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Henry Thornton - Economics: A discussion of economic, social and political issues Home truths and politics Date 11/08/2006
Member rating 4.3/5
Affordable housing is something politicians should focus on, writes John Roskam
By John Roskam Email / Print

Prime Minister John Howard and Treasurer Peter Costello get blamed for a lot of things these days - the price of petrol being too high, families carrying too much debt on their credit cards, and children growing up too fat. The fact that these problems don't have much to do with the government is a point that is usually ignored.

The price of petrol is determined by events far beyond the powers of control of any Canberra politician. A cut in the fuel excise tax of a few cents won't make much of a difference when petrol is close to $1.50 a litre.

While some people would no doubt like to return to the semi-socialised financial system of the 1970s, one of the benefits of financial deregulation is that it gives people the liberty to borrow as much as they think they can afford. With that freedom comes the burden of bearing the consequences if they're wrong. Governments should no more tell families how much money they are allowed to borrow than tell them what they must feed their children.

However, there is one present-day problem that clearly is the fault of government - unaffordable housing. And the responsibility for the problem rests, not with the federal government, but with the state governments.

Two decades of policies from state governments that have increasingly limited the release of land for development, which have imposed arbitrary zoning laws and which have discriminated against new home building in favour of forced urban consolidation have produced a tragic situation.

Thirty years ago the average house price in Australia was about three times the level of the median family income. Today, the average house price is between six and nine times that level. Thirty years ago the cost of land represented one-third of the overall price of a house.

Now, in Australian cities, land represents over half the price of a house. In NSW the situation is even worse. In Sydney the cost of land comprises 80 per cent of the price of a house. This is ironic. Although in some circles it is heresy to say so, it is not as though Australia suffers from a lack of land.

High house prices in the country's capital cities are not an accident. They are the product of deliberate state government decisions. This is a stark reminder for those who believe that what happens in the parliaments on Macquarie Street and Spring Street is irrelevant. Factors affecting house prices that are under direct federal government control, such as negative gearing and tax-free capital gains on residential housing, have little impact on housing affordability.

For the overwhelming majority of Australians, home ownership is their most important economic aspiration and their house is their most significant financial asset. The great Australian dream is to own a home, and state governments are putting that dream out of reach.

Urban planners and environmental activists have succeeded in making "sprawl" a dirty word. The concept of sprawl conjures up images of endless Los Angeles-style highways connecting housing estates that have few amenities and no sense of community.

To avoid sprawl, and its supposed environmental costs, we're being priced into inner-city apartments from where we can enjoy the ambience of European-style covered walkways while sipping chai. This metropolitan idyll might suit some, but for many, especially families, it is not their choice.

The impact of anti-sprawl on house prices can be measured by comparing local housing costs against costs in those cities in the United States that have similar characteristics to Australian cities, but which have more liberal planning regimes.

The average house price in the most affordable American cities, such as Houston or Atlanta, is about 2.7 times the average household income for the region. Applying this ratio to Australian cities would have the median house price in Sydney, for example, fall from $520,000 to $162,000. In Melbourne it would go from $360,000 to $149,00, and in Perth it would be lowered from $308,000 to $134,000. Reducing the price of housing in Australia's capital cities to something affordable, by tackling land availability, state taxes and developer charges has a far greater potential to improve national living standards than does a fall in the cost of either petrol or bananas.

Overwhelmingly Australians prefer to live in houses in suburbs with a front garden and a backyard. Attempted social engineering hasn't changed this basic reality. Indeed, the leafy, happy suburbs of 2006 were the urban sprawl of 1956.

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