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Housing crisis or just bad policy?

By James Arvanitakis and Lee Rhiannon - posted Friday, 20 August 2010

Then there was the so-called “first home buyers schemes” which helped create a false sense of affordability with an all too predictable outcome: house price inflation. The scheme simply means everyone ups their willingness to pay by the equivalent of the handout and does nothing to make housing more affordable.

The increase in housing prices that follows these policies creates a false sense of satisfaction and the net result is neutral because most of us buy and sell in the same market. Despite this, at most dinner parties you find someone talking up how much their house is worth often forgetting that rising house prices can not make us all wealthy.

The other side of the equation is supply. Despite the massive asset price increases in housing, Australians have not actually built many houses in the last 10 years. Again the property lobby offers a simplified answer to housing shortages: release more land on the urban fringe.


This is a ludicrous solution because most people do not want to live in areas that are under serviced and require very long commuting times. Further, with cheap fuel becoming a thing of the past, most who can barely afford a house will find the commute financially crippling.

Despite the obvious problems with extending cities, this has been the solution for far too long. Both the shape and structure of Australian cities bear witness to the fact that urban planning in this country is basically non-existent: our cities are among the least dense in the world, are under-serviced and have huge environmental impacts.

So what is the solution to an over-valued market in terms of both average wages and the yields on rental properties?

The first thing to state is that we do not need more houses. Despite what developers tell us, property analyst Hometrack believes that housing may even be in excess in Australia. Their argument is that ABS data significantly under-estimates the housing supply by only counting "occupied dwellings". On the 2006 census night, for example, the ABS reported 8.3 million dwellings while Hometrack believes that there are at least 10 million dwellings in Australia. This difference, according to Hometrack, is made up “of a mixture of housing awaiting sale or development, vacant dwellings, second homes, and abandoned homes".

The second is to revisit the issue of density and planning. We need to get better at planning liveable cities that do not simply expand out. Medium density housing needs to be encouraged through better amenities and taxation.

Third, we must revisit the recommendations in the Henry Review associated with negative gearing and capital gains taxes. These were sensible recommendations that had the support of many economists as they remove distortions to different types of savings.


Finally, we need to look at long-term leases that allow renters to live with a sense of security: particularly for families looking for stability. Five to seven-year leases would encourage long-term investors and discourage speculators - and have a significant impact on housing prices.

For too long housing policy has been limited to quick fix solutions that continually benefit developers and those already comfortably set in the market. The next federal government needs to show leadership and not shy away from confronting established interests - or we will simply get more of the same. It does not take a genius to tell us that more of the same is likely to lead to … more of the same.

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About the Authors

James Arvanitakis is based at the Centre for Cultural Research, University of Western Sydney, and is a fellow at the Centre for Policy Development.

Lee Rhiannon MLC is a former Greens member of the NSW Legislative Council and is running in the 2010 Federal Election as the NSW Greens Senate candidate.

Other articles by these Authors

All articles by James Arvanitakis
All articles by Lee Rhiannon

Creative Commons LicenseThis work is licensed under a Creative Commons License.

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