HOUSING: by Jeffry Babb News Weekly
How to make the Australian dream come true
, May 10, 2008
First home-buyers ought to be able to buy a good home and land for as little as $130,000, a leading Australian home-builder has argued. Jeff Babb reports.Bob Day is a South Australian home-builder and former national president of the Housing Industry Association. He's watched the Australian dream of home ownership slip from the grasp of the average young family.
He understands the problem, and believes he knows the solution. It's not difficult, he says. Get the planners and bureaucrats out of urban land-management and let the home-buyers decide where and what they want to build.
After World War II, average Australians were able to buy their first home on an average income. Traditionally, the median house price was around three times the median household income.
For example, when the average income was just £1,000 ($2,000) per annum in the early 1960s, one could buy a basic house on a basic block of land for around £3,000 ($6,000). When the average income was $10,000 per annum in the 1970s, the median house price was $30,000. When the median income was $40,000 in the early 1990s, the median house price in most capital cities was $120,000. Young couples could get a start in the housing market, manage a home loan on one income, start a family and work their way up.Median house price
What's happened now? In Adelaide, Melbourne and Brisbane, the median house price is more than six times the median income; in Sydney and Perth, it's more than eight times.
The price of building a basic house has hardly varied. Let's look at Bob Day's home state of South Australia. Since 1973, the price of building a 135sqm house increased from $97,000 in current dollars to just $102,000 today. That's not a shack - it's a nice new brick house with a double garage. The price of land, however, has increased from $15,000 per block in current dollars to $160,000 per block today - a more than 10-fold increase.
In 1973, the South Australian state Labor government under Premier Don Dunstan - like other states - decided it could do the job of making land available to new home-buyers better than the private sector. The South Australian Land Commission's primary aim was "the provision of land to those members of the community who do not have large financial resources". The Land Commission Act made it clear that the commission "shall not conduct its business with a view to making a profit". In time, the state government saw a rich cash-cow, and the land agency - now the Land Management Corporation - was given the mandate "to maximise financial returns to the government".
Notice the date when land release and development were taken out of the hands of the private sector - the time of the Whitlam Labor Government. The land banks in all states were designed to make the government responsible for land release and make land "more affordable".
The whole scheme was an exercise in social planning. It was like putting Dracula in charge of the blood bank. The government created an artificial scarcity in land, so it could charge young home-buyers a small fortune for a block of land on which to build their dream home.
Can anyone honestly say Australia is short of land? Fly over any Australian capital city, and you can see the empty acres with nothing on them except dried grass and a few sheep. What is stopping houses being built? Rules and regulations imposed by government social-planners.
Bob Day estimates that builders could sell a good home and land package for as little as $130,000 - $100,000 for a new house and $30,000 for the land.
But things would have to change. Take the provision of utilities and other services. Now, new home-buyers have to pay for all of these up-front. This is effectively a subsidy to other established home-owners. Why not allow the utilities companies to provide these services and recover them in their bills, which they would willingly do? Councils could provide basic services and recover the outlay in rates, paid off over a period of years, as still happens in some parts of Australia.
Why not allow provincial cities to compete in land sales? The late Colin Clark, Australia's best-known contributor to economic theory internationally, advocated decentralisation of population across Australia. This would truly make land available for all who wanted it.
Governments have created an artificial shortage by imposing "growth boundaries".
"The so-called 'land shortage' is not real," argues Bob Day. "It is the product of restrictions imposed through planning regulation and zoning. The so-called 'land shortage' is a matter of political decision, not of geographical reality. Australia did not, and does not, have to suffer this housing affordability crisis.
"Urban growth boundaries are the surest way of limiting supply. The government sets the rules, plays the game and then decides who else can and cannot play against them. Not only that, they make millions from extra stamp duty as property prices rise. If that isn't a conflict of interest, I don't know what is. State and territory governments have made windfall profits at the expense of Australia's first home-buyers."