Only a new approach will solve worsening cost of housing crisis

Photo by Brent Lewin/Bloomberg
By Joe Montero

Australia’s housing crisis is getting worse. Anyone who has looked into it, knows that that in every capital and regional entre across the country, the escalating cost of having a roof over one’s head is the primary factor pulling down the standard of living for the majority of the population. The demand for action on this is growing.

This is also a crisis that is being mostly neglected by both the government and the Coalition opposition. They have a consensus on taking the same broad approach. This is to feed vested interests in the housing industry and go along with their claim that the answer lies in giving them ever increasing handouts. They say that the problem is one of marker supply shortages fuelled by rising construction costs.

The claims are easily put to rest. There is no evidence that construction costs are rising substantially. Nor is there evidence that the problem is a market shortage per say. There is a great deal of evidence to suggest that greed for a quick grab is a real problem.

Photo by Rose/Adobe Stock

\Aware of growing discontent, Australian governments are compelled to admit there is a problem of housing affordability and promise to do something about creating affordable housing. Unfortunately, the promises are more about public relations than real substance. They remain entrenched in the notion that the solution is to assist the market to increase supply. Increasing will supposedly push down the price of properties, and this will translate to a falling cost of housing.

Driven by a shared ideology and collective amnesia, Labor and the Coalition together, are failing to see or admit the evidence that tells us differently. What is rolled out are selective numbers that seem to back their argument. A key source in Domain, a major property advertising agency that has a clear interest in promoting a certain view. For example, their vacancy rate, shows that new rental advertisements were at an all time low of 0.7 percent this last January.

This is low. But it’s not the same thing as the existing stock of housing. It’s an indicator of how much is being made available by landlords. Nor does it say anything about the shift of ownership from mums and dads to investor ownership headed by major multi-property owning corporations. And it doesn’t reveal why they hold back on bringing tenants into their properties.

The ABS also reveals that the value added by new construction is going up. This means that for big time investors it’s more profitable to supply less and do so at higher prices.

According to the Australian Burrau of Statistics (ABS), the commencement of new home builds was down by 10.4 percent this past January compared to September last year. although this period included the Christmas shutdown period, it continued a trend, except that the fall has been a little less than in it was in previous quarters. This might seem to conform the claim of a need to provide more incentive for investors. Don’t be fooled by this.

The graph below from the ABS shows that building fewer homes and keeping the price high is more profitable than raising the number. It shows a clear upward trend on the value added for the construction industry. It’s not just that builders abuilding fewer. Mum and dad buyers are being priced out the market. This crowds out the available rental market.

Australia is plagued by a shortage of available housing at an affordable price. This is the bottom line and a real problem. A problem that’s being aided and abetted by government policy directed at bankrolling the industry through various instruments; from generous negative gearing and capital gains discounts; to major projects that involve largescale handouts of taxpayers’ money.

The mums and dads aren’t buying. They are being priced out. Once again, the ABS provides the data. Mum and dad home ownership has been in constant decline since the mid 1990’s, when it reached a peak of 71.4 percent. By 2021 it had dropped to 66 percent. The fall is continuing.

Investor dominance of the housing market ha been on the rise. By 2017, this accounted for 34.3 percent of all new housing finance and 36.2 of old and new dwellings. Measures that focus on growing the market supply will only encourage more of the same greedy price speculation, lining up for government handouts and minimising the available effective supply.

It’s clear that a new approach to housing is needed. Measures that push more people to buy isn’t the answer. A significant part of Northern Europe enjoys almost half or more of its housing supply as public and cooperative housing. Their citizens pay a much lower proportion of their income on a home and have more money for spending on other things. This boosts the economy and brings the highest standards of living.

Isn’t this an example worth following? Isn’t this good reason to do much better than offer tokens of affordable housing, which are far too little to make any real difference?

The graph below compares the proportion is social housing provided by a list of countries, and Australia is near the bottom. note that this is only social housing, which is defined as low-cost housing for the poor. The inclusion of affordable housing, lower cost housing for a much wider range of the population, would lift the non-private proportion of housing to a much higher level for the best performing countries.

Ranking highest to lowest percentage of social housing in the European Union and three other European countries, the UK, Australia, New Zealand, Canada, and United States (2016–2020)
Source: The Australian Housing and Urban Research Institute (AHURI)

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