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The Forum > Article Comments > The death of personal responsibility > Comments

The death of personal responsibility : Comments

By Felicity McMahon, published 26/7/2007

Encouraged by a booming economy, low interest rates and easy finance, people have simply taken on too much debt.

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No doubt there are people who overcommit themselves and would likely get into trouble in any economic environment. However, the price of an average house in Australia has gone from 3.3 times the median wage in 1970 to 7.4 times in 2005, and no doubt considerably more in urban areas. See

www.findem.com.au/factsheets/housingfactsheet.pdf

If this were simply due to people scaling up to McMansions, then you would expect the land component of the house price to be decreasing, especially since block sizes are getting smaller. In the 1970s the land component was about 30% of the cost of a house, but now it is more like 60-70%, and sometimes more.

http://www.afsd.com.au/article/aip/aip35a.htm

It is telling that building costs, which have not increased in real terms, are included in the CPI, but not the cost of the land to build the house on or the cost of buying an existing house.

The government has deliberately created this situation of high land and therefore high house prices by squeezing supply (by abandoning decentralisation, controlling zoning, and alllowing developers to sit on released land) and by increasing demand through government sponsored population growth, both in the form of subsidies for children, such as the recent baby bonus, and, much as Stickman would like to pretend otherwise, through mass migration, now close to 300,000 a year when all categories are included, according to a recent column by Ross Gittins in the Sydney Morning Herald.
Posted by Divergence, Monday, 30 July 2007 4:59:43 PM
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