Possums Pollytics

Politics, elections and piffle plinking

A quick addition to housing affordability

Posted by Possum Comitatus on April 2, 2008

Continuing on from our last round of debate, Anthony Richards, the Head of the Economic Analysis Department at the RBA has just conveniently published a spiel on housing affordability that he gave to the Melbourne Institutes 2008 Economic and Social Outlook Conference.

Some Observations on the Cost of Housing in Australia

It not only addresses a lot of the issues we’ve looked at here, but conveniently provides a fair whack of data that people have been asking about. For anyone really interested in the policy side of this, have a close squiz at the footnotes and the References where there’s a good list of further reading.


For those of you that either dont know or, like me, dont particularly care, the Senate Select Committee on Housing Affordability in Australia has started going through the motions. I’ve never had much faith from the outset in this particular committee doing anything remotely usefull about housing affordability – but it wasnt until this morning that I actually came across its terms of reference via Tug Boat Potemkin via Club Troppos daily missing link.

The terms of reference for this exercise in intellectual horsepower are:
1. That a select committee, to be known as the Select Committee on Housing Affordability in Australia be established to inquire into and report upon:
The barriers to home ownership in Australia, including:

a. the taxes and levies imposed by state and territory governments;
b. the rate of release of new land by state and territory governments;
c. proposed assistance for first home owners by state, territory and the Commonwealth governments and their effectiveness in the absence of increased supply;
d. the role of all levels of government in facilitating affordable home ownership;
e. the effect on the market of government intervention in the housing sector including planning and industrial relations laws;
f. the role of financial institutions in home lending; and
g. the contribution of home ownership to retirement incomes.

Is there anyone else that reads this drivel and goes WTF?

The only tax regime mentioned is that of “States and Territories” – Oh how very convenient. I’m sure the usual special interest pleaders will have a field day with this one.

Garbage in – garbage out.


29 Responses to “A quick addition to housing affordability”

  1. 2 tanners said

    Fascinating. I wonder if all those heritage preservation orders and tree preservation orders are actually hurting our younger citizens. I knew developers hated them. And then, to further discourage efficient land use is the ‘betterment tax’. Suppose you subdivide a block and build a second house. In the ACT, they will revalue the land and charge up to 100% of the difference between the old and the new value of the land! Way to go to keep prices down, fellas.

  2. Possum Comitatus said

    There is no area of greater controversy in urban planning than betterment taxes!The problem has always been one of the idea being sound, but the implementation and consequences being not so sound in practice.

    I simply do not understand why Australia hasn’t adopted a system of Transferable Development Rights for urban redevelopment – apart from it being a pretty efficient system, it doesnt punish people that have heritage orders slapped on them, but actually provides a financial means to deal with those heritage orders in a way that doesnt leave heritage listed buildings dilapidated through neglect caused by the financial burdens placed on the owners.

    This paper is probably worth a read for those that haven’t heard of TDRs

    Click to access 11_Ryan.pdf

  3. 2 tanners said

    I think one of the key indicators is in the graph showing cost of building and price of houses. There is obviously a market disconnect, I suspect on the supply side in terms of restrictions on actually creating a larger pool.

    Please do not interpret this, or my previous post, as supporting uncontrolled development. The number of spivs and crooks in that industry is staggering, and regulation IS needed. It’s just that everything seems to come ahead of actually providing housing.

    I won’t argue the toss on betterment tax, poss. I’d simply point out that planning restrictions for WHATEVER reason adds spurious increases to the price of land via scarcity value for land that can be developed and that betterment taxes accentuate this trend. Might be good revenue policy, but the effects, I would argue, are not considered.

    And in regard to the select committee, I suggest a good round of blamestorming is about to take place. Wet weather gear, everyone!

  4. Andos the Great said

    Re: the latest update. Is there any indication of who determined the terms of reference? Since it’s a coalition controlled senate, I imagine they had control over these things…

    Maybe I’m just being a partisan paranoid.

  5. steve said

    Possum this ‘Economic Outlook’ from David Gruen yesterday is well worth a read too.


  6. The terms of reference for the Senate Select Committee were drawn up by the Liberal Party without consultation with any other party. It is one of 4 new Senate Select Committees (that is a Committee set up specifically to look at a particular issue rather than one of the eight existing Standing Committees which have various inquiries over a range of matters within their general purview). Not surprisingly, but still rather gallingly, having used their majority in the Senate for the last 3 years to block a wide range of inquiries, prevent proper time being given to examine major pieces of legislation, and to stop a single Senate Select Committee being set up, the Liberals have used the few weeks of sittings under the new government to use their Senate majority to set up 4 separate select Committees – all of which just happen to have a majority of Coalition members and be chaired by the Coalition (exisiting Standing Committees are automatically chaired by government members under Senate Standing Orders).

    Despite all that, and the constrained and loaded terms of reference, I think it would be silly to ignore the whole inquiry. Both major parties have mostly ignored the housing affordability crisis at federal level for a long time, so whilst this inquiry is partly politically motivated and potentially distorted in its focus, it is still a long overdue effort to get some proper evidence on the record and into the political debate, and to better inform the Senators who are part of it.

    Senate inquries are about a lot more than what goes into the final report, which will always be influenced in part by political motivations. They are also about the evidence presented, which the Committee generally cannot control.

    Also, whilst I’m not naive about the way such inquiries can be (mis)used for political point-scoring, people shouldn’t totally ignore the potential that can come from genuinely better educating some Senators by exposing them to evidence and ideas they hadn’t heard before. Some of them from all parties will ignore eveything except that which fits what is politically convenient for them to believe, but others make a genuine effort to listen and learn.

    I would also say that (a) despite the politically loaded terms of reference, the inquiry is still into housing affordability, and no remotely credible examination of that could pretend to quarantine it to the constraints of a narrowly iliteral interpretation of the terms of reference. The issue are too complex and interconnected to be isolated to a few sub-sets, and (b) despite the obvious cynicism of the Liberals in setting up Inquiries that they control, rather just refer a matter to an exisiting standing committee that they don’t control, the Liberal’s Chair for this inquiry is Marise Payne, who has a record better than just about any Liberal in the Senate of treating Committee inquiries seriously (which is in no small part why a number of clearly less capable people than her got promoted to Parl Sec or Ministry positions ahead of her).

    Speaking as a member of the Committee who I suspect will end up producing an (at least partially) dissenting report to the majority of the Committee, I am well used to pondering the worthwhileness of going through such processes – especially when such reports tend to be ignored by governments anyway.

    But while I don’t suggest the inquiry will change the world – the new government has yet to show it will be any better than the old in listening to evidence produced outside the processes that they set up and control – any avenue to better inform political and public debate shouldn’t be totally dismissed as pointless. If people have the time to write ideas up and put them on a blog (something which I also think is worthwhile but I imagine many others would also presume is mostly pointless), it wouldn’t greatly hurt to put the same thing together as a submission to the Committee.

    [Sorry Andrew – you were in the spam bin. It’s the aph.gov address that does it – go figure! …. Poss]

  7. 2 tanners said

    Thanks to Andrew for your insightful comments.

    Two questions: Can you submit the material in the series that possum has produced over the last couple of weeks, or does someone else need to do that, either from an accountability or credibility viewpoint (you could at least point Parliamentary Library to the scholarly articles).

    Second question: Given that Marise Payne is chairing, and I share your views about her and often regret her choice of party, what is the best bet for airing some of my personal hobby horses in this regard. I do not reside in Australia presently, so a personal appearance might be tricky or at least very expensive.

    Of course if you guys need an overseas trip to view a market with government factors that is pricing normal people right out of housing in a way undreamt of in Australia, I can provide a rather lovely destination. 🙂 🙂

  8. Harmless Cud Chewer said

    The terms of reference don’t mention transport and other infrastructure either. By the way, what happened to the promise to help councils with some of the costs of new development?

  9. Andos said

    I guess I’m not just a partisan paranoid.

    Thanks for the input, Senator.

  10. 2 Tanners – anyone can put in a written submission. I can forward things from other people, but its a bit better for them to come direct – it prevents anyone wrongly assuming I specifically endorse what I’m forwarding (or that they endorse me for that matter).

    This link – http://www.aph.gov.au/Senate/committee/hsaf_ctte/index.htm – tells you all you need to know. (the date for submissions has technically closed, but they will almost always accept late submissions for some time yet).

    Apart from being available for all the Committee members (and the Secretariat staff, who unlike all the Senators can be relied on to read it), submissions also go online, so anyone else can read them too – all the submissions so far are here, and transcripts of hearings appear within a few days at this link – there is good value material amongst it (like everyhting, you have to wade through some dross along the way – bit like a blog really).

    harmless cud chewer: As noted, the terms of reference are not as complete as they could be. Part of why I don’t always get too fussed over terms of reference is that you can never put everything in, and even if you try, if the people with the numbers on the Committee have a pre-determined view, they’ll still come to it anyway. At the end of it, its a Committee inquiring ito housing affordability, and it it ignores half of the issues and factors it will have half the credibility – especially if those fctors are regularly raised in evidence.

    The crucial role of transport availability and costs has been brought up by a number of witnesses already, as have the impact of federal taxes and grants on demand and the fact that affordability is currently a far bigger problem in private rental than it is in home purchasing. If the final report refuses to acknowledge or discuss these things, it will just be another weapon for people to use to butress their political talking points. If it goes further and takes on board all the issues and evidence then it will start to move towards being a useful contributor to informed debate on policy solutions and better understandings of the issue. (if we also have a government who pays attention to such things, then we could really on to something, but that outside the Senate’s immediate scope)

  11. […] some online discussion on some policy specifics might want to visit Possum Pollytics, which has a few posts on the topic. One of those pointed to a recent easy to read and fairly short speech on the […]

  12. Sean said

    Dear Mr Possum and Readers,

    Please feel free to wander over to the Australian forum of the ‘Global Housing Price Crash’ website at any time, to look at news and views, at the somewhat cryptic address of http://forum.globalhousepricecrash.com/index.php?showforum=9.

    I hope there might be some useful cross-fertilisation of opinions and data from here, creating a critical mass of interested participants, as more and more thinking people in the community consider the ramifications of the global housing price booms that have taken place in the last decade — and increasingly put pressure on politicians and bring the whole sorry mismanaged economic affair to light.

    Can you consider linking to the forum as a kind of web ‘ring’ also.

    Sean Reynolds

    P.S. Are you any relative of Private Eye Nick Possum of Sydney City Hub fame?

  13. David Richards said

    So the Lib Senators didn’t want to open the smelly can of dead worms containing negative gearing, capital gains tax reductions et al as outlined by Possum as the cause of the crisis from 2000 to present?

    Also, the long since abandoned decentralisation and building up of regional centres that has seen the congealing blood clot choking the capital cities with an excess of politicians, while regional and rural areas haemorrhage hemophiliacally.

    Eight years of total stupidity by the previous government, coupled with the previously mentioned abandonment of the Whitlam era regional development plans. The current poo was inevitable.

  14. David Richards said

    errata – “excess of politicians” should read “excess of population”. Freudian nightwear?

  15. swio said

    Graph 8 on that RBA paper sums up what happened. Interest rates dropped significantly in 1996 and the dwelling price to income ratio starts a very steady climb at exactly the same time. Its notable how little the RBA paper talks about the link between interest rates and house prices. To a non-economist like me it almost looks like the RBA is trying to exonerate itself of any blame for current housing prices by providing alternative explainations that are not related to interest rates being too low.

    Can someone explain this to me as I have never found a decent explaination. Why is the housing component of the CPI calculated using owner’s equivalent rent rather than actual house prices? To me it seems so straight forward that if CPI was calculated using actual house prices then the housing bubble would have fed straight back into increased inflation which would have caused the RBA to raise interest rates which would have at least alleviated the housing bubble. When we had one of the biggest housing bubbles in the world why didn’t the Reserve act to do something about it when it would have been so easy for it to do so? Why didn’t it raise interest rates in response to the housing bubble? I just don’t get that.

  16. steve said

    The ASIC report into mortgage entry and exit fees is here.


  17. jeffrey said

    Even though there was a regime overthrown last November the coalition is still up to its old tricksy ways with terms of reference that deal with less than half the issues. Then again, renters have always been a lower form of life to the coalition. Would someone please knock on coalition parliamentary doors and ask if they’ve noticed anything different about their accommodation lately? What a pity Senator Payne has been set up to do this dirty work.

  18. Possum Comitatus said

    Thanks Andrew on clearing up the games behind the ToR, and good luck with producing something constructive out of the mess. It’s not hard to see where it’s all leading though – with the Coalition Senators blaming housing affordability declines on the States over land release and stamp duty, the ALP using the process as a justification for their own relatively small affordability program as if it were some panacea, with the whole thing generally descending into a bit of a farce.

    I do find it a little disturbing though that one of the key benefits would be to educate some of the Senators involved – especially considering that this isnt a new issue, the evidence is everywhere and where the quickest of briefs by the parliamentary library would disabuse them of any ignorance relatively quickly.

    But I do hope that something worthwhile is produced – and more power to you in that regard . We’ll certainly run through the reports when they come out and pick them apart mercilessly.

    Sean – nope, I’m no relation of Nick Possum and I added your links into the bottom of the policy bits post.

    Thanks steve for the links.

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