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The Forum > Article Comments > No opportunities on the property ladder > Comments

No opportunities on the property ladder : Comments

By Alan Moran, published 23/8/2006

The blame for the high cost of housing in Australia rests squarely with government.

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Skellett - you said much the same as me, but more succintly. Thanks - a lesson for the verbose like me.
Posted by PK, Wednesday, 23 August 2006 9:08:29 PM
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There are some well-informed comments in response to my article. Brock and Lev PK and Skellett point to factors other than government created land shortages, in particlar changed income taxation arrangements.

I agree these have had a major impact but such changes have been seen elsewhere. While they may reduce some people's real cost of investing in housing, houses like other commodities only exhibit price increases if supply cannot be increased. The reason why places like Houston or Atlanta have not seen massive house price increases in the face of very substantial increases in population (especially in Houston where the influx from New Orleans was absorbed without a real estate boom) is because there is plenty of land available for housing. The authorities in these municipalities do not ration land available for housing or try to impose their own preferred development patterns, preferring instead to allow consumers to choose.
Posted by alan, Thursday, 24 August 2006 10:05:51 AM
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Alan,

Your statement that, "commodities only exhibit price increases if supply cannot be increased" is only true if demand increases.

My point is that the federal government has artificially increased demand, and therefore generated price increases, by implementing policies that favour speculation in housing - particualarly existing homes.

We should focus on the big factors that affect housing affordability - the CGT, negative gearing, interest rates - and hold the Howard government accountable for its failure in these areas.

Once these factors are addressed, we can then think about land allocation.
Posted by skellett, Thursday, 24 August 2006 3:23:50 PM
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Skellet,

I have no difficulty dressing any market distortion (though I don't agree all those you name are distortions). The point is that increased demand only has an effect on prices if supply is restricted. Because there is a range of regulatory regimes in the US it provides comparative data on which this can be tested empirically. A study by Glaeser, Gyourko and Saks found that a 10 per cent increase in demand led to a $5000 increase in house prices in those areas that did not ration land Australia-style but $60,000 in areas that do have rationing.

Alan
Posted by alan, Thursday, 24 August 2006 4:55:31 PM
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Land tax has gone down? You're joking right? Last 8yrs my land tax assessments have nearly quadrupled, sans additions.

Scarcity of land drives up land values? "Buy land, no one's making it anymore." Its not land per se that drives land values, rather the creation of habitable building allotments. When a house gets dozed and replaced with say 3 units, 2 new titles have been created and added to supply. When a 100 unit high rise goes up on a vacant site, that has just increased supply substantially.

Main driver of rising property prices is... easy credit. Central banks are pumping money supply with cheap and easily accessible credit. Had to do something lest the house of cards come crashing down when the schlock market melted down in 2002/3.

Property market driven by credit. Increase supply of money and that increases demand for property (and almost everything else that isnt cheap, easy or commoditised).

Its inflation... which is not rising prices (effect) but rather the expansion of money supply (cause).

Global trend for a couple decades is away from urban sprawl towards increased urban density. Chopping up old cow paddocks 30km out from the CBD puts large and expanding pressure on ecosystems, infrastructure and budgets. More sewerage, drainage, run off and polution place much pressure on urban communities. Its unsustainable.

Established metro areas werent built to cope with the increased demands created by medium to high densities. There's congestion, pollution, flash flooding from all the extra run off going into 100yr old drains not rated for more than 1 in 5 yr flooding.

Bit of a mess out there.

3% rental yeilds are pure madness for investors and marginal for speculators. Great for renters tho. Cost 2-3 times as much (interest, outgoings, maintenace and repairs) to own as it does to rent. Renters are sitting pretty as owners are subsidising them in the hope of price growth.

Methinks, Howard is flagging possibility of bringing foward land release for rezoning to residential. Might be time to go sniffing about the metro fringe for a potential windfall.
Posted by trade215, Thursday, 24 August 2006 5:07:48 PM
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Alan Moran “The excessive costs are purely due to government rationing of land. Many areas around the world, including some of the fastest growing municipalities like Houston, Atlanta and many other US cities as well as some slow growing areas (most German cities) have no such rationing. The outcome is flat real land prices in these places.”

Good observation Alan.

Skillet

“1) Ridiculously generous CGT benefits for housing investors/speculators.
2) Negative gearing, even for existing houses.
3) Interest rate increases.

1 and 2 completely distort the allocation of capital whilst 3 increases the cost of capital.

1 can be fixed by removing favoured status of capital.
2 can be fixed by allowing time-limited negative gearing for new homes (say 3 years).
3 can be fixed by voting out the Howard government.”

1 Wrong, the calculation for capital gains tax on housing is the same as any other form of investment.

2 Wrong, the calculation for income tax and consequent negatoive or positive gearing outcome on housing is the same as any other form of investment.

3 Vote for labour and interest rates would be going up a percentage point at a time, not a ¼ point.

Oh and since state land planning is a matter of state planning decision / policy and since state governments are currently in the hands of incompetent socialists, voting out the labor dullards will more directly impact the housing market without change to our superb team of federal liberals and nationals.

Finally, the “allocation of capital” should be left as a decision of the individuals whose capital is at risk. Like
Alan Moran stated, where socialist meddling in land supply is absent,” The outcome is flat real land prices.”
Posted by Col Rouge, Thursday, 24 August 2006 6:43:06 PM
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