October 14th 2006


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Articles from this issue:

COVER STORY: COMMONWEALTH-STATE RELATIONS: Will Howard override WA on natural gas?

EDITORIAL: Bushfires: an ounce of prevention

CANBERRA OBSERVED: Behind the move to lift cloning ban

INTERNATIONAL TRADE: Farmers protests over free trade in Cairns

TRADE POLICY: Why WTO trade talks failed

STRAWS IN THE WIND: The decline of Labor, the fate of Smith Street, Blair's departure and the Regensburg Address

NATIONAL AFFAIRS: T3 sell-off will not end Telstra's woes

HOUSING: Urban planning is destroying the great Australian dream

FOREIGN AFFAIRS: North Korea's nuclear ambitions: is China really powerless?

ANTI-LIFE CAMPAIGN: The selective indignation of Senator Stott Despoja

OPINION: The case for optional preferential voting

BIOTECHNOLOGY: The ascent of Mount Improbable

The debt trap (letter)

The Pope and Islam (letter)

The Ice epidemic (letter)

BOOKS: LONDONISTAN: How Britain is Creating a Terror State Within, by Melanie Phillips

BOOKS: SCOURGE AND FIRE: Savonarola and Renaissance Italy, by Lauro Martines

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HOUSING:
Urban planning is destroying the great Australian dream


by Bob Day

News Weekly, October 14, 2006
Bob Day, a member of the Order of Australia, is Chairman of the Great Australian Dream Project, which aims to help every Australian family to own their own home. The address from which this article is taken was given to the Australian Christian Lobby's National Conference in Canberra last month.

Families are the lighthouses of the world and we mess with them at our peril. In a sea of social uncertainty, the family represents a place of security, a place where the foundations are strong and the bearings are clear.

No other form of human association can match the profound benefits that come from being raised in a loving, functional and secure family environment.

There are many factors that contribute to a good marriage and a strong family life. Without doubt, love, trust and commitment is at the core. However, there are other factors that contribute significantly to an environment that strengthens family life.

Home ownership

One of these is home ownership. Home ownership affords the opportunity for members of a family to put down roots, to establish themselves as part of a community and to take control of their own destiny. However, the benefits of home ownership extend far beyond the simple acquisition of assets.

Traditionally, the median house price was around three times the median household income. For example, when the median income was just $1,000 per annum in the early 1960s one could buy a basic house on a basic block of land for $3,000. When the median income was $10,000 per annum in the 1970s the median house price was $30,000. When the median income was $20,000 per annum in the 1980s the median house price was $60,000. And when the median income was $40,000 per annum in the early 1990s the median house price in most capital cities was $120,000.

Young couples got a start in the housing market and worked up from there.

Today, in Adelaide, Melbourne and Brisbane, the median house price is more than six times the median income and in Sydney and Perth more than eight times. The long-standing nexus between house prices and incomes has been broken.

The social and economic consequences and long-term ramifications of this change are horrendous and by and large not at all understood. For example, at six times median household income a family will fork out approx $300,000 more on mortgage payments (principal and interest) over the life of a home loan than they would have had house prices remained at three times the median income. That's $300,000 they are not able to spend on their children's education or family comforts or $300,000 the family didn't need to earn and mum and/or dad could have worked less, spent more time at home and not needed to spend money on childcare.

For those on middle and low incomes the prospect of ever becoming homeowners has now all but evaporated as they face the prospect of being life-time renters. The inter-generational inequity created by this imbalance may not be evident at the moment but in time it will be. As we all know, if you don't own your home by the time you retire you're in big trouble.

What does it say about the values of a society that accumulates wealth at the expense of the next generation? Traditionally, wealth is transferred from the older generation to the next, younger generation. What we have done, for the first time in Australia's history, is taken the younger generation's wealth and added it to our own. Wayne Swan said, "As a nation, we've never been richer". If that is the case, why has the prospect of ever becoming homeowners all but disappeared for so many low and middle income earners?

The seeds of the housing affordability crisis we're now experiencing were sown back in the 1970s. Land was abundant, affordable and its management was largely left to market forces. It was in this environment that State and Territory Governments (of all political persuasions) introduced land management agencies to establish and manage 'land banks'.

When they were established, the aim of these government agencies seemed noble enough. They were charged with acquiring then holding large tracts of broadacre land so that a plentiful supply would be available to meet future homebuyer demand.

In South Australia for example, the agency was called the South Australian Urban Land Trust (SAULT), later to be called the Land Management Corporation (LMC), and its dual intention was stated as "to provide an adequate supply of land" and "maintain land affordability."

It didn't take long however before the emphasis began to shift. As land supply began to dwindle - the result of government planning regulation and zoning - a rationing effect came into play and prices started to rise.

These price rises were more dramatic than most thought possible and at a time when first home buyers really needed help, the noble intentions that had underpinned the formation of these land agencies evaporated and soon another set of aims was being devised.

In South Australia, the LMC charter is now to "maximize financial returns to Government".  Now, note the not-too-subtle shift of emphasis from the interests of the buyer to the interests of the seller. From "maintaining land affordability" to "maximising returns to Government." The LMC owns something like 90% of the developable land (undeveloped land over ten hectares) within Adelaide's urban growth boundary.

Windfall profits

State and Territory governments have made windfall profits at the expense of Australia's first homebuyers. According to their various Annual Reports, in 2004 the SA Land Management Corporation made a profit of $38m, the WA Landcorp made a profit of $45m, VicUrban made $45m profit and the NSW agency Landcom made a whopping $132m profit. In the ACT, the Land Development Agency also makes massive profits.

It is important to remember that the scarcity that propelled land prices is artificial. This so-called 'land shortage' is not real. It is the product of restrictions invoked through planning regulation and zoning. A drive on any sunny day to the outskirts of all our major cities will reveal that there is abundant land suitable for housing development. The so called 'land shortage' is a matter of political choice, not of fact. Australia did not have to suffer this affordability crisis.

Perhaps we should be asking the ACCC to investigate the anti-competitive behaviour of these State and Territory Government Land Agencies. As with the Land Management Corporation's support for the urban growth boundary, it is in all their interests to keep out new entrants. Keeping out new entrants however is not in the best interests of either competition or consumers.

But as well as the profit motive, State and Territory Governments have been spurred along by an urban planning cheer squad which is obsessed with curbing the size of our cities and pushing a policy of urban consolidation. Between them they have excluded more low and middle income earners from home ownership than at any other time in Australia's history.

We have been overwhelmed by an urban planning plague that has entangled our lives, sapped our strength, added cost to every transaction and severely limited our potential as a nation.

Now, the case for urban consolidation has been advanced on the back of a number of arguments - namely, that it is good for the environment, that it stems the loss of agricultural land, that it encourages people onto public transport, that it saves water, that it leads to a reduction in motor vehicle use and that it saves on infrastructure costs for Government.

None of these, I repeat, none of these is true. The facts and evidence from around the world refute each and every one of these claims.

Nearly a decade ago Patrick Troy, Emeritus Professor at the Australian National University authored the book, 'The Perils of Urban Consolidation' in which he squarely challenged the assumptions on which the urban consolidation principles are based. He pointed to flaws in the figures and arguments which have been used over and over again to support what is speciously called, "Smart Growth", and he argued that these policies will produce 'mean streets', not 'green streets'.

Evans and Harwich, international researchers from Policy Exchange in the UK echoed these views in their recent paper entitled 'Unaffordable Housing', reporting that, "Low rise, low density housing is better for bio-diversity than farmland and high-rise, high density urban housing."

The economic consequences of all that has happened over these past few years have been as profound as they have been damaging. The capital structure of our economy has been seriously distorted and getting it back into alignment with reality will take time. But it is a realignment that is necessary.

We cannot deny the rising generation a home of their own merely to satisfy the indulgences of town planners and State and Territory Treasury officials. We cannot deny ourselves the joys of grandchildren because the young women of Australia have to work to pay mortgages instead of raising a family. The joke that high mortgages are the new contraceptive is becoming no laughing matter.

We have to get back to the situation where a couple can pay off a mortgage on one income so they can start a family in their late 20s, not in their late 30s or early 40s.

The history of State and Territory land management and urban planning policies and the extraordinary escalation in house prices which has taken place in our capital cities, particularly Sydney and Perth, in recent decades, has many important lessons for us.

From my perspective, that of a builder who has been in the industry for more than 30 years and who has seen what has happened from the inside, it was obvious that the cause of rising house prices was the squeeze on the supply of land for new housing on the urban fringes of our major cities. It is the most basic law of economics that if supply is constrained for whatever reason, the price will rise. And in this instance supply was not just constrained, it was strangled almost to death.

But more disturbingly, all our important economic institutions, the Reserve Bank, the Productivity Commission, the Commonwealth Treasury and every economic commentator in the land, refused to acknowledge that supply factors were the cause of rapidly escalating house prices and seemed interested only in demand factors such as capital gains tax breaks, negative gearing, interest rates, first home buyers' grants and so on.

We need to ask, therefore, how did we get this unanimity of wrong advice? And how can we try to ensure that it doesn't happen again?

While I have been banging on this drum for over ten years, it has been pleasing in recent months to see the Prime Minister, the Treasurer, and the Governor of the Reserve Bank, all highlighting the way in which State and Territory Government restrictions on land supply have created this crisis.

Solution

To fix the problem for good and ensure that future generations do not suffer the same fate we need to do five things:

1. Where they have been applied, we need to remove urban growth boundaries or zoning restrictions on the urban fringes of our cities. Residential development on the urban fringe needs to be made a "permitted use". In other words, there should be no zoning restrictions in turning rural fringe land into residential land.

2. We need to encourage small players back into the market by abolishing compulsory 'Master Planning.' If large developers wish to initiate Master Planned Communities, that's fine, but don't make them compulsory.

3. Allow the development of basic serviced allotments i.e. water, sewer, electricity, stormwater, bitumen road, street lighting and street signage. Additional services and amenities (lakes, entrance walls, childcare centres, bike trails, etc. can be optional extras if developers wish to provide them and buyers are willing to pay for them).

4. Privatise planning approvals. Any qualified Town Planner should be able to certify that a development application complies with a Local Government's Development Plan.

5. No up-front infrastructure charges. All services should be allowed to be paid for through the rates system i.e. pay 'as' you use, not 'before' you use. The inequity of up-front infrastructure charging is obscene. First home buyers on the urban fringe are subsidizing, through their electricity, water, sewer and council rates, the massive repair and upgrading of existing, older infrastructure in the inner suburbs in order to accommodate wealthy 'in-fill' homebuyers.

Now a lot of people have expressed concern that if more land is released on the urban fringe to allow first homebuyers back into the market it will depress existing house prices in the inner suburbs. Not so. There is a big difference between entry level first home ownership on the urban fringe and house prices in existing suburbs. The two subjects are quite different and an understanding of buyer behaviour in the property market is required.

People who want to live in the inner suburbs will not move to the urban fringe no matter how cheap the land is. And the sheer volume of housing stock tells us that lowering the price of new blocks of land on the fringes of our cities isn't going to affect the price of ten million houses in the existing suburbs to any significant degree. Lowering the price of land also brings a whole new group of buyers into the market - renters who can now afford to buy in.

The economic and personal security that comes from investing in your own home delivers, over time, a reduced housing cost and the wide range of future choices that come with having a valuable and tradable asset. When the time for retirement does come, people who own their homes have so many more choices than renters.

Restoring home ownership is critical to the best interests of Australian families and the nation as a whole will benefit from the removal of the tyranny of urban planning. Given the vast social, emotional and economic benefits that flow from strong marriages and healthy family life, not only for individuals but for entire communities, we all have a stake in their success.

Ensuring that home ownership is the expectation of the many rather than the privilege of the few, is one of the most important and tangible ways in which we can encourage self-reliance and strengthen Australian families.




























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