THE POLITICS OF AFFORDABILITY

THE POLITICS OF AFFORDABILITY
How common lies seem like powerful truths.

by Terry Ryder

It's almost tragic watching politicians and media puzzling over the two-speed property market and the related issues of low housing affordability and record home repossessions.

The reasons are quite simple.

The common factor pervading these issues is this: Australia's economy is booming but the spoils aren't being evenly shared.

Most of the benefits of the resources-inspired prosperity are being gobbled up by the upper echelons. While the top end is rolling in cash, the average person is no better off than five years ago.

The business elite have never had it so good. Record company profits, generous executive salary packages and a buoyant sharemarket mean those at the top have more dollars than ways to spend them. This is driving the rise and rise of the top end of the residential property market.

But down in the real world, the mainstream where 90% of Australians live, the market is going nowhere fast.

More and more households cannot afford to buy a home, those who already own one are struggling with their mortgages after eight consecutive interest rate rises and banks are repossessing homes at record levels.

This divide between rich and poor explains why the Federal Government has been polling so badly. While Howard and Costello keep telling us how good the economy is, the average family watches bemused - they know they're no better off than before. Some households are worse off.

The best evidence supporting these conclusions is found in two recently-published documents. One is the Commonwealth Bank's housing affordability index and the other is the Melbourne Institute's Wages Report.

The wages report shows that over the period of the economic boom wages have grown at roughly 2% to 3% a year. In other words, not much above the inflation rate. The report states that a significant proportion of households have seen no "real" (after inflation) increase in their incomes over the past five years.

But in the same time frame property prices have doubled in many areas and there have been multiple rises in interest rates.

There's confirmation of this in the bank's affordability report. The components of the affordability index are the price of houses (driven up by the recent boom), the income needed to qualify for a loan (driven up by interest rate rises) and household incomes (kept down by Federal Government policy). To calculate affordability, they take the typical house price (the median) and use current interest rates to establish the typical monthly mortgage to buy that typical house. That dictates how much income a household needs to qualify for the typical loan.

The problem is this: the typical price has risen a lot, thanks for the recent market boom, and the typical monthly payment has risen greatly also, thanks to all those interest rate rises from the Prime Minister who promised they wouldn't rise if we re-elected him - BUT household incomes haven't kept pace, thanks also to that same Prime Minister who has devoted his life to keeping wages down.

In the property booms of the 1970s and 1980s, prices rose a lot and interest rates were high, but incomes were rising at 8%-9% a year, so affordability didn't suffer too much.

Today, the growing gap between the income needed to get a loan and the actual income earned by the average family is the reason why affordability is at all-time lows - and why we have this strange two-speed property market.

You'll notice that there's no mention in the affordability equation of stamp duty or land supply.

This is a surprise because the development lobby has been desperate to convince us that affordability could be solved overnight if state governments lowered stamp duty and raised the supply of land for new residential development.

It's nonsense but they keep saying it because they have a vested interest in lower stamp duty and higher land supply.

So why is this deception not widely known?

Part of the answer is that media doesn't do its job. There was a time when journalists were proactive in investigating major issues like affordability. Today many journalists simply regurgitate the spin-doctored views of politicians and business lobby groups.

This is more evident in the "debate" over affordability than anywhere else. By now it's highly likely that if a poll of ordinary Australians was conducted, most would tell you that low affordability is caused by high stamp duty and low land supply.

Why? Because the Liberal Party and the property development industry have colluded in a campaign to blame affordability on state governments - which means the ALP.

This not only has political benefits for the Liberal Party but it allows builders and developers to constantly harass state governments into releasing more land for development.

The true intent of the development lobby's campaign (more profits for developers and political capital for the Liberal Party) is transparent to anyone paying attention but sadly most people in the media are not paying attention.

Organisations such as the Housing Industry Association, the Property Council of Australia and the Urban Development Institute of Australia have taken every opportunity to keep repeating the message until people accept it as fact. Every ABS data release on the real estate market has brought a rapid-fire media release by the HIA or UDIA claiming that it's all evidence of the evil outcomes of (alleged) land supply restrictions.

While the Federal Budget contained not a single word about affordability - and we still don't have a Federal Housing Ministry - most of the state budgets have cut land tax and stamp duty, and increased spending on public housing. But the Property Council and others in the development lobby claim it isn't enough - it's all about a shortage of land.

Some of their outbursts have bordered on the hysterical. The UDIA managed to keep a straight face while claiming that Brisbane faced becoming an enclave for the wealthy, with workers having to fly in and out because they couldn't afford to live in the city! And the Courier-Mail gave it credibility by reporting this nonsense.

If you doubt my contention that land supply has little to do with affordability, consider this: land supply is relevant only to new housing and only 10% of home purchases are new house-and-land packages.

Around 90% of people buy established housing and the affordability problem relates to the high market price for established houses in the established suburbs. Releasing new land on the outskirts of our major cities will do little to change that.

And here's another piece of information that contradicts the development lobby's claim that land will be cheaper if governments increase the supply of it.

The UDIA recently published data from Western Australia, which showed that the number of vacant allotments made available for sale increased 86% in the March quarter. That means land supply almost doubled in the space of three months.

According to the development lobby, this should result in land prices dropping. But in Western Australia land prices rose 8% in the March quarter - that's an annual rate of over 35% - despite the massive increase in land supply.

Besides, there is no land shortage in Australia. It's a major furphy and the development lobby knows it. They're lying to us.

But the property industry has never had a problem with telling lies if there was a buck to be made from it.

***************************

Terry Ryder is a freelance journalist specialising in property issues. He is also the creator of the acclaimed hotspotting web site http://www.hotspotting.com.au/.

***************************

This news article was taken from the Articles page of the Jenman website.

<< Back to Latest News

Articles