Increasing housing demand does not solve affordable prices



Over the last decade, a series of governments have implemented disappointing policies in Australia. Unfortunately, I hope this disappointment will continue in the new Labor administration. There is one good example. Their housing policy was announced during the most recent campaign.

Labor’s co-ownership system is yet another poor federal housing policy that cannot address the root cause of Australia’s affordability problem.

Affordable housing has been at the forefront of Australian public policy for many years. According to research, deposits are the biggest hurdle for future homebuyers. According to the Grattan Institute, in the early 1990s it took six years to save a 20% deposit on an average home. It currently takes 10 years.

In response, the federal government has consistently intervened to help first-home buyers step into the market door. According to a recent study by the Australian Institute of Housing and Urban Studies, the Australian Government has spent more than $ 20.5 billion ($ 14 billion) on the first homebuyer scheme in the last decade.

Not surprisingly, these policies are the result of campaigns, with little indication that billions of dollars have been spent. Political attractive, but the old government’s first mortgage deposit scheme (allowing the first homebuyer to buy a home with a 5% deposit that guarantees the difference), the proposed super homebuyer Schemes (allowing homebuyers to spend up to $ 50,000) Aging towards deposits or the current government’s shared stock system, in fact, these home subsidies worsen affordability in the long run Let me.

Excessive reliance on demand-side policies

For years, both parties have penalized young people who are eager for the heart of Australia’s dreams.

But it’s not just the federal government’s fault. There are two parts to the story.

First, the federal government is trying to improve affordability by increasing housing demand (Australia offers a very large amount of demand side support compared to other developed countries). .. Second, state and local governments have failed to address the pesky zoning and planning regulations that are the fundamental problem of chronically limiting housing supplies.

Epoch Times Photo
The auctioneer will count down bids during the auction of residential properties at Hurlstone Park in Sydney, Australia on May 8, 2021. (Lisa Maree Williams / Getty Images)

Based on first principles, increasing the demand for housing without doing anything to expand supply is the only way to increase prices.

Studies show that zoning accounts for about half of the amount Australians pay for their homes. The Organization for Economic Co-operation and Development (OECD) has cited such planning as the main reason for Australia’s unusually high elasticity of housing supply. In other words, changes in home prices have little effect on the amount of homes supplied.

It is well established to improve affordability of homes by increasing supply through deregulation of planning legislation. Comprehensive report scope From the Productivity Commission, Grattan Institute, and Independent Research Center.

Case studies around the world also show the benefits of working on housing supplies to improve affordability. When Tokyo liberalized planning, housing became more affordable and homelessness declined dramatically. It’s also no coincidence that the US district, which has the least burden of zoning law, owns the most affordable homes.

Regain Australian dreams

It is clear that amending planning legislation to increase housing supply is the key to affordability. The evidence is overwhelming.

But before that happens, we also need to leave the regular scapegoat behind. The claim of some media commentators to focus on the abolition of negative gearing is an example of such a scapegoat.

Studies show that this policy will make a slight difference in home prices. Econometric modeling shows that negative gearing contributes only about 4 percent to home prices. Even in a market with a high concentration of investors, the biggest price cut is 7%.

So what should I do? The federal government should resist expanding plans to boost housing demand.

On the other hand, state and local governments need to aggressively pursue supply reforms by reducing plan deficits. This means raising the height limit of the city, streamlining the construction management process and allowing high density housing (apartments and townhouses) to be built in areas where only low density is allowed. increase.

By working on this process, home supply will become more sensitive to demand and the dream of home ownership can be brought back within the reach of aspiring home buyers.

The views expressed in this article are those of the author and do not necessarily reflect the views of The Epoch Times.

Sebastian Tofutsu-Len


Sebastian Tofts-Len is a research assistant with a bachelor’s degree in economics from Curtin University, Australia.