COAG abandons housing affordability issue

Apparently COAG has effectively given up on tackling the ever-growing problem of housing affordability in this country:

The fact that we don’t build enough housing stock is one of our most serious economic problems. It’s an issue tailor-made for a body such as COAG to try to resolve, because COAG also includes local government and housing supply takes in key Commonwealth-state issues around infrastructure provision. And last year it was prominently on the COAG agenda, with treasuries tasked to work on a review and several studies ordered, nearly all to be completed by the middle or end of 2010.

Since then, the slashing of our migration intake and the rising Australian dollar has taken some of the political heat out of the issue, without doing much about the long-term problems of poor infrastructure co-ordination and supply and tortuous development approval processes.

Was there any mention of housing yesterday? Nope. There’ll be a “standing” ministerial council on the issue, but all the work that COAG committed to previously on housing supply and affordability that was supposed to have been done by the end of last year seems to have fallen off the agenda, just like that.

I presume everyone at the meeting already owns their own homes and doesn’t really care if their kids never leave the nest. And the above doesn’t include COAG contemplating the other policies that have inflated the market out of all affordability – negative gearing, CGT reductions, easy credit for existing landowners with the banks protected by mortgage insurance…

How can these officials not see how much condemning this and future generations to a world in which only those who inherit a house can ever hope to own one is going to damage our country? How a nation of tenants and landlords will undermine social cohesion?

Looks like my generally pessimistic view of this aspect of the country’s future was depressingly accurate.

Damnit! I was hoping this wouldn’t happen, that something I hadn’t considered would come about and salvage the situation.

The only thing I want more to be wrong about is climate change.

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21 responses to “COAG abandons housing affordability issue

  1. jordanrastrick

    Why does housing affordability have to be all about ownership?

    If rents weren’t so high, landlords wouldn’t have nearly as much power over tenants.

  2. “Why does housing affordability have to be all about ownership?”

    Why not? Everyone unless by choice should be able to own their own home.

    In a country as rich as Australia it is an on going scandal that young kids starting out have got two chances of now owning their own home, Buckley’s and F.A. Unless of course one of the partners to a marriage is a brain surgeon or politician. My friends have kids who are both working to pay the mortgage. A great legacy we are leaving them.

    Of course its great for child minding centres one that comes to mind *^% , a license to print money, a license to salt it away out of Australia. A license just to be a c&*t. Great ain’t it?

  3. “Why does housing affordability have to be all about ownership?”

    It’s not “all” about ownership. But once you have a situation where only the rich (and the children of the rich) can own land, then you have a permanent underclass. Particularly in a country where tenants’ rights aren’t all that good, where tenants have no stability of tenure, where they can be kicked out at a moment’s notice, where they can’t put down roots – they can’t even hang up a bloody picture.

    This is leading to the gap between the rich and poor just absolutely blowing out.

    “If rents weren’t so high, landlords wouldn’t have nearly as much power over tenants.”

    Landlords have power over tenants because there are too many people who would have bought their own home in previous decades who are now stuck adding to the rental queue.

  4. I don’t disagree housing is ridiculously overpriced in Australia, however:

    How can these officials not see how much condemning this and future generations to a world in which only those who inherit a house can ever hope to own one is going to damage our country? How a nation of tenants and landlords will undermine social cohesion?

    You present these as rhetorical questions when they are not. Switzerland has a home ownership rate around 35%, and to even suggest it lacks “social cohesion” is laughable.

    If rents weren’t so high, landlords wouldn’t have nearly as much power over tenants.

    Rents are not really high in the context of home prices – it is highly unlikely the average rental income covers the mortgage on the property. Rents have not ballooned like house prices have (since they are inherently tied to how much money people actually have, rather than how much a bank tells them they could have).

    Particularly in a country where tenants’ rights aren’t all that good, where tenants have no stability of tenure, where they can be kicked out at a moment’s notice, where they can’t put down roots – they can’t even hang up a bloody picture.

    You cannot be “kicked out at a moment’s notice” (and the chances of a landlord doing this arbitrarily are tiny, even if it were true). You can hang pictures (though, obviously if you damage someone else’s property by banging holes in the walls you are obliged to repair that damage before vacating).

  5. “You present these as rhetorical questions when they are not. Switzerland has a home ownership rate around 35%, and to even suggest it lacks “social cohesion” is laughable.”

    Switzerland has a very different history to ours – and it’s hardly a beacon of egalitarianism, either. They also have vastly different laws relating to tenants – long-term leases are common and protections for tenants are much greater.

    “Rents are not really high in the context of home prices – it is highly unlikely the average rental income covers the mortgage on the property. Rents have not ballooned like house prices have (since they are inherently tied to how much money people actually have, rather than how much a bank tells them they could have).”

    That is true – but rents are rising at a serious rate every year, well above CPI, well above wages, nonetheless. We already have the poor being forced out of homes because they can no longer afford the rents, and Centrelink payments are increasingly inadequate.

    “You cannot be “kicked out at a moment’s notice” (and the chances of a landlord doing this arbitrarily are tiny, even if it were true). You can hang pictures (though, obviously if you damage someone else’s property by banging holes in the walls you are obliged to repair that damage before vacating).”

    You can be kicked out with only a few months’ notice, which is in and of itself extremely destabilising. And landlords kick people out all the time. And you do not have the freedom to do with your home as you’d like – there are restrictions on pets, on what you can do with the garden, on what you can do with your house… you can’t install air conditioning without the landlord’s permission, and you run the risk that if you do, then the landlord will simply raise your rents (the house is now airconditioned) and kick you out if you don’t want to pay more.

    Basically, tenants are in a position where they can never put down roots, never find themselves real security of tenure.

  6. Switzerland has a very different history to ours – and it’s hardly a beacon of egalitarianism, either.

    Compared to what ? It’s certainly no worse than Australia, and in the same ballpark as countries like Germany, France and the Netherlands.

    My point is more that the assumption a high proportion of renters vs owners is inherently bad, is not correct.

    And landlords kick people out all the time.

    Without reason ? Both I and most of my peers for the last 15 years have been renters, and I’ve yet to see anyone just get kicked out at all, let alone for no reason (and some of them I would not have begrudged any landlord for serving an eviction notice).

    And you do not have the freedom to do with your home as you’d like [...]

    Of course you don’t – it’s not your house, it is someone else’s.

    Renters certainly have the ability to settle. IME landlords are happy to let people have pets, hang pictures, even repaint, though the additional costs these sorts of things incur them must be covered. Assuming an annual adjustment in rent to market rates, I can’t see why any landlord would arbitrarily evict a good tenant – the peace of mind of having someone trustworthy in your property is worth a lot more than a marginal additional income from rent increase (to say nothing of the expense of changing tenants).

    However, the fact tenants have to seek permission from the actual owner of the property before doing certain things is in no way a fault in the system, and is true even in countries (like Switzerland) where the balance of power lies far more on the side of the tenant.

  7. Splatterbottom

    Lynot: “My friends have kids who are both working to pay the mortgage. A great legacy we are leaving them.”

    Oh the shame, the shame of it all. People working to pay the mortgage. Will the indecency never end?

  8. “Will the indecency never end?” :)

  9. “If rents weren’t so high, landlords wouldn’t have nearly as much power over tenants.”

    But aren’t high rents directly tied to the high cost of real estate?

    Recent problems with availability of finance to “sub prime” borrowers have forced some people out of the real estate market and into the rental market.

  10. They also have vastly different laws relating to tenants – long-term leases are common and protections for tenants are much greater.

    This. Real estate agents expect to be able to put the rent up every 6 months, so they refuse to offer 12 month leases any more, let alone anything longer than that. It can take 2 months to find a place and be approved for it, even though you only get 30 days notice that you have to move, not because you’re somehow suspect as a tenant but because you’re most often competing with dozens of other prospectives.

    If you have kids, then you’re pretty much screwed. A childless couple will almost certainly get approved for a rental over a family, or a single mother.

    Even if you do get approved, you have to be able to afford to move in six months, just in case. That means having $2000+ sitting in the bank doing nothing just so you can pay the bond and incidentals on a new place the agent decides to put the rent up beyond your capacity to pay it. Money most renters don’t have.

    You have quarterly inspections (which I don’t see an issue with), but even worse is when your landlord decides to put the house on the market. Then you can have complete strangers trampling through your place on an almost daily basis, invading your privacy, destroying your fair use of the property. If they sell the place, then you may find yourself out of a home at the end of your lease. If they don’t sell, you’re in for an extended period of annoyance.

    And if you have a dispute with your landlord or their agent? Well you only have one option: threaten to move. Arbitration is bullshit, with it heavily stacked against the tenant (the agent can’t be forced to do anything). Small claims court is as likely to rule against you, if you can afford to take it that far, and if it does get that far you’ll almost certainly have had to find another home anyway.

    There is no stability in being a tenant in Australia.

  11. “Oh the shame, the shame of it all. People working to pay the mortgage. Will the indecency never end?”

    Don’t put my comments out of context thank you. I said both and I stand by that. Besides I thought being the typical conservative you are, sorry think you are, you would like to see the typical conservative nuclear family fit in with the rest of your warped view of the world.

    Mum I’m afraid shouldn’t be working in your typical conservative family. There you all are the three kids all getting ready for church on Sunday (Catholic of course mind you) all with their nice freshly cleaned and ironed clothes on, the boys shoes polished to an immaculate shine, short back and sides all round, beautiful eh. The smell of mums cakes, just about ready, as she sews up the holes in your socks.You out there mowing the lawn, stopping now and then to tell the neighbour how happy you are in your conservative cocooned world, the boss pays you over the odds you can pay the mortgage etc, you know the rest..

    You may have others on this blog convinced you are some type of intellectual SB, but I’ve got your number. Don’t let your penchant for flowery rhetoric or, to be quite frank the utter bullshit story telling you’re famous for, get in the way of reality.

  12. narcoticmusing

    “But aren’t high rents directly tied to the high cost of real estate?”

    If it were just that, we’d see not just the increase in everyone’s rent when there is an interest rate rise (which happens) but we’d see a decrease in the rent when interest rates fall (never happens).

  13. “If it were just that, we’d see not just the increase in everyone’s rent when there is an interest rate rise (which happens) but we’d see a decrease in the rent when interest rates fall (never happens).”

    I really don’t want to be rude, but that is really naive.

    In any case, I didn’t say it was the only factor. There is more powerful thing than economics at play here narcoticmusing, called human nature. Who in their right mind would rent out property at a loss, or give their tenants a break when they finally DO start making some money after having taken all the risks?

    Too many people-not enough houses, and not enough available credit for “sub primers” to be able to borrow to build, and not enough $$ in the average family budget to pay the kind of rents required to support the construction of new houses by investors.

    One thing we should be considering is our immigration intake. With the birth rate in Australia our population should be shrinking, instead we are growing faster than ever before, further adding to demand.

    Something else we should be thinking about is decentralising our population. Fast rail and fast internet to regional centres would help with this.

  14. jordanrastrick

    Narcotic, if rents always go up to match mortgages, but never down, rents should be appreciating more than mortgage payments.

    In fact the opposite is happening. For instance house prices in sydney appreciated by 212% from march 92 to september 10. Rents only increased 140%.

    As far as switzerland goes, I agree with jeremy that stronger tenancy protections would be nice (I had a fair bit of unpleasantness with my last real estate), and with dr smithy that there’s nothing wrong with a 35% ownership rate if the underlying issues of affordability (whether rental or sales) and security of tenancy are dealt with.

    Fundamentally, People are overinvesting in rent seeking land ownership (equally true of investors and owner-occupiers) and underinvesting in the creation of actual new housing supply. Georgism addresses the former while the latter is more complex but fundamentally comes down to our broken planning systems.

  15. jordanrastrick

    Duncan, people actually do invest in property at a loss, because of tax benefits. Look up negative gearing on wikipedia.

    You’re spot on about fast rail and Internet to help relieve congestion pressures. I don’t agree with cutting migration but that’s a whole separate discussion….

    I’ll try and get my politics wiki, where I have a bunch of policies that holistically address these issues, publicly visible soon.

  16. Negative gearing is good for the individual, but the tax payer foots the bill in the end.

    No such thing as a free lunch.

  17. “I’ll try and get my politics wiki, where I have a bunch of policies that holistically address these issues, publicly visible soon.”

    Interested…
    Will this be on your blog, or what?

  18. narcoticmusing

    duncan1978 – Forgive me if I was being overly simplistic – I was merely suggesting that the proposition that the cost of the asset is not necessarily the cause for or proportional to, the rent or rent changes. Like yourself, in any case, I didn’t say it was the only factor.

    Jordanrastrick – the rises may not be as much overall as the housing stock, but if you look at the trend data (from DHS annual reports; the ROGS; COAG docs and budget papers) what we see is a line with no divits – all up, never down. The only restriction is how often rents can be put up so it ends up that there are lag periods and the two don’t match.

    I’m not suggesting that rent is directly proportional to the cost – that was was another poster suggested that I was rebutting.

  19. jordanrastrick

    Negative gearing is only broken, I think, because of the way it interacts with the complexities of the rest of our tax system. There’s nothing wrong in theory with investors being able to write off losses, but it’s mainly useful in practice under the current system as a mechanism to control the timing (and hence impact) of tax liabilities.

    I’ll link to the wiki from my blog when it’s online – it’s going to be a separate site. I’m looking at some point to get other interested people to help work on the content, so a blog is not really the right format (of course the discussions here have inspired a lot of the ideas).

  20. jordanrastrick

    Sorry narcotic, missed the context. Should probably stop posting from my phone altogether.

    You’re right of course – rents, like wages and unlike interest rates, are sticky. I suspect that’s partly down to psychology and partly structural, in that rent rises have the regulatory restrictions on them that you allude to.

    So of course the data illustrates the point we were both trying to make, which is that the link between house prices and rents is not a straightforward one.

  21. jordanrastrick

    Resurrecting old threads, yeah!

    Don’t know if you saw it Jeremy, but I thought you might be interested to know that Michael Pascoe, who’s not exactly, uh, renowned for his left wing views, wants to solve housing affordability by adopting a plank of Green’s policy:

    http://www.smh.com.au/business/housing-affordability-solved–by-levitation-20110310-1boh1.html?skin=text-only

    Personally, I think State Governments in NSW are likely to be too cash strapped and pissweak for the forseeable future to cough up for that kind of thing (not sure how things are looking in Victoria). So I’m pinning my hopes on robot cars.

    Robin Hanson makes some interesting points on this from a mildly-crazy-futurist-economist point of view (note that while he talks of transport costs, housing affordability is really the same thing if you accept Pascoe’s argument.)

    http://www.overcomingbias.com/2010/11/who-will-pioneer-auto-autos.html

    I think his argument about the difficulties of very good public transport glaringly overlooks Tokyo (at the least), which didn’t get its system in the same way New York did. Still, it’d certainly be incredibly hard, politically, to get public transport in any existing Australian city to that level.

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