Proposals by the Coalition and the Labour party to make housing affordable will do the reverse because they provide more money to bid up the price of homes.

The reasons why, and why economic advisors cannot understand their wrongheaded thinking is explained in my paper: “Affordable Housing Policy: Not identifiable from orthodox economic analysis”, available at http://ssrn.com/abstract=1027864.

The cost of home ownership can be halved by eliminating the cost of land.

The cost of land can be eliminated by making suburbs self-financing economies.

Suburbs can be made self-financing by creating a duplex ownership system to separate the ownership of buildings from the ownership of the sites by creating a Community Land Bank (CLB).

The CLB owns all the land in a suburb and only issues its shares to home owners and tenants. In this way all residents increase their wealth by sharing in the ownership of all public and non residential sites in the suburbs and as well obtain ownership of all depreciated commercial buildings.

A CLB attracts commercial investors because they do not have to invest money in buying land. By these means, a CLB creates eight ways to transfer wealth to citizens without government taxes or welfare to democratise the wealth of cities with sustainable affordable housing.

There are five reasons why economists cannot identify this policy option because they: (i) Consider the nature of property rights as a given rather than as a policy variable; (ii) Neglect variations in asset values; (iii) Neglect how infrastructure investment creates private profits; (iv) Do not identify Surplus Profits; (v) Fail to recognize how surplus profits and windfall gains can cross subsidize housing and commercial investors by using “duplex” property rights that separate the value of buildings from site values.

Shann – I may not be reading what you are saying correctly but as I understand it you want people to only own the house but not the land.

This creates a number of problems first being what are the limited rights of those who own the house but not the land? What can they do develop their house? And who pays?

It looks like there will be a minefield of potential legal problems.

Your idea seems to be half way between buying your house out right and renting!

Will it be similar rules as to that of strata title?

It seems like you want to complicate things! If you want/can afford to buy a house, well buy it otherwise rent a house!

It will also make it a lot harder to get a loan to buy the house or an investment property or buy a business seeing that you don’t have any hard assets to borrow against

Dear EasyTimes
Thanks for your thoughts. But you have indeed misunderstood the proposal.

Both home owners and renters obtain equity in the land occupied by their dwelling on the basis of one share for each square meter occupied and in addition a pro-rata share of all other non residential land in the suburb. So all voters increase their wealth!

The security for home lenders is a strata title as you suggested so both home buyers and businesses can obtain finance in the traditional way and obtain extra equity from owning shares in the whole suburb!

Everyone wins from financial synergy that is created by a more efficient and fairer system of property rights.

Shann - “Both home owners and renters obtain equity in the land occupied by their dwelling on the basis of one share for each square meter occupied and in addition a pro-rata share of all other non residential land in the suburb.”

So do you need to pay for this equity or is it just given to you?

Do you need to pay some form of rent of rates?

Do you have any right to expand your house for example put in a pool or add an extra storey to your house? Who pays?

How would you go about implementing this? Would we all be forced into selling our land to a CLB for some sort of fixed price?

Hi Easytimes
New home owners are given their shares. Tenants are also given their shares and also ownership of their dwellings at the rate the owner writes off their investment cost for tax purposes. So investors can make the same profit but obtain a higher rate of return as they do not need to increase their investment cost to acquire land.

In garden suburbs residents may need to pay a rent/rate but in industrial suburbs residents could receive a community dividend from their shares.

Owners can build a pool and additional extensions and capture the market added value back when they sell their strata title as they can now.

No money is required to convert the existing system as people could exchange their existing property rights for the more valuable duplex property rights.

It would be best to start off using the self-financing ability of the duplex tenure system to develop new areas on the outskirts of towns or the redevelopment run down inner city areas.

You can obtain more details from my article at http://ssrn.com/abstract=1027864

“The cost of home ownership can be halved by eliminating the cost of land.”

I thought about your idea but I have to say I don’t think it will work when it comes to driving down the cost of housing because of one fundamental thing when it comes to people buying a home.

Location!

People will pay what they can afford or even a bit more. Over a short period of time I believe that the cost of the houses even with out the land being included will go back up to almost where they were before.

Your idea might work in small rural towns where there is not much difference in prices for different locations and the quality of the building is the determining factor of the cost but I doubt it will work in big cities because people will always pay a premium for the right location.

When you buy a house in a big city I think most of what you are buying is the location. Bricks, mortar and labor would only be a small percentage of the total cost of the estate.

I think it is next too impossible to drive down “location value” and I believe that is what most people are paying the big dollars for.

Also thanks for posting the link to your paper I did not read all of it but the parts I did read had some interesting ideas and concepts.

Hi again EasyTimes
You need to read my paper at http://ssrn.com/abstract=1027864 more carefully because I agree with you.

Nowhere did I suggest that the price of a house/strata title and land/CLB shares will decline. It is the cost of NEW houses that will become half price NOT existing ones!

But in addition, tenants will be able to become owners of their dwellings without ANY purchase cost over 25 years even with land and housing prices increasing!

Oh dear, why do not people believe me when I tell them why houses are
out of reach of so many working people.
It is quite simple:
The government a long while back forced, in the name of equality, the
lending institutions to lend on two incomes.

Economics 1:

When you dump twice as much money into a market the price rises to
meet the amount of money available.

Borrow on two incomes, you need two incomes to meet the repayments.
Simple isn't it !

Bazz

You incorrigible funster, you. Do you think that there might be other factors determining price? Considering my tomato scenario might give you some insight as to why housing is so unaffordable. Say there are X people and Y tomatoes, and tomatoes cost $Z a kilo to produce. Now if people have twice as much money to buy tomatoes then any resultant shortage will only be temporary as there is then more financial incentive to grow tomatoes. However, if government sets severe restrictions on how tomatoes can be produced whilst engaging in a high immigration policy, then the price of tomatoes can be made higher.

The current housing prices result from a combination of 300,000 immigrants per annum and severe restrictions on landholders to develop their properties. Policies supposedly in place to protect residents do no more than give legality to the basest corruption.

We;; Fester your theory might be right if two people were buying two
houses, but in this case two people are buying one house.
Therefore the ratio of houses to incomes is 2:1 but in the case of
tomatoes the ratio is 1:1.

There is no point in building two houses to sell to them.
The only ones who won were the developers as they could charge twice as
much for the one product, after all there was twice as much money.

In your example there is twice as much money but there are now two
tomatoes to be grown to be sold for two pieces of money.

Simple isn't it ?

Bazz

"There is no point in building two houses to sell to them."

.......um, ever heard of spec houses, Bazz? But if spec houses did not exist you would still be quite wrong. Have you ever heard of competition? You know, where more than one person is trying to get the deal? In this instance you might have more than one developer competing to build the house. Do you think that several developers competing might lead to a lower price? The idea that supply and demand for a commodity is in balance is pure fantasy.

You logic is more surreal than simple.

The rule still applies; add twice the money to the market and the price
rises to match the available money and it all settles down at a new
level including the competition.

It IS that simple !

What is really puzzling is the logic that housing is somehow "unaffordable" in the first place. If it were, no-one would buy, because no-one can afford.

So we are not looking at affordability per se, we are looking at... what? first home buyers? low-income earners? When we do that we get into all sorts of arguments about the fact that people are prepared to moan about housing costs, but not about delaying the new Commodore, the plasma TV, cutting down on internet expense, mobile phones, bacardi breezers, PC games, Wii consoles or Playstations.

It is also interesting that in NSW the median house price has been virtually steady for many years, around the $500k mark. Statistically, that means that there are as many properties lower than that figure than higher. If the average price is increasing, then it would appear that it is the rich end of town that is having to fork out more, not the poor.

Never mind, it is a great hook to hang the "stop immigration" hat on, which is always good harmless fun.

Bazz

If only it were that simple, your misogynistic idea might have some validity. The cost of construction has fallen and the cost of land has risen while all those women have got themselves paid employment. So how does your idea explain the fall in one component and the rise in the other?

Pericles

Nice to see you coming to play again. Yes, cutting immigration would make housing more affordable, but only because the immigrants are the unwitting pawns in the corruption of the housing market. I suppose you would see such an act as either extreme selfishness or economic stupidity, dependent on whether immigrants represent a burden or a benefit.

The ANU's Wayne Errington on record high immigration levels and the housing affordability crisis:

"Housing affordability packages have been promised by both sides of politics for some time. All sorts of ideas have been canvassed: increasing the first home-owners grant, mortgage tax deductions, stamp duty holidays, more land releases. To the extent that most of these plans tend to increase demand for homes, they won't solve the problem.

The pressure on housing prices caused by our record-breaking immigration program, though, has barely been mentioned. Economic forecasters BIS Shrapnel expect demand for new houses to outstrip supply again this year, in part due to the high level of immigration. Many of the entrants to Australia are on temporary visas, adding to the 'rental stress' that threatens to make the rental market a federal election issue for the first time in memory.

In the lead-up to the 1996 election, then New South Wales Premier Bob Carr argued that Sydney was full and that the country needed to re-think its immigration program. Since then, after cutting the overall intake in its first term to around 80,000, the Howard Government has quietly ramped up the numbers of immigrants to twenty-year highs.

....

Let's see how carefully the major parties tip-toe around the issue of immigration when they debate housing policy in coming weeks. Labor's position on immigration is part of its wider strategy to differentiate itself from the government on only a few select policies. The problem with a bipartisan approach to immigration is that it leaves room for ratbags and racists to enter the field. Forty years after we began to dismantle the White Australia Policy, our inability to debate immigration in a sensible way doesn't say much for our democratic institutions."

http://www.abc.net.au/unleashed/stories/s2054424.htm

Dresdener

The housing affordability crisis would end rapidly with a bit of free market philosophy. Were landowners given a bit more freedom over what they did with their land, the supply of new housing would greatly increase and prices would fall in a short time. But governments dont want this to happen because it would spoil a very profitable rort for them and their mates. Shann Turnbull seems oblivious to this, whereas for me, watching a polly muse about housing affordability is a bit like watching the big bad wolf muse about the welfare of little pigs.

Housing affordability is just another yin yang battle of feudalism and egalitarianism.

Hi Fester

So I can understand your solution for making housing affordable could you please explain how you define a “free market” in the context of land ownership?

Also, in what ways is your thinking different from our leading economists who accept that the rules for owning land are fixed and not a public policy variable as discussed in my paper at http://ssrn.com/abstract=1027864?

Hi Shann

By "free market" I mean more freedom for landholders to develop their land. I see the current regulation as unsatisfactory. For example, you might have seen the sad tale of Dr Seneviratne's dealings with the Brisbane City Council in the latest Sunday Mail(18/11/2007). The extraordinary thing was that the Council's behaviour was upheld in court. Unfortunately the SM didn't deem the story worthy of bandwidth, though it did run an online story on Paris Hilton's latest video.

Also, could you check the link you provided. I cannot open it. And one question: What makes you think that governments want to make housing more affordable? Hasn't the status quo been a creation of governments?