Wednesday, April 2, 2008

Unaffordable Housing

Houses will never be affordable - RBA Said the headline today but if you bothered to read the article you would have seen that the actual quote was:

it is no doubt the case that housing will never be as ‘affordable’ as we might like, and the cost of housing has been the subject of concern for at least several decades”.

Which could mean anything. But the Reserve Bank has hit the nail on the head:

"In particular, policy initiatives to address any structural factors that encourage excessive demand for housing … will reduce ‘average’ house prices over future cycles and could provide enduring affordability benefits to both home buyers and renters.”

“It is now widely accepted that policies that simply give people more money to spend on housing are likely to be capitalised into higher housing prices.”

Those home grants and other housing subsidies are just making the situation worse.

What needs to be addressed is increasing supply not demand:

The RBA said to improve housing affordability, governments should be focused on policies on land use and improving efficiency in the supply of land and housing.

The question is how to do that. The IPA sponsors this website which has an excellent paper by Bob Day. He concludes by offering five ways to increase supply:

1. Where they have been applied, we need to remove urban growth boundaries or zoning restrictions on the urban fringes of our cities. Residential development on the urban fringe needs to be made a “permitted use.” In other words, there should be no zoning restrictions in turning rural fringe land into residential land.

2. We need to encourage small players back into the market by abolishing compulsory ‘Master Planning.’ If large developers wish to initiate Master Planned Communities, that’s fine, but don’t make them compulsory.

3. Allow the development of basic serviced allotments ie water, sewer, electricity, stormwater, bitumen road, street lighting and street signage. Additional services and amenities (lakes, entrance walls, childcare centres, bike trails, etc etc can be optional extras if the developer wishes to provide them and the buyers are willing to pay for them).

4. Privatise planning approvals. Any qualified Town Planner should be able to certify that a development application complies with a Local Government’s Development Plan.

5. No up-front infrastructure charges. All services should be allowed to be paid for through the rates system ie pay ‘as’ you use, not ‘before’ you use. The inequity of up-front infrastructure charging is obscene. First home buyers on the urban fringe are subsidizing, through their electricity, water, sewer and council rates, the massive repair and upgrading of existing, older infrastructure in the inner suburbs in order to accommodate wealthy ‘in-fill’ homebuyers.

If the Commonwealth government really wants to help homebuyers they can apply the stick to State governments to introduce necessary reforms, but please no more subsidies Mr Rudd!

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