May 25th 2013

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Articles from this issue:

CANBERRA OBSERVED: The federal Budget: Swan's swan song

EDITORIAL: Family policy is more than paid parental leave

HOUSING: Home ownership still out of reach

TELECOMMUNICATIONS: Which broadband policy should Australia adopt?

SCHOOLS: The national curriculum's ideological agenda

ECONOMIC AFFAIRS: A debt-free way to lift output and employment

PROFILE: Left-wing veteran of Australia's 'history wars'

NATIONAL INTEREST: Australian appeasers, past and present

FOREIGN AFFAIRS: The Islamic origins of Syria's civil war

WORLD CONGRESS OF FAMILIES VII: Why natural marriage must be protected

LIFE ISSUES: The unheeded cry of post-abortion grief


CINEMA: Choosing darkness or choosing light

BOOK REVIEW How to win the marriage debate

BOOK REVIEW An unusual story of World War II

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Home ownership still out of reach

by Patrick J. Byrne

News Weekly, May 25, 2013

Home ownership is still out of the reach of many Australian families compared to 30 years ago.

Recently, the 9th Annual Demographia International Housing Affordability Survey ranked Australia as having one of the most expensive housing markets of the countries surveyed.

According to the report’s authors, Wendell Cox and Hugh Pavletich, the major contributory factor to Australia’s dearer housing was the implementation of more restrictive land-use policy.

The authors call this “urban containment” policy, which also comes under various labels, such as “smart growth”, “urban consolidation”, “compact city policy”, “growth management” and “densification policy”.

Demographia assessed 337 major city markets in seven countries: Australia, Canada, Hong Kong, Ireland, New Zealand, the United Kingdom and the United States.

It assesses housing affordability by calculating how many times greater a country’s median house price is than the country’s gross annual median household income. It rates national housing markets as follows:

• Affordable: 3.0 or less.

• Moderately affordable: 3.1 to 4.0.

• Seriously unaffordable: 4.1 to 5.0.

• Severely unaffordable: 5.1 and over.

This measure is widely used for evaluating urban markets, and has been recommended by the World Bank, the United Nations and the Harvard University Joint Center on Housing.

According to the survey, Australian housing is in the “severely unaffordable” category, averaging 5.6 times median household income across 40 cities, second only to Hong Kong at 13.5.

Australia’s major population centres, mainly the capital cities, are even more unaffordable at 6.5.

In comparison, the affordability rating of US homes is 3.1, Ireland 3.2 and Canada 3.6.

Historically, housing affordability was once remarkably similar in Australia, Canada, Ireland, New Zealand, the UK and the US, with median house prices having generally been somewhere between 2.0 to 3.0 times median household incomes.

That changed in the mid-1980s.

Demographia said that that while the value of residential structures has remained constant (relative to GDP), the cost of land has risen dramatically. It said, “In Australia, 95 per cent of the increase in inflation-adjusted new house (and land) costs were attributable to land, rather than construction from 1993 to 2006.”

Contrasting how varying land policies can make a huge difference in home price, the report’s authors contrasted the restrictively regulated San Diego, where house prices were 250 per cent higher than in Dallas-Fort Worth in 2007, yet cost only 15 per cent more to build (Demographia, 2011 report).

The 2013 report says that there is overwhelming economic evidence that urban containment policies, especially urban growth boundaries, raise the price of housing relative to income.

It continues: “This inevitably leads to a reduced standard of living and increases poverty rates, because the unnecessarily higher costs of housing leave households with less discretionary income to spend on other goods and services….

“Urban containment policy has been associated with greater price volatility and greater speculation. Investors and speculators are drawn to metropolitan areas where ‘quick’ money is to be made, because of the inflexibility of the supply market.

“Econometric research also identifies an association between slower economic growth and urban containment regulation.”

Indicative of how larger mortgages and higher interest rates affect households, Reserve Bank of Australia data show that housing interest payments have gone from 3.8 per cent of household disposable income in 1980 to around 5.8 per cent (1990-2002), 10.2 per cent (2008), to around 8.0 per cent currently.

Demographia says that increasing attention is now being given to the challenging demographic trends that could materially reduce future standards of living in each of the geographical areas covered.

It observes that many households are having children later, or not at all because housing conducive to raising children is unaffordable. “There are generally lower fertility rates in urban cores, with their higher-density housing, than in the more dispersed suburbs, with their detached and semi-detached housing.”

The report’s authors argue that urban policy needs a “reset”, saying that “the emphasis should be shifted away from ‘designing’ urban areas to facilitating a better standard of living for the people who live in them”.

The Demographia authors have dedicated their report to younger generations who a have right to expect they will live as well or better than their parents, but may not, in large part due to the higher cost of housing that is driven by exorbitant increases in house prices relative to incomes.

Clearly, Australian governments need to make a serious commitment to decentralisation policies, building regional cities and reducing population pressures on capital cities.

At the same time, they need to open up more land for residential development and make some of this land available at cost by ballot to first-home buyers.

Patrick J. Byrne is national vice-president of the National Civic Council.

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