Tuesday, January 27, 2009

Housing - Who is to blame?

We might have a Global Financial Crisis today – but we are definitely going to have a serious house price crisis over the next few years. It is quite likely that our children and their children are going to be very *pissed off* at what we did with housing in the first decade of the 21st century.

The 5th Annual Demographia International Housing Affordability Survey: 2009 has become available and it’s a shocker.

Of the 27 Australian housing markets included in the survey, 24 were severely unaffordable (a score of 5.1 and over) and 3 were seriously unaffordable (a score of 4.1 to 5.0).

I won’t reproduce the report - but you can get the details here. (it's a big file).

Here is a quote about Australia.

"The Median Multiple in Australia is 6.0, double the 3.0 historic maximum norm and well above levels of just a decade ago. Among the larger metropolitan markets, Sydney remained the worst, at 8.3 (down from 8.6). Median house prices dropped in Sydney and Perth. Perth’s Median Multiple dropped from 7.6 to 6.4, reflecting not only the price decline, but strong income growth. At the same time, Adelaide’s already serious housing unaffordability worsened, with its Median Multiple rising from 6.5 to 7.1.

The Sunshine Coast (Queensland) replaced Mandurah as the nation’s most unaffordable surveyed market, with a Median Multiple of 9.3. All markets in Australia were rated as “severely unaffordable” except Wagga Wagga (New South Wales), Bendigo and Ballarat (Victoria), which were rated “seriously unaffordable” (Median Multiple between 4.1 and 5.0). Unlike the other national markets in the Survey¸ Australia has thus far been able to avoid material house price declines.

It seems likely that, sooner or later, the inherent instability and unsustainability that characterizes bubbles will lead to house price declines in Australia.

However, were it possible for Australia to retain its highly over-valued house prices, there would still be a significant cost. Future generations would pay far more for housing than in the past, and Australia’s relative standard of living would decline".


So who is to blame? An interesting question – and as usual there are obvious and not so obvious targets.

The obvious targets are the State Governments who have pulled back with their infrastructure investments and who have artificially constrained the supply of land at the fringes of the urban areas. They and Local Government have run a series of misguided land use and urban planning policies for well over a decade now.

All because they didn’t understand how far they could *squeeze* the system. Or maybe they did understand and went ahead anyway.

It is the exact opposite of the planning processes that grew up around the Whitlam Government - that started in 1972. There was a sense at that time that the urban environment had been neglected for many years under successive Liberal Governments and Gough and his Minister Tom Uren set out to change all of that.

And they were largely successful – all of which resulted in a stable urban environment until the mid nineties when the Liberals regained control.

Now here is when we can identify one of the not so obvious targets – the Federal Government.

Howard was elected in 1996 and immediately set out to discredit and constrain the State Governments which were mainly Labor. The way he did that was to try to starve them of funding. He ran a relentless decade long campaign of cost shifting and withdrawal of funding which caused the states to struggle – the problem was that the Feds raised the bulk of the money and could determine how it was spent and who spent it.

At the end of it all, the Howard Government ended up with massive budget surpluses and the states ended up as paupers. So much for Federal / State relations.

So it is clear that the blame game has many facets.

1. The Federal Government – who for political reasons starved the States of funding and tried to make them look like they were incompetent (not altogether hard).

2. The State Governments who cost shifted and blamed everyone else and who eventually found innovative ways to raise new taxes (pokies) and to reduce spending on important infrastructure.

3. The Local Councils who were really the meat in the sandwich and who clearly did not have the intellectual grunt to deal with the problem – they probably didn’t even know it was happening (many still don't).

And so we as a nation will pay a heavy price.

If we look beyond the existing house owners (mostly boomers) who are sitting on billions of extra dollars of *artificial value* – courtesy of Mr Howard’s ideological war against the states then we find a new generation (the X’s and the Y’s) who are struggling – because they are being forced to pay too much (often over 50% more).

That means that their children and their living standards will suffer – with all the associated social and economic consequences.

But in truth not many of us care – or at least not enough of us care to make a difference and so we will faff about at the edges and increase the *first home owners grant* – all to be seen to be doing something useful. We might even award *freedom* medals to some of the people who presided over this mess.

When in reality – we should be exposing the stuff ups and vigorously pursuing the perpetrators through the courts.

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