey White’s Road Map to Paradise (Episode 3 airing on Wednesday, the 16th of May). In preparation for this interview I spent a few weeks talking to experts, and poring over reports on what seems to be the defining issue of our time — housing affordability. I have summarised my thoughts from this exercise below. This article was previously published on Eureka Street. You can view it here.
Policy solutions to bonkers housing costs
Part of the issue with home ownership is that it serves two purposes — as an asset (or more appropriately, a vehicle for middle class wealth accumulation), and a home. Any government wishing to make housing affordable has to contend with homeowners who don’t want to see the value of their asset drop, while simultaneously placating new entrants to the market who want to see housing become more affordable and within their reach.
Research by Rachel Ong for CEDA shows that fewer young people in 2013 (25 percentage points) own their own home compared to ownership rates for the same cohort from 1982. The home ownership rates of older cohorts has remained roughly the same. However there has been a slight increase in the proportion of home-owner investors across all age groups.
Many a commentator has pinned the housing affordability issue on young people for not being frugal. But there are a few things that are different now to generations past.
An increasing number of young people are taking on higher education debt. It is a good thing that we’ve been able to extend the opportunity of many more young Australians to access higher education. However, this is quite a different scenario to the one faced by Gen Xers for whom education was free (or much less than the CSP rates that undergraduate domestic students face now) and therefore had less debt to pay down.
And while there are certainly benefits to having a compulsory lifetime savings scheme in superannuation, it locks up a lot of capital and potential assets that young people could have put towards securing a deposit on a home.
These present significant constraints and imposts on the ability of young people to independently finance their own home. However in spite of all these constraints, the demand for housing has not wavered. Young Australians (and new entrants to the market) want the opportunity to call a piece of land their own, not unlike their parents and grandparents before them.
Many policy options to make housing more affordable have been floated. It’s hard to tell what the impact of each of these policies on house prices and home ownership rates will be in the longer term.
In early 2017, APRA reported that interest only loans comprised about 40 per cent of lending in the sector, which, by APRA’s own reasoning, was high by international and historical standards. It has since mandated that interest-only loans issued by Authorised Deposit-taking Institutions (ADI) would comprise only 30 per cent of all new loans.
In addition to the prevalence of interest-only loans, other incentives have been built into our tax structure that, while intended to improve housing affordability, have the added effect of increasing speculative investment in housing. These include the commonly cited negative gearing and capital gains tax discount.
The Grattan Institute outlines some of the possible effects and likely magnitudes of changing these policies in its latest report. The Grattan estimates that these measures might be able to shave a couple of percentage points off house prices which is no small feat, but notes that the most effective ones are the hardest to sell politically.
However they do state that increasing housing supply by 10,000 homes a year above the current rates of housing construction would result in a 20 per cent drop in national house prices over the next decade. It is clear that in order to save our cities from the impending dearth of affordable housing, we need measures that will increase supply.
Ours is not the only country grappling with floundering supply. In the US, San Francisco has been plagued by a housing affordability crisis where a wicked combination of high earning people geographically concentrated on an island with severe planning constraints has led to a catastrophic housing crisis.
A swathe of legislation has been introduced in California to encourage the construction of new housing, ?including streamlining of the development process, and punitive measures for councils who do not meet housing approval targets.
In a similar vein, the NSW Parliament, in an attempt to streamline the development applications process, passed amendments in 2017 to enable independent planning panels to approve applications of $5 million or more (up to $30 million). This is a positive step towards ensuring councils are not shirking their responsibility to provide housing for new entrants to the market.
Other ideas that have been floated include implementing development application targets that councils should meet to increase housing supply.
It is increasingly the case that jobs are located close to the CBD and people desire to live in close proximity to their place of work. Urban California’s stalemate is what awaits us if we don’t put a stop to the chokehold on housing supply.
Part of this is caused by residents who have been vocal in shutting down development in their areas on spurious grounds, the NIMBYs. One need only take a walk around the inner suburbs to spot a homeowner with a corflute or banner at the front of their house (occupying two plots of land no less) declaring that a new development isn’t needed in the area.
But these attitudes need to be contested. Because a key issue with the housing development debate is that our focus has been so excessively drawn towards opposition to new buildings, construction and development, that we’ve lost sight of the harm that it is doing to our fellow humans who are merely in search of a place to call their own.
Postscript: I recently watched the whole episode and I have to congratulate Corey and the team for doing such a great job of explaining some of the rather difficult to understand policies that underpin our housing market. And for injecting a bit of humour, but also realism, into a debate that’s been had rather abstractly for the most part.
Corey’s idea for housing affordability is quite radical and one I wouldn’t support. There are changes that can be made to housing policy that don’t invoke flashbacks from “The Castle” — incremental changes to policy that while individually might not affect housing affordability substantially, but with time and together, could make home ownership less of a pipe dream for people like me. I think something that we need to consider a lot more is the constraints we place on housing supply in the inner city areas. It offends me every time I see a corflute that reads something like “No more development” on the front yard of a house occupying three plots of land. We cannot afford the luxury of the space we’ve had in the past. We cannot bow down to the NIMBYs. Their attitude has consequences in the shape and form of increased sprawl, and we shouldn’t passively let this slide.
It was a fun and thought-provoking conversation and I thank Corey and the guys over at Guesswork Television for inviting me in for a chat, and for making me feel so at ease in the most unnatural of situations (bright lights, microphones, and 2 hours worth of filming).